Municipal Credit Union's Legal Battles Broaden

For the first time, court documents revealed new details and allegations of widespread fraud and corruption that occurred at the $3.2 billion Municipal Credit Union. According to those court documents, those involved included its CEO, at least five top executives, two supervisory committee members and 13 former board members; the scheme led to more than $18 million in financial losses and $109 million in write-down losses.

The court documents came from a lawsuit filed in Wisconsin federal court in May by the conserved credit union and the NCUA. They are suing CUMIS Insurance Society because the Madison, Wis.-based organization has refused to pay a $9.8 million interim insurance claim to cover some of the losses from former MCU President/CEO Kam Wong. He was sentenced in June 2019 to five and a half years in prison after he pleaded guilty to embezzling nearly $10 million from New York City’s oldest financial cooperative. Although CUMIS has acknowledged the NCUA’s demand for the $9.8 million payment, the organization denied it owes this amount because of Wong’s embezzlement, according to court documents.

One former MCU board member, Mark Brantley told CU Times the lawsuit’s allegations are false. In a separate lawsuit filed by Brantley in federal court late last year, he made several fraud, defamation and professional malpractice allegations against the NCUA, the New York Department of Financial Services and Eisner Amper LLP, one of the nation’s largest accounting firms that was responsible for MCU’s auditing and financial reporting. That case is pending.

In February 2018 after learning of a federal criminal investigation targeting Wong, MCU formed a special committee to oversee an internal investigation, which determined the former CEO actually embezzled $13.9 million, according to the NCUA and MCU’s lawsuit against CUMIS.

What’s more, the lawsuit alleged additional embezzlement losses totaling more than $4.3 million occurred because of “dishonest acts” of former board members; the chief human resources and labor relations officer, Kim Thompson; an executive office operations manager, who was not identified in court documents; Supervisory Committee Chair Giovanni Porcelli and another former Supervisory Committee chair; as well as the head of the MCU Fraud and Security Department, Joseph Guagliardo, a retired New York City police officer and a certified fraud examiner.

Guagliardo is scheduled to be sentenced in July after he pleaded guilty to embezzling more than $400,000 from MCU. Federal prosecutors have recommended a prison term of 27 to 33 months.

Although Porcelli also allegedly acted in concert with Guagliardo as they were aware of one another’s misconduct, there have been no criminal charges filed against Porcelli. Nevertheless, their collusion cost MCU nearly $800,000.

According to court documents, Porcelli allegedly signed a document to cover up Wong’s embezzlement, and in violation of MCU’s policy, received expense reimbursements for lavish meals, travel and charitable contributions, and extensively used a suite and tickets for MCU Park games, a minor league baseball stadium.

Guagliardo and Porcelli did not respond to CU Times’ request for comment.

As the chief HR officer, Thompson’s alleged dishonesty caused $2.5 million in losses. MCU’s investigation learned that she allegedly used the credit union’s funds to pay for housing expenses and personal credit card payments.

MCU’s investigation also revealed Thompson allegedly allowed interns to obtain improper financial benefits.

For example, one such intern, who was related to Wong, was first employed as an intern and later as an employee from 2010 to 2018. On MCU’s dime, the intern/employee received paid trips to Hong Kong and Las Vegas, housing and living expenses, tuition payments, gift cards and medical benefits,

Thompson did not respond to CU Times for comment.

In June 2019, a comprehensive review of MCU’s financial books and records determined three other top executives were allegedly involved in “cooking the books,” to make the credit union’s financial statements appear better than they actually were.

Separate and independent accounting practices, described in court documents as “dishonest,” caused the credit union to suffer more than $109 million in write-down losses, or what the lawsuit alleged as “accounting misfeasance losses.”

MCU’s review discovered its former Chief Credit Officer Norman Kohn allegedly and knowingly allowed the use of inaccurate information to inflate the credit union’s pension performance. This resulted in MCU sustaining write-down losses in excess of $93 million.

Kohn was appointed MCU’s CEO after Wong was fired. Kohn did not respond to CU Times for comment.

Court documents also showed that the conduct of MCU’s former CFO Linda Lambert allegedly facilitated Wong’s embezzlement, but no details were given.

Nonetheless, Lambert allegedly inflated MCU’s investment portfolio by failing to expense the premium on bonds payable, which caused the credit union to suffer write-down losses of $5.2 million.

