Conference 7.286::dcu

Title1: NCUA Won't Force Digital Equipment CU
Title2: To Open Its Board Minutes to Dissident Members

from The NCUA Watch Newsletter for March 9, 1992 reprinted
without permission

The NCUA will not intervene on behalf of a credit union dissident
member seeking to obtain access to the minutes of a confidential board
of directors meeting held by a federally chartered credit union.

In a legal opinion issued recently, the NCUA said it is the agency's
long-standing policy not to interfere in federal credit union disputes
unless a statutory or regulatory problem exists or the safety and
soundness of the FCU are involved.

The issue concerns a controversy involving the Digital Equipment Corp.
Federal Credit Union in Hudson, MA [sic], at which members have been
trying to obtain records and minutes of board meetings in their probe
of allegations of financial improprieties involving board members.
Paul Kinzelman, a member of the credit union, had asked the NCUA to
assist him in getting access to the credit union's board minutes.

But, in citing its unwillingness to intervene, the NCUA said none of
the above problems exist with the Digital credit union. The agency
added, "We do not believe that it would be appropriate for NCUA to
enter into this dispute."

In addition. they said, standard FCU bylaws do not mandate that board
meeting minutes be disclosed.

The agency, in an opinion authored by Hattie Ulan, associate general
counsel, said credit union members have inspection rights similar to
those enjoyed by shareholders in a publicly owned corporation, and
that state law determines what kinds of documents and information will
be divulged to the members and to what degree.

While Massachusetts state law may not cover credit unions, Ulan said
the Bay State's corporate law would be relevant to the issue of credit
union member access to information and records, because members are in
a similar position to corporate shareholders' and therefore their
rights are similar.

"The general rule in most jurisdictions," noted Ulan, "is that a
shareholder is entitled to inspect corporate minutes and other records
as long as he has a proper, nonvexatious purpose."

Ulan stated that NCUA rules and regulations do not mandate that
minutes of credit union board meetings be disclosed, only that if they
are disclosed certain precautions must be taken, including the
deletion of confidential personal information.

She also noted that while credit unions may make member lists
available to its members so that they may contact them individually,
they are not required to do so.  The issue is not specifically
addressed in the NCUA's rules and regulations. "The decision whether
to do so is left to the discretion of the board," she wrote.

If the board decides to release the list, she wrote, it must do so in
a nondiscriminatory manner, i.e., if it gives the list to one member
who asks for it, it must provide it for any member.

Despite the NCUA's nonwillingness to intervene, Kinzelman was later
able to obtain copies of board minutes with certain information
blacked out.

Title: Civil, Administrative Charges Against Accounting Firms Eyed
Subtitle: NCUA To Sue Big 6 Company?

from The Credit Union Accountant Newsletter for March 23, 1992
reprinted without permission

The waters are growing increasingly turbulent for major auditing firms
as regulators and other interested parties try to hold them more
accountable for the mounting failures of the nation's financial
institutions.

The woes may be added to those of at least one top accounting firm as
the National Credit Union Administration is preparing a negligence
suit against one of the Big Six in connection with the failure of
Barnstable Community Federal Credit Union, which cost the National
Credit Union Share Insurance Fund $21 million in losses.

The NCUA is currently suing five individuals connected with the
Barnstable credit union and is seeking to recoup the losses to the
insurance fund.

According to a source at a well-known credit union accounting firm who
has been asked by the NCUA to serve as an expert witness in the case,
the agency is getting ready to file suit against the Big Six firm that
provided outside auditing services to Barnstable. The source has
served as an expert witness for the NCUA in other suits the agency has
brought against accounting firms.

NCUA officials would not comment on whether they will add the
accounting firm to the list of defendants in the Barnstable case but
conceded that they are exploring whether to target other parties in
their efforts to recoup losses to the share insurance fund.

"I'm not going to get that specific, but we have a certain loss [to
the insurance fund] and it's our intention to make as many people be
held accountable who are responsible for those losses," said Alan
Meltzer, assistant general counsel for litigation and liquidation for
the NCUA.

The NCUA is investigating the role of accounting firms in the failure
of several credit unions and the agency may bring either civil or
administrative charges against one or more accounting firms in the
near future, Meltzer said.

"We're not doing anything we haven't always done." he said. "It's
always been the law that accountants and lawyers can commit
malpractice in providing their services.  And where losses to the
share insurance fund occur it's always been our practice to seek to
recoup those losses from the responsible parties."

In suits filed over the last few weeks, regulators have targeted
accounting firms more frequently for responsibility in the collapse of
financial institutions. Among the firms charged with malpractice are
Ernst & Young and KPMG Peat Marwick.

