NCUA Hits Firm With $10M Lawsuit

In a rare move, the NCUA sued a national business advisory firm for $10 million, and the lawsuit has developed into a fierce battle over whether the accounting company neglected to detect a massive, bizarre embezzlement scheme that liquidated a Cleveland, Ohio credit union and led to a $37 million loss for the industry’s share insurance fund.

The NCUA claimed the Mayfield Village, Ohio-based Skoda Minotti Co. and three of its accountants were allegedly negligent when they audited the $23 million Taupa Lithuanian Credit Union, whose president/CEO ended up on the lam for months when allegations surfaced in July 2013 that he stole more than half of the credit union’s assets over 12 years.

Skoda Minotti – a $53 million business advisory firm that was ranked 80th on Accounting Today’s list of top 100 firms for 2018 – is denying the NCUA’s accusations, arguing that the facts and standards of professional conduct will bear out that the firm had no obligation to uncover or prevent the complex fraud, which also duped NCUA examiners and the board of directors for years.

Alex Spirikaitis, the former president/CEO of Taupa Lithuanian who pleaded guilty to fraud and is now serving a 10-year federal prison sentence, forged financial documents to hide his $15 million scam.

Two of those documents, both account confirmation forms, are at the center of this intense legal battle and could decide the case. The first document, faked by Spirikaitis, overstated the credit union’s corporate cash balance account by nearly $13 million. The second document is an authentic corporate account balance that showed the credit union had only $10,000 in its coffers by the end of 2009. Although Skoda Minotti flatly denied sending or receiving this document, it is the NCUA’s key piece of evidence.

In court documents, the federal agency argued had Skoda Minotti properly managed these documents, the fraud would have been detected as early as February 2010 and determined Taupa’s insolvency. That determination would have led to the credit union’s immediate liquidation and no additional losses would have occurred. What the NCUA did not explain in its court documents, however, is how the “insolvent” credit union managed to stay operational for three and a half years through July 2013 when the fraud was finally exposed.

Nonetheless, credit union experts questioned whether the NCUA can win what has been described as a “who done it” mystery case, which has heated up over the summer.

Recently filed court documents in U.S. District Court in Cleveland showed that the business advisory firm is fighting back against the NCUA’s aggressive legal maneuver. The agency asked a federal judge to grant a motion for prejudgment that would place and preserve Skoda Minotti’s business assets and three accountants’ personal assets under the control of a trustee. The NCUA also asked the court to place a moratorium on the firm’s profit distributions and pay raises to shareholders and employees.

The federal agency said it is requesting the motion for prejudgment because Skoda Minotti’s insurance limit is $4 million, which is not enough to cover the $10 million the NCUA is seeking to recover from the business advisory firm, according to court documents.

In court filings, Skoda Minotti argued the NCUA’s motion for prejudgment is an unprecedented step to cripple the firm and its employees before a trial, before any evidence is heard, before any verdict is reached and before a judgment on that verdict is entered. This request for extraordinary relief, the business advisory firm contended, is based on unsubstantiated and hotly disputed allegations.

Skoda Minotti was Taupa Lithuanian’s auditor from 2007 to 2012. The NCUA claims in its lawsuit that the CPA firm failed to properly confirm the credit union’s cash accounts maintained by Corporate One Federal Credit Union in Columbus, Ohio.

To confirm the cash balances, Skoda Minotti accountants emailed confirmation forms to Spirikaitis in a modifiable format and requested that he sign and return the confirmation form to the accounting firm. After receiving the signed form, the firm would forward it to Corporate One to verify the credit union’s cash balances. However, before the CEO mailed the confirmation forms to Skoda Minotti, Spirikaitis changed Corporate One’s mailing address to a post office box that he controlled.

On Feb. 4, 2009, Skoda Minotti mailed a confirmation request to what the accounting firm believed to be Corporate One’s address. However, because the confirmation request form was mailed to a post office box Spirikaitis controlled, he filled out the confirmation request by overstating the credit union’s cash balances by $13 million, signed it in the name of a non-existent Corporate One employee and used a fake Corporate One stamp.