The MCU investigation also discovered Lambert’s predecessor, not identified in court documents, allegedly disregarded accepted accounting methodology with MCU’s loan origination expenses in order to positively manipulate the credit union’s performance metrics. That led MCU to write down at least $6.4 million in losses.

Lambert could not be reached for comment.

Joseph Rini, former vice president of accounting and finance, was alleged to have caused the credit union a write-down loss of more than $7 million for underreporting or minimizing MCU’s expenses. Also, John Parrinello, former vice president of collections and loss prevention, was alleged to have caused MCU write-down losses of at least $5.5 million for improperly making loan modifications or deferments under the guise of member services, according to the lawsuit.

Rini could not be reached for comment, and Parrinello did not respond to a CU Times’ request for comment.

While all of the 13 former board members were accused of receiving reimbursements in violation of the credit union’s policy, the lawsuit made additional allegations against four board members, including Mark Brantley, Mario Mantos Jr., S. Nana Osei Bonsu and Sylvia Ash.

Ash was alleged to have received lavish expense reimbursements for national and international travel and signed a document to cover up Wong’s embezzlement, according to court documents.

Ash, a judge of the Kings County Supreme Court and former chair of the MCU board, was charged in U.S. District Court in Manhattan in October 2019 with conspiracy to obstruct justice, obstruction of justice and other criminal charges, stemming from a scheme to seek to influence and impede a federal investigation into fraud and corruption at MCU. She has pleaded not guilty to the charges.

In addition to receiving expense reimbursements in violation of MCU’s policies, Brantley allegedly received other monetary reimbursements in violation of New York law, including a $20,000 donation to Kingdom Credit Union in Arizona. Brantley served as a consultant for the credit union.

“That is totally misleading,” Brantley said. “[The donation] never touched my hands.” He also said the expense reimbursements were legitimate and in line with the credit union’s policies for training and travel purposes and the board’s responsibilities.

“The NCUA is being misleading,” he said. “They know what the expense reimbursements were for.”

Brantley said the $20,000 contribution was approved by the board in 2016, and that he recused himself from the vote and fully disclosed to the board his involvement in the proposed Arizona credit union that had applied for a state charter. What’s more, Brantley said the $20,000 check was made out to Kingdom, which initially asked MCU for monetary support to raise capital.

Through a spokesperson, the NCUA said the Arizona state regulator denied a charter for Kingdom last year and that no further action has been taken by the NCUA in regard to the credit union’s application for deposit insurance.

The credit union’s organizer, Gregg Daniel, said Arizona’s regulators approved its state charter in 2015 conditioned on obtaining deposit insurance from the NCUA. But because Kingdom was unable to secure the deposit insurance, the state rescinded the state charter.

He is now in the process of applying for a federal charter.

Daniel, who confirmed Brantley worked as a consultant for Kingdom, said the $20,000 was received from MCU and that Kingdom received a variety of contributions from other organizations to pay for charter-related expenses and build up its capital reserves.

In regard to Brantley’s lawsuit pending in federal court, the New York DFS and Eisner Amper LLP have asked a federal judge to dismiss the lawsuit based on case law and other legal protections. The NCUA is expected to file its court documents to answer Brantley’s lawsuit by July 17.

“Why are they afraid to allow me a [court] hearing? Brantley asked. “They just want to dismiss it. They don’t want evidence to be put on.”

While Brantley acknowledged that the “buck stops with the board” in regard to its oversight duties, he said he filed a lawsuit, in part, to protect his professional reputation.

Brantley, an attorney who lives in Arizona, argued he was defamed when New York’s regulator stated in a May 2019 a press release after conserving MCU that as early as 2017, “DFS had uncovered deficiencies in board oversight that had facilitated the multi-million dollar embezzlement by the former CEO, Kam Wong.” In addition to suing DFS, Brantley is also individually suing DFS Superintendent Linda Lacewell.

Brantley’s lawsuit contended the New York regulators were aware of the individuals who facilitated Wong’s embezzlement, “rendering their libelous statements as false.”

“DFS had previous knowledge of those who were actually involved because of the internal investigation findings of the then board,” according to Brantley’s lawsuit.

According to court documents filed by DFS, Lacewell is “cloaked with an absolute privilege precluding a defamation claim being asserted against her for actions taken in the course of performing her governmental functions.”

Even if Lacewell was not protected by privilege, Brantley has “utterly failed to allege a plausible claim of defamation” against Lacewell, according to court documents.