Barnstable, a 9-year-old credit union serving residents of a small
Cape Cod, MA, community, was forced into insolvency, then
liquidation,in 1991 by what authorities have alleged was a massive
real estate fraud scheme. In a civil stilt filed in U.S. District
Court in Boston, the NCUA charged the land fraud scheme cost the
credit union $47 million in losses and caused it to fail.

A federal grand jury is conducting a criminal investigation [sic] the
Barnstable credit union case. The Digital Equipment Corp. Federal
Credit Union, which lent money to Barnstable, has also filed a civil
suit.

Meltzer said aver the past 10 years the NCUA has filed successful
malpractice claims against five professional firms, accounting or law
firms, each resulting in settlements of in "excess of $1 million."
Last year the agency settled a malpractice suit against accounting
firm Aho, Henshue & Hall, which had provided auditing services for
Corpus Christi Parish Credit Union before the Louisiana credit union
failed. The auditors agreed to an out-of-court settlement for a
reported $1 million.

-Ed Roberts

  I love the freudian typo!
  
  "With almost $400 in in assets and 88,000 members,"

  Lets see...  That is less than $.01 each ;-.] ;-.]

    
.2>  "We will certainly provide interpretations of bylaws when requested to
.2>  do so on a nonbias basis, based on the best of our ability."
    
    "HAH!"
    
    I cite the NCUA's pathetic waffling on a request to interpret the
    meaning of "call a meeting", and again I say,
    
    "HAH!"
    
    
    (Oh, perhaps I'm being unfair -- perhaps that was the true measure
     of "the best of [their] ability.")
    

Re: .4
Sorry, I suspect the freudian slip was mine - I scanned the articles in, but
scanning isn't all it's cracked up to be. There's lots of hand editing
needed to fix stuff it couldn't figure out.

However, the mis-spelling of my name was their slip :-)

Title: NCUA Adopts Hands-Off Policy In Struggle For CU Control
Subtitle: Does Not Intervene In Board Elections, Bylaw Disputes

from The NCUA Watch Newsletter for March 23, 1992 reprinted
without permission

Despite allegations by dissident members of bylaw manipulation by the
board of directors and of possible financial impropriety, the NCUA has
refused to get involved in a contest for control of the Digital
Equipment Corp.  Federal Credit Union, one of the largest in the
country.

The DCU case could provide an important glimpse into the federal
oversight, or the lack thereof, of elections for credit union boards
of directors and could help to illustrate just what rights
member/owners of the cooperative institutions have in gaining access
to records of their credit unions, and to the election process
governing the cooperatives.

With almost $400M in in assets and 88,000 members, DCU is one of the 50
largest credit unions in the country, and the second largest in New
England.

Citing policy, the NCUA has adopted a "hands-off" stance in the DCU
case despite pleas for intervention by dissident board candidates.
Officials say the agency does not mediate bylaw or election disputes.

"Our policy is not to get involved in a board election, which would
certainly include not interfering in the election process. That's a
longstanding policy," said Robert Lotus, director of the NCUA's office
of Congressional and Public Affairs.

"We will certainly provide interpretations of bylaws when requested to
do so on a nonbias basis, based on the best of our ability. But it is
our policy not to get involved in a board election," said Lotus.

Richard Schulman, an NCUA attorney who has been approached by dissident
DCU members for assistance, said it is not the agency's practice to
participate in bylaw or board of director challenges. "I don't think
we ever get involved in this kind of thing. It's an internal matter,"
he said.

"We don't run credit unions - we regulate them," said Schulman.

The contest for control of the DCU board traces its origins to the
failure of the Barnstable Community Federal Credit Union, Cape Cod,
MA, in the spring of 1991. Allegedly rife with fraud from a
multimillion-dollar land scheme, Barnstable was declared insolvent and
liquidated by the NCUA last March, costing the share insurance fund
almost $22 million.

According to a suit filed in federal court in Boston by the NCUA
against five individuals connected with the Barnstable credit union,
more than $18 million used to finance the land scheme was provided by
loans from DCU. The loans were provided by Richard D. Mangone, a
founder of the Barnstable credit union and president and chief
executive officer of DCU at the time of the alleged scheme.

Mangone, who was fired by the DCU board last year, is also the target
of a suit brought by DCU and of a federal grand jury investigation.
Also targeted by the grand jury probe is Robert Cohen, who served as
lawyer for both credit unions and has been named in the NCUA's suit.

Despite the $18 million in loans to the alleged Barnstable scheme, the
solvency of DCU is not threatened, and in fact the institution
continues to operate profitably.

The role of the DCU president and lawyer in the alleged land scheme,
the resulting losses to the credit union and the board's subsequent
proposal to levy a checking fee to help offset the losses raised the
ire of several credit union members, and they sought an accounting
from the board.

However, according to Paul Kinselman, one of the dissidents and
currently a candidate for the board of directors, the board was
noncooperative.

