Jet CU Files Suit Against Former CEO Loudermilk of 42 Years For `Self-Dealing,' Padded Retirement Package, Defaulted Loans

INDIANAPOLIS – Two months after former President/CEO John V. Loudermilk retired from Jet Credit Union after 42 years at the helm, a routine investigation by the Indiana Department of Financial Institutions discovered a number of financial improprieties that prompted the credit union to file a civil suit against him. The suit was filed in October 2003 and charges Loudermilk with financial misconduct at the credit union’s expense in a number of areas. According to the suit, $48 million Jet CU made loans to Adventure RV Sales, Inc., and its other entities with Loudermilk intending to purchase a majority stake in the companies. As collateral for the loans, Jet CU held a security interest in Adventure RV’s recreational vehicles (RVs). Loudermilk “improperly and unlawfully” instructed his staff to release Jet CU’s security interest in several RVs that served as collateral for the loans. Jet CU received no funds to apply to the loan balance owed by Adventure RV despite releasing the security interest in the RVs, according to the suit. The fair market value of the vehicles is approximately $500,000 the suit claims. The loans are now in default. Beverly Jinkins, Jet CU’s CEO, secretary and treasurer, referred all questions to Scott Newman, an attorney with Barnes & Thornburg hired to represent the credit union. Newman said the credit union is seeking actual and punitive damages of at least $3 million. “There were questions being raised by the regulator and the suit came to light when Loudermilk requested to withdraw $1 million (after he retired) and the board of directors refused to do so,” Newman said. Loudermilk retired in August 2003. The suit also alleges that Loudermilk and Jet CU agreed upon a deferred compensation plan dated Sept. 19, 1980. The plan provided that, upon retirement, Loudermilk was entitled to receive a payout equal to one-third of his monthly salary at the time of retirement for a period of 120 months. He also had the choice of receiving a lump sum payment of this amount calculated at a 3.5% discount rate. On Oct. 31, 2001, at Loudermilk’s request, Jet CU’s board of directors amended his deferred compensation plan so that his payment upon retirement would be calculated based on one-third of his 2001 monthly salary. In 2001, Loudermilk earned $235,488.11. The suit alleges that in 2001 he received the largest aggregate compensation paid over a five-year period by Jet CU, due to a bonus of $126,308. “On or about April 30, 2003, at Loudermilk’s request, the board further amended (his) deferred compensation plan to authorize payment of the balance on the plan even though he had not yet retired,” the suit reads. Loudermilk received the balance on May 9, 2003, which totaled $675,414.55 including interest. The suit against Loudermilk also alleges he took possession of certificates of origin for nine recreational vehicles totaling $400,000 that served as collateral for loans made by Jet CU to Adventure RVs, its entities and Ronald and Dorothea Martin, the company’s owners and operators. Despite Loudermilk receiving the certificates of origin, Jet CU never received them, the suit said. Newman said a letter was sent to Loudermilk last September demanding the certificates but no response has been received. Newman also said that six of the nine certificates are now being held in the name of Jakester & Associates, Limited, a corporation of which Loudermilk serves as president. “Loudermilk’s failure to deliver (the certificates) has impaired Jet Credit Union’s security interest in collateral that was available to satisfy the obligations of the Adventure RV Entities and the Martins in the event of a default but for the misconduct of Loudermilk,” the suit reads. Jet CU also made loans and advanced funds to Adventure RV and the Martins and for security, it held a lien against two Tennessee properties owned by the Martins. Loudermilk purchased the properties from $80,000, according to the suit. No funds from the sale of properties were applied to the loans made by Martin and they are now in default. In another conflict of interest, Loudermilk co-signed a loan made by Jet CU to AARCO Roofing and its president, Tim Prescott. Loudermilk pledged $100,000 of his credit union shares as security for the loan. The suit alleges that Loudermilk again “improperly and unlawfully” instructed his staff to release the pledged shares held as collateral for the loan. That loan is also in default and as with the previously named defaulted loans, Jet CU has been deprived of any collateral that would have been available to satisfy AARCO and Prescott’s obligations. Jet CU also alleges that Loudermilk has several items that belong to the credit union including two cars, a tractor and a set of original board minutes. Newman said Loudermilk has not returned the items despite sending a letter of demand last September. Loudermilk still has share accounts at Jet CU through 10 corporate entities with funds totaling $346,569.20 as of Oct. 14, 2003, according to the suit. He also has personal accounts with his wife Geneva totaling $675, 417.45 at the credit union. Newman said Loudermilk had filed an injunction last month, to withdraw the account funds. Mark Powell, supervisor of the Credit Union Division of the Indiana Department of Financial Institutions sided with Jet CU saying that if an individual owes an amount to the credit union, it has the statutory right not to pay the member his or her shares until such amount is no longer due. “If such amount due is undetermined because of circumstances the shareholder helped create, such as contingent liabilities or uncertainty of facts, it would be in the best interest of the credit union for the board to freeze such money until the amount due can be calculated with more certainty,” Powell wrote in a Oct. 8, 2003 letter. Newman said the suit against Loudermilk is in the process of being amended as other alleged improprieties may have been discovered. [email protected]