Former MCU Board Members Sue New York Regulator

Former volunteers of the $2.9 billion Municipal Credit Union in New York are suing the state regulator to get their board seats back.

After former MCU President/CEO Kam Wong was accused of allegedly stealing millions and fired by the board in June, the New York State Department of Financial Services removed the entire board for failing to discharge their duties and for accepting compensation, which is prohibited in the Empire State.

Spokespersons for the NYSDFS and MCU declined comment.

A former board member who spoke to CU Times on the condition of anonymity argued the board performed their duties, pointing out that volunteers relied on financial reports from six different layers of the credit union’s management, and information from state and federal examinations, that did not detect Wong’s alleged fraud.

On May 8, federal prosecutors said Wong, 62, of Long Island’s Valley Stream, allegedly stole millions of dollars from the state’s oldest credit union through various fraudulent schemes from 2013 to 2018, and spent $3.5 million of the money he embezzled on New York lottery tickets. On June 11, the MCU board fired Wong.

Right after the directors were first notified that Wong was under investigation by the FBI in late January, the board formed a special investigative committee, conducted interviews of personnel and board directors, hired a private investigator and KPMG to conduct a forensic accounting, placed Wong, Linda Lambert, CFO, Kim Thompson, chief human resources-labor relations officer, on administrative leave leading to their terminations, and placed other employees on leave. The board also sent a corrective plan of action to NCUA.

“Despite our prompt and effective response, we were summarily removed without due process after we sent our corrective plan,” the board member said. MCU then mailed a letter to its 581,000 members explaining why the board was removed.

The board member said the directors are fighting to get their seats back to recover their damaged reputations.

“Removal is such a drastic measure, especially when it is done without due process that besmirched our character by saying we failed in our oversight without (the state regulator) knowing the full (story),” the board member said. “The other part (of this case) is that there still needs to be a cleansing at MCU. We don’t think all of the bad actors are out. I want to help right the wrong and to get the credit union out of the hands of regulators.”

In August, seven out of the 10 MCU’s board members who were ousted by NYSDFS Superintendent Maria T. Vullo, filed a special proceedings legal action in New York County Supreme Court. At an October hearing, the board volunteers will be asking a judge to grant a temporary restraining order, a preliminary injunction and a permanent injunction to prevent the state regulator to appoint a new board and to reinstate the former board directors, Tony Abadallah, Mark Brantley, Carroll Duncanson, Tessa Havkett-Viera, Loretta Jones, Beryl Major and Nana Osei-Bonsu.

Former board directors Joy Schwartz, Mario Matos Jr., and James Durrah, are not part of the legal action.

The anonymous board member said documents filed by the former directors, including their affidavits, MCU and NCUA letters and other exhibits, were sealed by a judge because the NYDFS claimed the documents included confidential information.

While Section 471 of New York’s banking law requires board directors and officers to discharge their duties in good faith and with the degree of diligence, care and skill, the second part of 471 also states that in discharging their duties, directors, when acting in good faith, may rely on financial statements from executives to be correct, including reports of an independent public or certified public accountant that reflects the credit union’s financial condition and other reports required to be submitted by an officer or committee.

“That’s what the board did, and because we are volunteers and we are not there from day to day, we rely on several levels of reporting and review,” the board member said.

Those several levels include reports and other information from the senior executive team, internal auditors, the supervisory committee, an independent auditor, the security and fraud officer and the compliance officer.

“And then there’s one more (level) that really goes to the heart of this (case), and that’s our regulators,” the board member said. “They are the last safety check on the institutions and they failed us because rather than looking at directors’ expenses, that are following policy guidelines, why didn’t they look at the CEO’s expenses/? We’re talking millions of dollars versus thousands of dollars utilized for the (board’s) education.”

According to federal investigators, Wong’s alleged schemes included being reimbursed for millions of dollars in expenses related to fake dental work, personal tax liabilities, long-term disability insurance, fake car repair bills, educational, housing and living expenses for relatives, annual cash advances, ATM withdrawals and other cash payments.

According to MCU’s 2016 990 IRS form, six of the former directors received compensation that ranged from a low $900 to a high of more than $5,000. However, the anonymous board member pointed this compensation was actually reimbursement for conference expenses. In 2015 and 2014, MCU’s 990 reports show the approximate same range of expense reimbursements made to some of the former board members.

“The 990s show directors receiving ‘compensation’ because we were issued 1099s for tax purposes only for the costs of airfare when our spouses accompanied directors on training conferences or a strategic planning retreat,” the board member said. “That’s why it’s listed. But a guest is allowable under NCUA regulations.”

The anonymous director said the board received “an abridged” version of the 990 reports that did not contain the compensation/expense reimbursement of the former board members and the total compensation paid to Wong and other top executives. In 2016, Wong was paid $5.9 million in total compensation, according to MCU’s 990 IRS document.

“Had we seen the (Wong) income, we would have….I would have definitely objected. There is no question about it,” the board member said, pointing out that the $5.9 million Wong received was more than three times what the board had agreed to pay him under his contract.