"We believe either the board knew of the Mangone deals or should have
known and we wanted to find out what they did or did not know," said
Kinselman, explaining his group's efforts at obtaining an explanation.
Neither DCU Chairman Mark Steinkrauss nor any of the board members
returned telephone calls from The NCUA Watch.

Concerning the issue of possible involvement in the Mangone scheme,
Mary Madden, a DCU spokeswoman, said "the NCUA has conducted an
investigation and the board has not been implicated, nor has any other
DCU officer, employee or member, in any wrongdoing."

According to Kinselman, the DCU board disclosed the Barnstable loans
in footnotes to the credit union's 1990 annual report that referred to
the auditor's notes. When the dissident group tried to gain access to
the auditor's notes to find out more details about the loans, they
were rebuffed.

"We're trying to find out what went on [with the Mangone case]," said
Phillip Gransewicz, another dissident candidate for the board. "[The
board] told us it was just Mangone, so they fired him.  Come to find
out, at least the general counsel was involved too," said Gransewicz.

So the group sought the assistance of the NCUA in obtaining the
minutes of the board meetings in which the Mangone case was discussed.
But they were notified by the NCUA that the the DCU board was not
required to provide the minutes under the agency's rules and
regulations and would not be forced to do so by federal regulators.

According to Gransewicz, the group eventually obtained a record of the
board meetings that was heavily censored.

The group, however, was successful in collecting the required 200
member signatures on a petition calling for a special membership
meeting aimed at overthrowing the board. At the November 12 meeting, a
majority of 1,600 credit union members voted by a show of hands to
retain the current board but to call a special election.

Following the meeting, the board met in closed executive session and
voted to amend the DCU bylaws to require 5,000 signatures to call a
special meeting.

Through it all the dissidents continued to urge the NCUA to intervene
on their behalf to force the board to provide minutes to the executive
meeting, to provide details of Mangone's involvement and to clarify
bylaw disputes, all to no avail.

Said Kinselman, "They look at it as taking sides rather than insuring
that the elections are fair."

"They have written to us asking us for advice," said Schulman. "But
we're not involved and we're not going to get involved."

"We're not going to place ourselves in a position where it might be
construed as taking sides," he said. "The advice we've given them is
consistent with the advice we've given to other credit unions, and
that is to follow whatever the state statutes say on bylaws."

The disinterested position of the NCUA has angered the dissident
group.

"The NCUA, from what I can tell, is not interested in doing anything
but picking up the pieces of any credit union that is insolvent." said
Gransewicz. "But they ought to know that an ounce of prevention is
worth millions of dollars in bailout dollars.

"Added Kinselman, "the NCUA is in a reactive mode. They're only
interested in picking up the pieces when [a credit union] fails."

-Ed Roberts

From the NCUA Watch weekly newsletter for March 16, 1992, page 1

Title1:	NCUA Action On Hold
Title2: Federal Grand Jury  Investigates
	Massachusetts CU Officials

The NCUA's civil suit against top officers of the failed Barnstable
Community Federal Credit Union has been put on hold while a federal
grand jury has launched a criminal investigation of those officers in
connection with fraudulent land deals in Cape Cod, which forced the
nine-year-old credit union to fail.  The NCUA's suit had been
scheduled for trial next month but has been pushed forward to
September while the U.S. Justice Department continues its probe,
according to Steven Widerman, an NCUA attorney.

According to several sources, the grand jury is probing the
involvement of Richard D. Mangone, a founder of Barnstable and former
president of the Digital Equipment Corporation Federal Credit Union,
who approved more than $18 million of land participation loans by
Digital to Barnstable.

The money was allegedly used to finance fraudulent land deals in Cape
Cod based on inflated property assessments and the use of "straw
buyers" who signed phony loan applications with Barnstable Widerman
said his office has been contacted by the grand jury and is
cooperating with the investigation.

Paul Levinson, an assistant U.S. Attorney in Boston who is conducting
the probe, confirmed the existence of the grand jury investigation and
said the federal court rejected a request by his office to delay the
NCUA's suit until resolution of the investigation. He would not
comment on any details of the probe.

Barnstable was taken over by the NCUA and put into receivership last
March, and the agency is currently liquidating its assets. The failure
cost the National Credit Union Share Insurance Fund $20.9 million, one
of the largest sums ever paid out by the fund that insures federal
credit unions.

Widerman and his office and a private law firm in Boston hired by the
NCUA to handle the case are currently attempting to locate some of the
assets held by Mangone and the other defendants in the case, in hopes
of recouping some of the insurance fund's losses. Three of the five
individuals being sued by the NCUA have filed for bankruptcy.

