NCUA’s Investigation of Conserved Texas Credit Union Moves Forward

Federal prosecutors representing the NCUA dismissed a request for a court order to make former Board Member Brian Warren of the conserved Edinburg Teachers Credit Union comply with the federal agency’s investigative subpoena.

According to a court document filed in U.S. District Court in McAllen, Texas last week, Warren has produced some materials sought by the NCUA’s subpoena and has engaged in productive discussions with federal prosecutors regarding the next steps to collect additional documents.

“Although it remains possible that the parties could reach an impasse down the line, there is presently no need for the court’s intervention,” federal prosecutors wrote in a court document. “Accordingly, the United States is dismissing this action without prejudice as to re-filing should such an impasse arise.”

Last month, the NCUA asked a federal judge to issue a court order to compel Warren to submit documents – including emails, text messages, payments and other records – regarding any business dealings and financial arrangements, including loans and cash gifts that allegedly involved Warren, former ETCU President/CEO Jeffrey B. Moats, three board members, two supervisory members and a local real estate broker.

According to the NCUA, Warren did not comply with the investigative subpoena demanding that he submit these documents, though he did provide 11 pages containing a smattering of typed notes from board meetings and claimed he did not have other ETCU documents.

Warren joined the board in August 2014 and served until the credit union was conserved on March 26. About two weeks before the conservatorship was announced, the NCUA’s general counsel’s office issued a formal, confidential order to launch an investigation into the conduct and affairs of the credit union.

In its court documents, the NCUA specified that Warren had a personal financial relationship with Moats in which the former CEO made at least one personal loan to Warren, and that the former board member was making monthly payments on that loan over several years. According to the federal agency, Moats made regular cash gifts and/or other gifts to board members, and that the former CEO and board members frequently engaged in text communications and/or emails before the credit union was conserved.

The monetary value of those cash gifts and other gifts were not specified in court documents.

The NCUA did not say whether it issued subpoenas for Moats, the other board members, the supervisory committee members or the real estate broker.

An attorney for Moats said his client has complied with every request for information from the NCUA.

In an interview with CU Times, Warren acknowledged he received a $10,000 loan from Moats with an interest rate of 11.9%, which he paid back. He also acknowledged that at the annual Christmas meeting, all board members received a gift from the credit union, but not from Moats.

Warren did not specify what those gifts were, and said they were given to board members as a “thank you” for their volunteer services.

Although the Texas Credit Union Department said ETCU’s conservatorship was necessary to protect the public interest, the regulator cited no specific reason – not even the typical “unsafe or unsound practices” reason – for taking over the credit union. The Texas regulator appointed the NCUA as the conservator. Jane E. Dobbs is listed as CEO of ETCU. She previously served as interim CEO of the conserved $4.1 billion Municipal Credit Union in New York.

While financial performance reports of the $111 million ETCU showed the credit union was not struggling financially or losing money, the credit union’s 2019 IRS 990 return revealed that former CEO Moats was paid a total compensation of $1,611,821, which was four times the median base salary and bonus pay for CEOs across all asset sizes in 2019, according to a CUES Executive Compensation Survey,

What’s more, a CU Times review of ETCU’s 990 returns from 2008 to 2019 showed that Moats received $8,799,709 in total compensation. Over those 11 years, that averaged out to nearly $800,000 annually.

Among ETCU’s peer credit unions that managed assets of $100 million to $199 million, the total CEO compensation amounted to $196,178, the CUES survey showed.

In May, Moats filed a lawsuit in a Travis County District Court against ETCU claiming his employment contract was breached without notice or cause after the Texas credit union was conserved. He is seeking more than $1 million in monetary relief.

Although Moats’ claims are against ETCU, the NCUA, as the conservator, also was named as a defendant in the lawsuit. The former executive argued in court documents that because his employment agreement was repudiated following the conservatorship, it deprived him of deferred compensation and benefits that were due to him under the terms of his contract.

The NCUA moved the lawsuit from state court to a federal court in Austin, Texas and asked U.S. District Court Judge Lee Yeakel last month to dismiss Moats’ lawsuit because the U.S. government and its agencies are generally immune from lawsuits and lack subject matter jurisdiction, meaning the federal court has no authority to hear the case.

In court documents filed earlier this month, Moats asked Judge Yeakel to deny the NCUA’s dismissal because the former CEO is not suing the federal agency, only the credit union, which is currently operating under the NCUA’s conservatorship. Moats also asked the federal court to remand the case back to state court.

A ruling by Judge Yeakel is pending.