NCUA Asks Federal Judge to Enforce Subpoena Against Former Kansas CU Exec

The NCUA asked a federal judge in Kansas to order a former credit union executive to comply with a subpoena for documents in connection with more than $600,000 in vehicle loan losses.

Lori Knight of Wichita, Kan., resigned in November 2018 as EVP of lending for the $37.7 million Equishare Credit Union in Wichita, after President/CEO Gary Torres presented her with a list of loans for vehicles that had been repossessed and sold. But the proceeds from the sales of those vehicles were allegedly not applied to the loans, according to documents filed by the U.S. Attorney’s Office for the District of Kansas on behalf of the NCUA.

Knight did not return CU Times‘ phone and email messages seeking comment. An attorney was not listed for her on the federal docket on Wednesday.

Knight, who had been working at Equishare for more that 20 years, was responsible for the indirect lending program. She also was responsible for making decisions on loan applications and administering the repossession of the vehicles, selling them and applying the proceeds of those sales to loans.

In October 2018, Torres discovered that the proceeds of two checks for the sale of repossessed vehicles had not been applied against balances of the loans secured by the vehicles, according to court documents. He discovered the two checks had been cashed or otherwise presented for payment. Torres also found numerous other examples of repossessed vehicles that had been sold but allegedly the money from those sales had not been applied to the appropriate loans.

Torres suspended Knight for violating the credit union’s policies, pending further investigation. He set up a meeting with Knight on Nov. 16 to review his concerns. An hour before the meeting, however, Knight emailed Torres that she was immediately resigning from her job, the NCUA said in court documents.

The credit union hired an external auditor to review Knight’s activity. The audit allegedly concluded “more than $600,000 in losses to Equishare attributable to Knight’s violations of credit union policy, including granting loans in violation of lending policy,” court documents showed.

To investigate whether Knight received any benefit from the alleged “misapplied proceeds,” the NCUA served a subpoena to her on Dec. 9, 2020. The subpoena demanded that she turn over documents such as credit or deposit accounts, account statements, receipts, bill of sales or lease documents, and other papers that showed Knight owned, sold, purchased, leased, or titled in her name from November 2015 to the current date.

Knight was given until Dec. 28 to respond to the subpoena but she allegedly ignored it. The NCUA then sent a letter in March to Knight that asked her to contact the independent federal agency, but she allegedly ignored that letter as well.

What’s more, she allegedly ignored “additional communication” in June from the U.S. Attorney’s Office in Wichita.

The NCUA filed a motion on Aug. 4 that asked a federal judge to enforce the subpoena. This week, a federal magistrate judge ordered Knight to respond to the NCUA’s motion by Sept. 23.

Like many small asset credit unions, Equishare has been struggling.

From 2018 to 2020, for example, its loans declined by 1.95%, 19% and 22%, according to NCUA financial performance reports. In those same years, Equishare’s membership fell by 1.68%, 6% and 10%. In 2018, the credit union posted a loss of $175,347, a gain of $252,503 in 2019 and a loss of $267,464 at the end of last year.

Equishare’s loans have continued to decline by 29% at the end of this year’s first quarter and 8% in the second quarter, while membership also dropped by 8% and 5%. In the first quarter, the credit union posted a loss of $11,175 and a gain of $282,041 in the second quarter, according to NCUA financial performance reports.

Equishare currently serves more than 3,000 members.