Apparently, however, Spirikaitis did not mail the bogus confirmation form back to the accounting firm. So by Feb. 9, Skoda Minotti mailed a second confirmation form request to Corporate One. It is customary for the firm to make a copy of the first confirmation form in case a second request is needed.

Before mailing the second request, Skoda Minotti realized the address on the first request was incorrect, so someone at the accounting firm corrected it before mailing the form to Corporate One, according to the NCUA.

In addition, Skoda Minotti called Spirikaitis to inform him that the first confirmation form request was never received. He then scrambled to return the original confirmation request, which Skoda Minotti received on Feb. 13, according to court documents.

On Feb. 22, however, Corporate One mailed the second, authentic confirmation request to Skoda Minotti. This document indicated Taupa Lithuanian actually had only $10,000 in its corporate account.

According to the NCUA, Skoda Minotti relied on the first confirmation request sent by Spirikatis and either ignored or disregarded the second request.

Skoda Minotti denied that it ever sent a second confirmation request form to Corporate One, citing its work papers that confirm the accounting firm never sent or received a second confirmation request form.

The business advisory firm argued in court documents that even though it did not detect Spirikaitis’ fraud, it did not mean the 2009 audit was flawed. But the fact that no one discovered the fraud until 2013 demonstrates the complexity and effectiveness of Spirikaitis’ deceptive and fraudulent scheme, Skoda Minotti said in court documents.

Christopher Pippett, a partner at Fox Rothschild LLP, who chairs the Exton, Pa., law firm’s financial services industry’s practice and specializes in board governance, said he believes the NCUA’s motion for prejudgment could just be a strategy to keep pressure on the business advisory firm to settle the case.

“The motion for prejudgment is pretty aggressive,” Pippett said. “I kind of agree with the accounting firm’s position. They [the NCUA] are kind of jumping the gun because there is a long way [in this case] to get from point A to point B. You’ve got to prove damages that are related to the negligence.” And that can be accomplished by bringing in industry experts who can explain standard auditing practices and how this fraud may have been detected, he noted.

David Legge, president of the Manassa, Va.-based Legge Group, which investigates internal fraud cases for credit unions and other businesses, said the NCUA’s case is not very strong if the agency is basing its case over the two disputed account confirmation documents.

“The only thing they are hanging their case on is confirmation [forms] – that’s pretty weak,” Legge said. “I don’t know if they [the NCUA] are holding back stuff, but if that’s the only thing they have then they’re not going to win.”

The first public revelations of the Taupa Lithuanian fraud case came during the evening of July 16, 2013. FBI agents and local police surrounded Spirkaitis’ $1.6 million customized home with an indoor pool, two kitchens and five and a half bathrooms that he built with stolen credit union funds. The overnight standoff ended in the morning when law enforcement officials entered the home but could not find Spirikaitis. For the next three months, he was on the lam. The FBI placed the former credit union CEO on its most wanted list and warned the public he was armed, dangerous and may have changed his appearance.

By October, FBI agents nabbed Spirikaitis strolling on a sidewalk on Cleveland’s east side.

Court proceedings revealed details about how the former executive who, along with a loan officer, a bookkeeper, a teller and three business owners, stole millions. These co-conspirators were also sentenced to prison and ordered to pay restitution.

In addition to building his customized house, the former CEO bought nine cars and a stadium luxury suite to watch Cleveland Browns games.

After NCUA authorities seized the credit union office, they were shocked to discover 10,000 rounds of ammunition and multiple semi-automatic weapons in a storage room. What remained a mystery is why Spirikaitis kept this arsenal at the credit union.

NCUA employees also discovered a “go bag” inside Spirikaitis’ office packed with items that indicated he was preparing to flee. Inside the bag were a variety of blank identification cards, including one that would allow him to insert his photo and a name identifying himself as a member of the International Union of Journalists. Another document resembling credentials provided to agents and employees of executive branch agencies such as the FBI was also found in the bag. That document was labeled “special identification” with a seal closely resembling the official seal of the president of the United States of America.