Charged along with Mangone are: Robert Cohen, who served as an
attorney for both the Barnstable and the Digital credit unions; Bruce
N. Harris, Barnstable's former secretary and director; Michael D.
O'Neil, a Cape Cod real estate investor and a founder of Barnstable;
and James K.  Smith, a Cape Cod builder.

At the height of the real estate boom in Cape Cod, the group allegedly
formed a scheme designed to bankroll Smith's real estate deals using
Barnstable's assets, according to documents filed by the NCUA with the
U.S.  District Court in Boston.

The NCUA charges the group caused the credit union to make more than
$40 million in real estate loans by the use of phony loan
applications, financial statements and income tax returns; inflated
real estate appraisals; and fake, or "strawman" borrowers. The scheme
allegedly cost Barnstable $47 million in losses and pushed it into
insolvency.

More than $18 million of the funds provided by Barnstable to the group
were provided by loans from the Digital credit union, where Mangone
was serving as president at the time. The Digital credit union is also
suing Mangone, and several unnamed individuals, to recover those
funds.

The involvement of Mangone and the losses to the Digital credit union
have resulted in a struggle for control of the credit union, with
88,000 members and $330 million in assets, one of 60 biggest credit
unions in the country.

According to dissident candidates for the credit union's board of
directors, members were angered by the credit union's involvement in
the Barnstable case and by efforts to initiate checking fees to help
pay for the loan losses.

After meeting member resistance, the checking fee proposal was
scrapped. However, the dissidents have succeeded in forcing a special
election for the board of directors. Ballots for the election are
scheduled to be mailed out next week.

Despite what could be perceived as a conflict of interest, Mangone
served both credit unions simultaneously.  From 1983 until 1991 he was
president of Digital, and during much of the same period he served as
a director and investment advisor for Barnstable.  The two credit
unions, allegedly at Mangone's behest, entered into a loan
participation agreement in 1985 which led to Digital lending $18.2
million to Barnstable over the next five years.

In a suit filed in Superior Court in Plymouth County, which
encompasses Cape Cod, the Digital credit union charges that Mangone
presented the loan proposals to the Digital board using phony
documents relating to the creditworthiness of the borrowers, the value
of the property and the true purpose of the loans.

While Barnstable originated the loans, Digital held most of the risk
because they held a pro rata participation of between 75 per cent and
90 per cent of each loan, the suit charges.

After recovering $3 million on the loans and a $6 million insurance
bond on Mangone, the Digital credit union was left with a $9 million
loss on the Barnstable participation loans.

In addition to attempts to recover the loan losses, the Digital credit
union also claims that Mangone breached his contract with the credit
union by improperly converting $50,000 in life insurance premiums and
claiming a similar amount in auto expenses for five years.

According to Widerman, resolution of the two civil suits, the NCUA's
and Digital's, is likely to wait until if and when a criminal case is
filed against the the individuals.  He said he expects the NCUA's suit
to be delayed again until after September; and he could not estimate a
time frame for when the suit will be heard.

>was serving as president at the time. The Digital credit union is also
>suing Mangone, and several unnamed individuals, to recover those

	How do you sue an "unnamed individual"?

>In addition to attempts to recover the loan losses, the Digital credit
>union also claims that Mangone breached his contract with the credit
>union by improperly converting $50,000 in life insurance premiums and
>claiming a similar amount in auto expenses for five years.

	Do I read this right? $50,000 in auto expenses over five years?
	Heck, of a lot of driving. Roughly 40,000 miles a year at .25 a mile.
	Bet my boss would pick that up on my expense reports. :-)

				Alfred

�	How do you sue an "unnamed individual"?
    
    You don't tell the press who you are suing?

re: .9, suing an unnamed individual

I'll check my documents tonight, but if memory serves the DCU suit
named Mangone, and something like "John Does A,B, and C."  The point
being that money was transferred illegally and improperly to person
or persons unknown, who DCU feels is on the hook for the cash.

I'll look at my court documents this evening and report more tomorrow.

The question about how you sue an unnamed individual is interesting.
I would presume that getting a judgement against Mangone and several
John Does would prove useful in getting a later judgement against
someone if that person's link in the scheme could be established.

./chris

    
    RE: unnamed
    
    There are no more unnamed people.  I believe a few of the others in the 
    DCU vs. Mangone suit are also the same people named in the Barnstable
    suit (Robert Cohen, Mary Mangone (trustee of Phoebe Real Estate trusts),
    James Smith, ...)
    

re: .11

I stand corrected.  Must have been thinking about NCUA v Mangone, not
DCU v. Mangone.  Sorry for the misinformation.

/chris

    
    RE: .12
    
    No misinformation!  When DCU first filed suit they didn't know
    everybody that was involved so they filed like you stated.  Since then
    they have amended the complaint and filled in some names.  It's hard
    keeping up with all these lawsuits, lawyers and defendents...