Former Calif. CU CEO Sentenced to 14 Years in Prison for $40 Million Fraud

The former CBS Employees Federal Credit Union President/CEO Edward Rostohar will spend 14 years in federal prison for his $40 million embezzlement that led to the financial collapse of the Los Angeles-based credit union, nearly $2 million in uninsured losses, lost jobs of long-time employees and a multi-million dollar class action lawsuit against board members.

U.S. Court District Judge Otis D. Wright II in Los Angeles sentenced the 62-year-old Rostohar Monday. The former executive and NCUA examiner who managed to conceal his embezzlement scheme for two decades agreed to forfeit his ill-gotten gains, including bank accounts in his name and the names of his shell companies, luxury cars, homes in Studio City, Reno, Nev. and Mexico, expensive watches, jewelry and cash. Court documents do not estimate the total value of the properties, cars and bank accounts.

“(Rostohar) has the moral culpability of someone who was willing to leave as many as 43 depositors with deep losses so that he could wear $100,000 watches, buy a new vehicle every couple of years, and impress women less than half his age with trips on private jets to international vacation resorts, Tiffany jewelry, and gambling parties,” federal prosecutors wrote in their sentencing memorandum.

Although the NCUA rarely publicly comments on a fraud case, the independent federal agency submitted a victim impact statement to Judge Wright, noting that Rostohar calculated misconduct deserved both condemnation and a sentence at the high end of the U.S. sentencing guidelines. While federal prosecutors recommended a prison sentence of 12 years and seven months, Judge Wright sentenced Rostohar to 14 years and one month.

In its letter, the NCUA noted that Rostohar lured members by offering CDs with above-market interest rates on nearly $2 million they deposited with CBSEFCU that was not covered by the $250,000 insurance cap.

“By doing so, Mr. Rostohar put the livelihood, retirement resources and lives of many of these members at risk and ruin,” the NCUA said. “Moreover….Mr. Rostohar put the lives of each CBSEFCU’s long-time employees, as well as the lives of their families, at risk of devastation. Mr. Rostohar did so knowingly. He did so over and over, month after months, quarter after quarter, year after year, for some twenty years.”

When Rostohar was arrested in March, the NCUA told investigators that as many as 43 members accounts had balances exceeding the $250,000 insured threshold, accounting for an aggregate of $18.1 million, according to federal prosecutors. Although those 43 accounts were insured for $250,000 each, which accounted for $10.7 million, the potential loss exposure totaled $7.4 million or more than 35% of the credit union’s assets of $21 million.

“In this particular case, however, the NCUA broke with precedent and arranged to make individual depositors whole,” prosecutors wrote in court documents. “No accountholder actually suffered a loss because NCUA found a buyer (the $727 million University Credit Union in Los Angeles) who was willing to pay a premium to cover losses not covered by NCUA. But the defendant had no way of knowing this.”

The NCUA noted the current total loss estimates range from $39,873,001 to $41,373,001.

Nevertheless, the NCUA and prosecutors gave the former executive credit for doing all that he could to “make it right,” by fully cooperating with federal prosecutors and the NCUA. Moreover, based on his age, his health problems and the unlikelihood that he would commit a similar offense, they recommended that judge impose a “middle range” sentence based on federal guidelines.

As Rostohar has been in jail since his arrest, he has had plenty of time to “think and reflect” on how “stupid and thoughtless” he was and how badly his “actions effected the people who trusted him,” he wrote in a letter to Judge Wright.

“Somehow along the line I lost focus on what is truly important in life and I lost my soul,” Rostohar wrote. “I missed out on so many important things because I was selfish and greedy. The best thing that happened to me was getting caught. It allowed me to face what I did and for once in a long time be honest with myself.”

Prosecutors also noted in court documents that if Rostohar had not been caught, he would have continued his crimes unabated.

The scheme was exposed in March when a credit union employee, after discovering a $35,000 check payable to Rostohar, conducted an audit and discovered approximately $3.8 million in checks made payable him between January 2018 and March 2019.

Prior to his three decades of employment at the credit union, Rostohar was a trained NCUA accountant and an examiner. He managed to conceal his fraud in part because he knew the “red flags” NCUA examiners looked for during audits. He also regularly falsified records to hide his fraud that made credit union appear profitable. For example, Rostohar spent four days prior to the quarterly AIRES (Automated Integrated Regulation Examination System) uploads to carefully remove from the CBSEFCU system all evidence of the CDs he had stolen and then filed his quarterly uploads into the AIRES system, making certain to manipulate the numbers so that everything balanced, according to court documents.

Rostohar told investigators he gambled away much of the money and spent the rest on traveling by private jet, buying expensive watches, and giving his wife a weekly allowance of $5,000. He also started a coffee business in Reno, Nev. in December 2018, and he wrote tens of thousands of dollars’ worth of checks to himself to cover the business’s costs as well as to pay a $5,000 monthly mortgage on a home in Reno he recently purchased.

The NCUA liquidated the California credit union in March after determining that it was insolvent.

Victor Webb of Los Angeles, a long-time member of CBSEFCU is suing the credit union’s former board of directors and supervisory committee members for $40 million because they neglected to perform their fiduciary duties and failed to supervise Rostohar.