Former Minnesota Credit Union CEO Pleads Guilty to Fraud

Former President/CEO Margurite Mary Cofell pleaded guilty to credit union fraud in U.S. District Court in Minneapolis Wednesday.

She admitted to embezzling $2.5 million from the $51 million St. Francis Campus Credit Union in Little Falls, Minn., according to court records.

From June 2006 through January 2014, when she was fired, the former CEO  diverted the credit union’s funds and deposited that money into her accounts, member accounts and the accounts of family members and close friends, federal prosecutors said in court documents.

Her embezzlement led to the credit union’s liquidation in February 2014.

Cofell used accounts of unwitting credit union members to create fake loans and used that money to conceal fictitious deposits to member accounts, purchase credit union checks or fund the unauthorized removal of cash from the credit union, court documents reveal.

On other occasions, Cofell used money from fraudulent loans to make payments on existing loans that were delinquent and to make payments on loans held by members with whom Cofell had personal relationships, according to court documents.

Federal prosecutors also said the former executive made unauthorized cash withdrawals from the credit union’s vault account.

Although the FBI launched its investigation in January 2014, the fraud was not publicly exposed until January 2016 when the NCUA sued Madison, Wis.-based CUMIS over its controversial decision not to pay the federal agency’s fidelity bond claim. The NCUA filed a proof of loss claim with insurance carrier for $3,086,755. CUMIS rescinded the fidelity bond agreement because Cofell lied on the credit union’s application to extend the employee dishonesty coverage from $2.25 million to $2.75 million in April 2013.

U.S. District Court Judge Donovan W. Frank in Minneapolis declined to decide the cased based on summary judgement motions made by NCUA and CUMIS last month. He denied both summary judgements after determining issues of fact remain with respect to the bond’s rescission. Generally, judges rule on summary judgements to decide a case but only when there are no issues of fact.

On April 1, Judge Frank ordered CUMIS and the NCUA to participate in a conference in an attempt to settle the case. If no settlement can be reached, the case will be heard before a jury in August.

For NCUA’s civil lawsuit against CUMIS, the federal agency hired a forensic auditor who found that Cofell’s embezzlement scheme actually caused a loss of more than $10 million.

Even when the former CEO in 2014 admitted in writing after confronted by NCUA examiners that she began embezzling in the 1990s, the forensic auditor was only able to obtain complete transactional documentation from 2011 to 2014 because Cofell destroyed the data processing system’s back up information prior to 2011.

Though Cofell purged much of the earlier financials records, member statements in connection with a number of fictitious accounts showed the existence of fake loans well in excess of $1 million as of 2000, which suggested that the fraudulent scheme had been ongoing for some time prior to 2000, according to the NCUA’s lawsuit.

Based on the transactional documentation from 2001 to 2014, however, the forensic auditor determined Cofell embezzled $3 million.