NCUA Goes Above and Beyond on Fraudulent CU Ad Problem That Has Burst on the Scene in Recent Months

ALEXANDRIA, Va.-Fraudulent credit union newspaper advertisements have run in at least 19 states that investigators are aware of and individual victims have been bilked out of funds ranging from $650 to in excess of $15,000, according to NCUA Office of General Counsel Federal Investigator David L. Eno who has been on the case full-time since it broke in July. These figures are just the “tip of the iceberg” NCUA Trial Attorney Gerard Poliquin suggested. Eno added there is no way to know now an aggregate amount that victims have lost to the scam. In participating in the investigation, however, NCUA is venturing outside its jurisdiction, Poliquin explained. “The problem for NCUA is we have limited jurisdiction,” he said. “Our jurisdiction does not extend to criminal violations so we’re going above and beyond the call of duty here in doing some of the stuff that we are. At some point, federal law enforcement is going to have to pick it up and do it themselves. FBI’s going to have to get involved and we’re pushing as hard as we can to get them to do so.” He said as far as he can tell, the Federal Bureau of Investigation runs each instance through its local offices and is without national coordination. In addition to local FBI offices, NCUA has also been working with the Missouri state supervisor’s office, New York State Banking Department Criminal Investigations Division, the Royal Canadian Mounted Police (wires have been traced to several locations in Canada), U.S. Postal Service, and the Federal Trade Commission. NCUA has also issued a Fraud Alert (July 31, 2003) on its Web site and a posted Letter to Credit Unions (03-CU-12). Eno said that the agency has also notified the National Association of Attorneys General. “We’re doing everything we can on this side of the border to get the facts up front,” he commented. Giving the agency a hand, CUNA President and CEO Dan Mica recently wrote a letter to the U.S. Attorney General and the Federal Trade Commission to assist in bringing the perpetrators to justice. “In our opinion, inducing innocent victims to send funds in interstate or international commerce to a nonexistent financial institution, and then stealing those funds, violates a number of federal criminal and civil statutes and is appropriate for attention by your Department,” Mica wrote in the letter to U.S. Attorney General John Ashcroft. A similar letter was sent to FTC Chairman Timothy J. Muris. However, Poliquin said probably the most successful thing we’ve done thus far is contacting the Newspaper Association of America, which spread the word of these advertisements to their membership. “As a result we’ve been getting numerous calls on our fraud hotline everyday telling us instances where this has popped up and in some cases we have been able to have newspapers actually refuse to post these fraudulent ads,” he said. The newspapers had been getting burned by the false credit unions too because the ads were purchased with stolen credit card numbers,” NCUA Director of Public and Congressional Affairs Cliff Northup added. Eno just recently returned from Canada after meetings with the Royal Canadian Mounted Police and the Ministry of Banking and Consumer Affairs. Though he could not discuss details of the investigation, Eno said that the Canadian authorities suspect it is related to organized crime. The scam may be running out of New York as well, he added, probably by the same group because both instances used the same modus operandi. There are five fake credit unions floating around now, including Century Credit Union, Zurich Credit Union, First Rate Credit Union, Continental Credit Union, and Prime Rate Credit Union. One of the big problems is that some of these names are similar to legitimate credit unions. “They contact a local newspaper in one of the smaller markets,” Poliquin said. “They don’t hit the big markets like Los Angeles or New York City, they tend to go after the smaller markets and they have them post an ad, such as `This is Prime Rate Credit Union. We can help you with your credit related problems. Call us.’ ” The advertisements typically include a pre-paid 866 number, which is untraceable except to Canada. The `customer service representative’ takes personal information. “ Then they will approve a loan,” Poliquin explained, “but before they’ll issue any funds on that loan, they’ll have the victim make prepayments on that loan, usually saying that the prepayments are necessary because the person’s credit is so awful.” Though this problem has just crept up on credit unions in July, it had previously been a problem with banks for more than a year. Before that, Canadian banks were being hit. As investigators get close to catching the thieves, they “morph” into another type of entity, Poliquin said. Since NCUA became involved, they have also heard of false “finance companies” and “mortgage brokers.” Possible charges for the lawbreakers could include wire fraud, mail fraud, credit card forgery, and state laws against falsely using the “credit union” name, among others, according to Poliquin. Legitimate credit unions are possibly the best equipped to fight against the false advertisements. “Some of the best vigilance might be [by] credit unions themselves, legitimate ones here in the U.S. who might see these ads and know it’s not a local credit union,” NCUA’s Northup said. Eno pointed out that some of the best information the agency is getting is already coming from credit unions and cited a recent tip from the New York Credit Union League and a local credit union on Prime Rate Credit Union. Anyone with information can contact NCUA’s Fraud Hotline, which has already received dozens, if not hundreds of calls, according to Eno, at (800) 827-9650. [email protected]