Lawsuit Filed After CEO’s Death

Three hours after County Educators Federal Credit Union President/CEO Glenn South died at a New York City hospital on March 30, 2017, someone allegedly deleted documents from the executive’s desktop computer in his Roselle Park, N.J., office.

When this allegation surfaced in November 2017, Layne Huttenberger, who was appointed the new CEO just three months earlier, hired a law firm to investigate. He also informed NCUA Examiner Keith Olsen about the security breach.

Judy Pinho, who was then CEFCU’s COO and previously served as South’s administrative assistant, made this accusation and alleged someone submitted forged beneficiary documents after South’s death that resulted in benefits being paid to individuals who were not legally entitled to the possible payments of millions of dollars. That led Huttenberger to hire another law firm to look into Pinho’s allegations on the morning of Friday, Dec. 1.

By that afternoon, Huttenberger was fired and Pinho was named interim CEO.

This credit union scenario may read like a mystery novel, but the serious allegations and others are part of a 34-page lawsuit that was filed in a New Jersey court against Pinho, CEFCU’s board of directors, five employees and others.

For blowing the whistle on these accusations and other legal issues, Huttenberger and Mary Beth Infussi, a former CFO for CEFCU, claimed the credit union’s leadership retaliated by wrongfully terminating them. Other accusations detailed in the lawsuit included  alleged debit/credit card fraud, conflict of interest issues regarding a CUSO’s financial reporting, payments of health benefits for fired employees, an unlawful cash transaction and a fraudulent retention agreement.

“County Educators Federal Credit Union categorically denies the allegations by Mr. Huttenberger and Ms. Infussi and is pursuing its defenses to these claims,” CEFCU’s lawyer, John Shea in New Jersey, said in a prepared statement.

The former executives are suing under New Jersey’s Conscientious Employee Act, which is one of the broadest-reaching whistleblower laws in the nation, providing coverage for more whistleblower action that reports corporate wrongdoing than most other states, according to New Jersey Business, the Garden State’s longest-standing business magazine.

The lawsuit was also submitted to the NCUA, Laura LoGiudice, a New Jersey attorney representing Huttenberger and Infussi, said.

Huttenberger has nearly 30 years of banking experience, including CEO-level positions. He also served as a national bank examiner for the Office of the Comptroller of the Currency, supervisory analyst and examiner for the Board of Governors of the Federal Reserve System, and principal examiner for the Federal Housing Finance Agency. Infussi served as an auditor for Arthur Anderson, and as a controller and director of finance and operations for other companies.

“Immediately upon assuming his role as president and chief executive officer, Mr. Huttenberger discovered numerous improprieties, which he reasonably believed were in violation of the law, were fraudulent or criminal, and/or which he reasonably believed would defraud County Educators’ members,” LoGiudice wrote in the lawsuit.

One of the most serious and perhaps consequential allegations include the “very suspicious (management) of the apparent multi-decade arrangement between County Educators” and a Florida broker and seller of CDs. He managed the credit union’s 285 rolling CDs, which represented 65% of CEFCU’s assets.

According to the broker, the custodianship of the CDs was held by Floridian Custodial Services in the Sunshine State and Hancock Whitney in Louisiana.

Huttenberger and Infussi became suspicious, however, because they never saw a custodial agreement, a monthly statement from FCS or HW, which were allegedly safekeeping County Educators’ CDs or any records indicating that due diligence had been performed annually as required by federal regulations, according to the lawsuit.

Instead, the only records of the CDs were held on a CEFCU spreadsheet based on details provided by the broker. Additionally, for CDs allegedly held by HW, the broker provided the credit union with unidentifiable spreadsheets that anyone could have produced. And as for the CDs allegedly held by FCS, the broker provided a document titled “Trade Confirmation” that anyone could have created, the lawsuit claimed.

More red flags sprang up when the broker told Huttenberger and Infussi that certain CDs being held by a large credit union were being “called” as opposed to maturing because it did not want institutional deposits any longer and the broker wanted to reinvest the money into new CDs.

