Settlement Reached in Lawsuit Over Municipal CU’s Fraud & Corruption Case

A settlement has been reached over a lawsuit brought by the $4.1 billion Municipal Credit Union and the NCUA against CUMIS Insurance Society after it refused to pay a $9.8 million interim insurance claim to cover the losses from a widespread fraud and corruption scandal that led to MCU’s conservatorship.

Federal Judge Valerie E. Caproni for the Southern District of New York in Manhattan dismissed the case last week after lawyers for MCU, the NCUA and CUMIS said they reached an “agreement in principle resolving all issues.”

No settlement details were provided and lead attorneys for MCU, NCUA and CUMIS did not respond CU Times‘ phone and email requests seeking comment.

The lawsuit, originally filed in May 2020, revealed details and allegations of rampant fraud and corruption at New York City’s oldest credit union that not only involved its convicted CEO, but at least five top executives, two supervisory committee members and 13 former board members, which led to more than $18 million in financial losses and $109 million in write-down losses.

The conserved credit union and the NCUA sued the Madison, Wis.-based CUMIS because it would not pay a $9.8 million interim insurance claim to cover the embezzlement losses by former MCU President/CEO Kam Wong. He was sentenced in June 2019 to five and a half years in prison. Although CUMIS acknowledged the NCUA’s demand for the $9.8 million payment, the organization denied it owed this amount because of Wong’s embezzlement, according to court documents.

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 embezzled nearly $14 million, according to the NCUA/MCU lawsuit.

The lawsuit also alleged additional embezzlement losses that totaled more than $4.3 million 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; and former Supervisory Committee Chair and head of the MCU Fraud and Security Department Joseph Guagliardo, who is also a retired New York City police officer and a certified fraud examiner.

Guagliardo was sentenced to 27 months in federal prison last July after he pleaded guilty to embezzling more than $400,000 from the credit union.

What’s more, MCU’s internal investigation determined the dishonest acts of former supervisory committee members, which included improper charitable contributions, self-dealing, entering into unauthorized contracts and the inappropriate use of MCU Park, a minor league baseball stadium, cost the credit union nearly $800,000.

MCU’s 13 former board members were also accused of dishonest acts, which included improper charitable contributions, purported expense reimbursements in violation of MCU policy, and the inappropriate use of MCU Park. The loss related to these dishonest acts amounted to at least $925,000, according to court documents.

What’s more, Sylvia Ash, a judge of the Kings County Supreme Court in Brooklyn and former chair of the MCU board, is the only former board member who has been criminally charged with conspiracy to obstruct justice, obstruction of justice and other criminal charges, stemming from a scheme to influence and impede a federal investigation into fraud and corruption at MCU. She has pleaded not guilty to the charges. Her trial is scheduled to begin in October.

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.”

For example, MCU’s internal investigation discovered its former Chief Credit Officer Norman Kohn allegedly allowed the use of inaccurate information to inflate the credit union’s pension performance. This resulted in MCU sustaining write-down losses of more than $93 million.