HOUSTON - It's a subject some credit unions are reluctant to talk about but BCM Federal Credit Union has moved so far beyond a financial catastrophe it ensued more than three years ago, talking is somewhat therapeutic. The $28 million credit union was one of several hundred credit unions impacted by an alleged Ponzi scheme from the defunct Bentley Financial Services. In 2001, the SEC filed a complaint against Robert L. Bentley, Bentley Financial and Entrust Group for selling so-called bank-issued, federally-insured CDs that were actually uninsured securities. Credit unions, banks and individuals invested more than $370 million with the defendants. At last count, a court-appointed receiver has distributed more than $314 million to victims with more to come as the "CDs" mature over the next few years. Literally overnight, BCM FCU's capital went from 7% to 3% as a result of its $7 million investment loss with Bentley, said Tony Black, president/CEO. "We did business with Bentley for five years and they never missed a beat," Black said. "For a year, we didn't get a penny on investment income." Chartered in 1959, BCM FCU serves 8,000 members, mostly employees of the Baylor College of Medicine here. Previously, when a CD was near maturity, Black called Bentley to touch base but instead of hearing a live voice on the other end one fall day in 2001, he found himself listening to a recording about the SEC complaint. For years, BCM would call Bentley, a broker would buy a CD and Entrust Group would do the safekeeping. After hearing the recording, Black immediately called the bank holding the CD to get a receipt only to discover that it never heard of the credit union. If the CDs were $1 million or more, Bentley would get the CD put in its name, Black alleged. But to cover itself, the individual credit union names were kept on the books and verified by auditors and examiners for years and recordkeeping sent to the credit unions indeed showed they were the owners of the CDs, Black said. "These were CDs that were supposed to be insured," Black said. "When this occurred, we didn't have a clue about how many other credit unions were involved." Shortly after the day he heard the recorded message at Bentley, Black received a letter from the SEC saying it had seized the credit union's assets, which at the time were $25 million. That was October, 2001. NCUA soon came in and issued an accounting procedure that called for "writing down" the investments on BCM's books for the loss, which meant taking a 15% hit to its reserves. "That sent our capital plummeting," Black said. NCUA also required and assisted with a net restoration plan that would show how the credit union planned to get its capital back up to an "adequate" level. The plan meant strictly limiting expenses ("we were using both sides of paper"); modifying its benefits program, limiting share growth and getting more aggressive with loans, Black said. At the time, BCM FCU's employees received their benefits through Baylor College of Medicine. After some research, they found a cheaper alternative through CUNA Mutual, Black said. To this day, the credit union is extra careful on how it attracts share funds. The net restoration plan began in May 2002 and saw a net worth projection of 5.12% going forward. As of September 2004, BCM is at 5.15%. NCUA requires a 6% or 7% "plus six months" threshold before BCM can safely exit from its restoration plan, Black said. If projections continue to be met, that date is scheduled for December 2006. "It's been difficult because if your assets go up 10%, you have to be sure your income keeps up," Black said. Over the last three years, BCM continued to try and beef up its student loans and home equity lines of credit for the extra income but the competition, a lack of consumer confidence and the upcoming presidential election have made it difficult, Black said. In addition, delinquencies and the NCUA's new allowance for loan loss methodology have affected BCM's net restoration plan projections in this area. "Another thing about net restoration plans is you don't know how much or when you will depend on investment income," Black said. "We had to build a five-year plan based on assumptions and maybes." They say events happen in threes. This was surely the case with BCM. In June 2001, the credit union was devastated by local flooding that fried all of its computers, except the server, and destroyed its one office, Black said. Even though the college was closed because of the flooding, BCM had to find another facility to service members. It moved to its current branch, which is located three miles from campus. In September 2001, the terrorist attacks occurred. For BCM, the biggest threat was computer viruses and heightened security on campus. "Access was and still is very limited at Baylor," Black said. And then the Bentley scheme hit in October 2001 but despite the back-to-back misfortunes, Black said they were not drifting out at sea all alone. The Texas Credit Union League's ALM department, NCUA examiners and Sharetec Systems Inc., a data processor, were extremely helpful in getting BCM back into the swing of operations and serving members, Black said. The African-American Credit Union Coalition offered suggestions on raising income. "The board and staff have been fabulous," Black said. "The members remained loyal. We fully disclosed everything to the members." From the court-appointed receiver for its losses with Bentley, BCM received a $4 million check in April 2003; $1 million in Dec. 2003; and $300,000 in Feb. 2004. A fourth check for $300,000 is expected by the end of the year, Black said. "We're starting to see the light at the end of the tunnel," he offered. The lessons learned from Bentley? "Diversification amongst brokers, a total analysis of how your institution exists, modification of all policies including asset liability and investments and total disclosure - we never tried to keep this hush-hush from our members," Black said. He emphasized that the experience has indeed "changed the way we do business." "It was a wake-up call," Black said. "You just can't be focused on growth. We had huge successes in the past. We realized that efficiency is the key to a successful policy." [email protected]