According to the lawsuit, the former CEFCU executives became concerned because it was virtually unheard of to have a CD called by the issuing institution, especially with a marked and steady increase in the yield curve.

Moreover, according to the lawsuit, when the broker sent the reference number for the called CD, it did not match the credit union’s records.

After presenting his concerns to the board, the directors approved Huttenberger’s recommendation to name UBS as the credit union’s new security broker.

But when Infussi instructed the broker to return all funds from the maturing CDs rather than reinvest them, he was not happy. The lawsuit did not say whether the funds were returned to the credit union.

In addition, it turned out the broker and his company were not licensed by the U.S. Securities and Exchange Commission as required by federal regulations. And while the broker claimed he purchased the credit union’s CDs through two underwriters, the underwriters were not licensed by the SEC either, according to the lawsuit.

Infussi asked the credit union’s staff accountant for the contact information for FCS and HW, the custodians for the credit union’s CDs. But the staff accountant said she did not have it and only communicated with the broker, according to the lawsuit.

Infussi also asked the staff accountant for account numbers but never received a response.

What’s more, Huttenberger allegedly uncovered debit/credit card fraud that was incurring an annual expense of about $160,000 a year for a credit union that has posted five-figure losses in four out of the last five years from 2014 to 2018, according to NCUA financial performance reports. At the end of the second quarter of this year, CEFCU recorded a loss of $208,931.

Although CEFCU carried insurance for the debit/credit card losses, Pinho claimed the former CEO decided to absorb the losses to avoid diminishing the credit union’s capital account and to avoid insurance premium increases. South also allegedly assumed the losses would decline once the card chip conversion was completed, Pinho said, according to the lawsuit.

Pinho, South’s former administrative assistant, was described in the lawsuit as his confidant. After South’s death, Pinho was appointed interim CEO. Once Huttenberger became CEO, he named Pinho COO. But once Huttenberger was terminated, Pinho was again named interim CEO and was then appointed permanent CEO during the first quarter of 2018, according to the credit union’s profile report it filed with the NCUA.

Huttenberger didn’t buy Pinho’s explanations for the card losses and claimed she concealed the availability of insurance coverage.

He also determined that the credit union saw $300,000 in debit/credit card losses over 42 months and that many of the debit card transactions were in the amount of $503, indicating fraud occurred via the use of stolen or duplicated debit cards versus theft of account information, according to the lawsuit.

What’s more, the lawsuit claims the chip conversion project had been ongoing for several years allegedly because of CEFCU’s failure to provide the necessary information to the vendor.

During his short-lived tenure as CEO, Huttenberger also found that the same accounting firm was acting as the internal and external auditor for CEFCU, the $122 million Novartis Federal Credit Union in East Hanover, N.J., and Symbionce Financial Solutions LLC, a mortgage solutions CUSO equally owned by both credit unions. According to the lawsuit, all three organizations using the same accounting firm was a conflict of interest and violated federal regulations that require CUSOs to be independently audited.

South’s widow, Ann South, was president/CEO of Novartis and served as a managing member of Symbionce in 2017, according to the lawsuit. The CUSO is registered, the NCUA’s 2018 registration data show.

Ann South left the credit union sometime between the second and third quarters of 2018, according to the credit union’s profile documents filed with the NCUA. Novartis did not respond to CU Times’ request for comment regarding her reason for leaving the credit union.

She was named CEO of the Year by CU Times as part of its 2010 Trailblazer Awards.

Until Huttenberger took over as CEO, CEFCU had virtually no financial information related to its nine-year investment in Symbionce. In 2017, CEFCU’s investment in the CUSO accounted for about 20% of the credit union’s net worth, or approximately $2 million.

The former CEO repeatedly asked Ann South for the CUSO’s financial and organization information, required to be maintained by federal regulations, but Huttenberger never received a response, according to the lawsuit.

Ann South did not respond to CU Times’ request for comment.

Once again, Huttenberger said he informed NCUA Examiner Olsen regarding his concerns about the CUSO.

The NCUA declined to comment.