Documents Reveal Why the NCUA Conserved a Texas Credit Union

Court documents revealed for the first time why the NCUA conserved Edinburg Teachers Credit Union and terminated its CEO Jeffrey Moats, who is pursuing aggressive legal actions against the credit union and the federal agency for breaching his employment contract and for not returning his $275,000 in artwork on display at the Edinburg, Texas credit union office.

According to court documents that answered Moats’ breach of contract claims, the NCUA said that it is conducting an investigation “against him for, among other things, commingling credit union funds,” which is why the NCUA has not yet returned the artwork.

“They (NCUA)  keep putting (out) this word commingling, but they have not offered any evidence of that,” one of Moats’ attorneys, John MacVane in Houston, said Thursday.

In March, the Texas Credit Union Department said ETCU’s conservatorship was necessary “to protect the public interest,” but gave no specific reason. The state regulator appointed the NCUA as the conservator, which then repudiated Moats’ employment contract and fired him.

“On the evening of the Conservatorship, (March 26), Mr. Moats volunteered that he knew he had ‘a commingling problem’ with regard to his accounts at Vanguard,” the NCUA’s trial attorney, Bruce R. Hegyi, wrote in an April 19 email to one of Moats’ lawyers, Terry Kernell in Houston. “These are issues we are continuing to look into.”

In an April 21 email to Hegyi, Kernell wrote: “There is no commingling problem with respect to any Vangaurd accounts, and Mr. Moats never said there was. If you were told he used those words you were misinformed. We both need to know who is saying otherwise.”

Kernell’s email continued: “If the commission justified conservatorship with any evidence allegedly showing Mr. Moats obtaining monies not ‘validly and lawfully belonging to him’ [NACU] has it and can send it to us so we can respond. If not, [NACU] is withholding his personal property while looking for reasons for withholding it.”

On April 22, Hegyi somewhat expanded his allegation in an email to Kernell by writing, “Mr. Moats admitted wrongdoing to various NCUA personnel, including a ‘commingling problem’ related to Vanguard accounts.”

In a previous email, Kernell wrote that Moats’ patience was wearing thin by repeatedly asking the NCUA to return his art, which is his personal and “very valuable property.”

“Mr. Moats was removed from the building (on the day the credit union was conserved on March 26) without being allowed to take a single item with him other than the clothes he was wearing,” Kernell wrote in an email to Hegyi. “When the [NACU] demanded receipts, he directed them to their location in the building that same day.”

Kernell argued that the NCUA had sufficient time to verify that Moats paid for the artwork with his personal funds and demanded the artwork be returned to his client.

The NCUA included these email exchanges as exhibit documents when it filed court papers in a Texas federal court to answer Moats’ legal motions.

Moats also claimed that he is entitled to compensation for accrued vacation and sick leave worth more than $1 million and 457(b) plan funded at more than $600,000.

While ETCU’s financial performance reports filed with the NCUA showed the credit union was not struggling financially or losing money, the credit union’s 2019 IRS 990 return revealed that Moats was paid 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.

Since the NCUA conserved ETCU, the Texas credit union’s assets have plunged from $111 million at the end of the first quarter to $106 million at the end of the second quarter, and its membership fell from 12,543 to 10,474 in the same quarters, according to NCUA financial performance reports. What’s more, ETCU posted a net loss of $284,111 in Q2, compared to a net gain of $245,271 in Q2 of 2020.

Moats has also filed a petition in federal court to compel the NCUA to return 28 pieces of artwork that he claims is worth nearly $275,000. Moats filed a 32-page exhibit document that includes photos of the artwork and its receipts showing the amount he paid for each piece of art.

For example, Moats paid $244,000 for paintings by Phoenix-based artist Ed Mell. These paintings are on display throughout the credit union, including in Moats’ former private office and the board of directors’ room. He also paid more than $30,000 for other works of art by other artists, according to the receipts Moats filed in court documents.

Moats argued that the NCUA has seized personal property without a warrant or probable cause violating his Constitutional Rights under the Fourth and Fifth Amendments.

Earlier this month, however, Federal Judge Micaela Alvarez for the Southern District of Texas in McAllen wrote in a ruling on Moats’ petition that the NCUA did not disregard his Constitutional Rights and explained a “rational predicate for retaining” his artwork while investigating its proper ownership before returning it. The NCUA assured Moats’ lawyers that the art remains hanging at the credit union and is being maintained safely.

Judge Alvarez did not decide on Moats’ petition to get his property returned and instead transferred the case to the U.S. District Court for the Western District of Texas in Austin where the former CEO’s breach of contract case is being heard.

Moats also filed requests to a federal judge that would allow him to conduct a discovery, a legal proceeding to compel the NCUA to answer his questions and produce documents related to his lawsuit.

The federal agency filed court papers on Tuesday to stay Moats discovery request because the NCUA argued it would jeopardize its investigation. The NCUA also has asked a federal judge to dismiss Moats’ breach of contract lawsuit.

“We have instituted a lawful proceeding based upon employment benefits that Mr. Moats is entitled to and property that belongs to him,” MacVane said. “We have been fully cooperative with their (NCUA) investigation, and we have no intention of impeding it in any way.”

*Editor’s Note: The lawyer transposed NCUA to NACU in some instances. We noted the misspellings using brackets.