John C. Barry, 69, pleaded guilty in U.S. District Court in Portland, Maine Wednesday for embezzling more than $400,000 when he worked as the manager of the Portland Maine Police Department Federal Credit Union.
Between 2009 and December 2013, Barry embezzled more than $400,000 from credit union accounts by transferring funds into accounts for him and his family members. They used the stolen funds to pay for personal expenses, according to court documents.
Though the embezzlement was uncovered by NCUA examiners, they did not detect the suspicious activity until a November 2013 audit.
In 2009, William J. Murphy, the former CFO for PMPDFCU, informed Barry that the credit union's net worth was 4%, or undercapitalized.
To avoid NCUA scrutiny, the manager allegedly moved money out of certain members' accounts at the end of a month and then moved the money back at the beginning of the next month to increase the credit union's net worth, according to court documents filed by assistant U.S. Attorney Donald E. Clark.
Murphy told the FBI that he thought the manager moved three or four checks per month. After the manager moved the funds, Murphy drafted the NCUA Call Report.
The former CFO said he knew he was submitting false information to the NCUA and did it to keep the credit union afloat, Clark said.
When an FBI agent confronted Murphy about falsifying NCUA Call Reports, he said, "We all make mistakes," according to court documents.
Murphy, 75, of Gray, Maine, pleaded guilty Oct. 2 to false federal credit union entries in U.S. District Court in Portland.
In November 2013, NCUA examiners uncovered suspicious activity during an audit. Barry was then placed on administrative leave.
The NCUA audit found unauthorized disbursements from member share accounts, out-of-balance conditions on bank reconciliations and the suspense account, as well as questionable deposits and withdrawals on the manager's personal and related family member accounts, according to Clark.
Barry was unable to provide supporting documents on the transactions in question. The suspense account had several material debits and credits that were unexplained, and had a material credit (liability) balance.
NCUA examiners were told the credit union's management had an agreement with several members to withdraw and redeposit shares to lower total assets and liabilities, and therefore maintain a higher reported net worth for regulatory purposes.
A preliminary audit of the accounts involved revealed about $369,064 was missing from four members' accounts, and that the manipulated monthly account transactions affecting net worth typically exceeded $200,000.
Because of this, the credit union was required to transfer $369,064 into four members' accounts to reimburse them for funds that had been withdrawn from their accounts by the manager, according to court documents.
That embezzlement rendered the credit union significantly undercapitalized at 3.9%. PMPDFCU has $7.6 million in assets and 888 members, according to the NCUA.
In December 2014, the federal agency facilitated PMPDFCU's consolidation into the $104 million TruChoice Federal Credit Union of South Portland, Maine.
Barry's sentencing hearing will be on March 21, 2016. He faces a maximum prison sentence of 30 years and $1 million fine.
Murphy will be sentenced Feb. 11, 2016. He also faces a maximum prison sentence of 30 years and $1 million fine.
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Peter Strozniak
Credit Union Times reporter covering credit union operations, fraud, M&As, leagues, business continuity, and breaking news.
