Three former employees of the $13.8 million Lynrocten Federal Credit Union have been accused of loan participation fraud in a $1.7 million civil lawsuit.
Former manager Linda Susan Newcomb and employees Teresa Humphries and Becky Nichols are named as defendants in the suit filed by the $20 million Northern Piedmont Federal Credit Union of Culpeper, Va.
According to court documents, Northern Piedmont wired more than $3 million to Lynrocten from 2009 to 2011 and entered into agreements based on fraudulent misrepresentations.
"Newcomb and Humphries concocted a scheme to originate loans, allegedly including the loans in which Northern Piedmont purchased participations, in members' names without the members' authorization," the complaint states.
The 1,068-member Lynrocten of Lynchburg, Va., was liquidated by the NCUA in May.
"Northen Piedmont remains very strong financially, but we will do everything we can to recover the money that is owed to us and we appreciate all the help that our attorneys and the NCUA have given us," Dortha Johnson, president/CEO of the 4,400-member credit union, told Credit Union Times.
Humphries allegedly confessed in April and May that she and Newcomb had taken loans out in members' names and deposited the funds in their family members' accounts for a decade. However, Newcomb denied being involved and Humphries later retracted the statement, according to court records.
Northern Piedmont learned from NCUA investigators that only one loan allegedly supporting the loan participation agreements was legitimate, according to court documents, and that loan was made to Newcomb's daughter, who has since declared bankruptcy.
Newcomb negotiated each agreement on behalf of Lynrocten, provided a list of borrowers' names and loan account information, and "represented to Northern Piedmont that actual loans secured by shares or vehicles would be the basis of these agreements," the court documents read.
In addition to the missing $1.7 million, Northern Piedmont seeks interest and punitive damages, the complaint read.
Although the civil lawsuit is underway, no criminal charges have been filed against any former Lynrocten employees, according to the Lynchburg Police Department.
Local media had previously reported that an investigation was underway, but the U.S. Attorney's Office declined to comment.
"As of right now we would have no public comment on the issue, even so far as being unable to confirm or deny if there is an open investigation into the matter," said Brian McGinn, a public affairs specialist with the U.S. Attorney's Office, Western District of Virginia.
Chartered in 1936, Lynrocten served the employees of Rock-Tenn Company, a paperboard, packaging and marketing products manufacturer, their immediate family members, and some select employee groups.
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