New Lawsuit Details Additional Corruption Allegations by Ex-CEO Convicted of Bribery

A NCUA lawsuit reveals allegations of additional corrupt acts by Alan Kaufman, former president/CEO of Melrose Credit Union, who was sentenced to nearly four years in federal prison in September after a jury found him guilty of two bribery felonies.

The NCUA lawsuit was filed in the federal court of the Eastern District of New York against CUMIS Insurance Society for failing to pay a $4.7 million claim of documented losses that were caused by Kaufman’s dishonest conduct. The lawsuit also makes multiple claims against CUMIS, alleging that the Madison, Wis.-based organization intended to fashion evidence to deny the federal agency’s insurance claim by using CUMIS’ multiple ex parte interviews with Kaufman that allegedly credited him “to be honest.”

CUMIS declined to comment on the lawsuit and, as of Friday afternoon, it has not filed answers in response to NCUA’s allegations.

In February 2017, the New York Department of Financial Services conserved Melrose CU, which was one of New York City’s largest credit unions that provided loans for taxicab drivers and companies to buy medallions that allowed them to provide transportation services. When Uber and other ride-sharing companies entered the market, the value of those medallions plummeted and taxicab owners were unable to repay their loans. The state regulator appointed the NCUA as the credit union’s conservator. In 2018, DFS liquidated Melrose primarily because of its massive taxicab loan losses and appointed the NCUA as the liquidating agent.

In April 2016, CUMIS issued a Melrose Fidelity Bond that provided the credit union with $9 million in coverage for losses incurred from the dishonest acts of Melrose employees or the board of directors. By June, Kaufman was dismissed for cause after the board of directors conducted an internal investigation.

According to NCUA’s lawsuit, soon after Kaufman became Melrose CEO in 1998, he engaged in a series of corrupt schemes that caused the credit union to lose millions of dollars.

Prior to his 1998 retirement, Herb Kaufman, Kaufman’s father, was Melrose CEO and served as the board’s treasurer. In May of that year, Herb Kaufman became an independent consultant to Melrose under the terms of what the NCUA described as an unusual three-page agreement, which was signed by only one member of the board who turned out to be a life-long and close friend of Herb Kaufman.

The agreement contained a one-year renewable term that paid Herb Kaufman $5,600 a month for his services.

“Despite his obvious conflict of interest, Kaufman aggregated solely to himself the oversite within the Melrose Consulting Agreement with his father,” the NCUA lawsuit reads. “Thereafter for more than 18 years, Kaufman covertly caused the renewal of his father’s Consulting Agreement without ever informing the Melrose board or otherwise bringing its continued existence to the attention of the Board.”

According to the NCUA, Herb Kaufman was paid $1,239,795 over 18 years and failed to generate any business for Melrose or provide any meaningful consulting services to the credit union. What’s more, Melrose also paid Herb Kaufman’s travel expenses of more than $26,000 even though his consulting agreement stipulated the travel expenses were to be paid by Herb Kaufman.

The lawsuit also alleges that Kaufman’s dishonesty in connection to his split-dollar life insurance policy led Melrose CU to incur a loss of nearly $1.5 million. That total amount represented four loans Kaufman secured against the policy, but he allegedly failed to inform the board that it was required to independently verify that Melrose’s position would not be impaired by these loans. Instead, Kaufman got three board members who were longtime friends to sign off on the loans without informing them of the contents or significance of the loan documents.

It turns out that Kaufman used a portion of a $300,000 loan taken against his split-dollar life insurance policy to buy a $630,000 luxury home in a gated community in Jericho, N.Y. in 2013. That home, however, was initially purchased for Kaufman in 2010 after his divorce by Tony Georgiton, a Melrose CU member who owned a taxi medallion brokerage company and other businesses.

Kaufman lived in that house rent-free for more than two years. That arrangement was used by prosecutors to convict Kaufman for bribery. While Kaufman was living in the luxury home for free, he personally approved for Georgiton’s companies more than $182 million in loans from the credit union with favorable 50-year amortization periods. The loans also provided total cash outs of $9.8 million, according to court documents.

What’s more, Kaufman used the credit union’s funds to pay $2 million for the naming rights of a local ballroom that was owned by one of Georgiton’s companies.

“Kaufman pressed the Melrose Board to approve the Agreement without having conducted any due diligence, without having sought the advice of Melrose Director of Marketing or any knowledgeable third-party, and by actively misleading the Melrose Board as to the material aspects of the Naming Rights Agreement, its value to Melrose and his continuing conflict of interest,” the NCUA lawsuit reads.

The federal agency also alleges Kaufman charged more than $73,000 in personal expenses on his corporate credit card that paid for exorbitant meals, airplane tickets, and limousine services for his girlfriend, his children, friends, and relatives, including Kaufman’s distant cousin who lived in Los Angeles.

In March 2018, just five months before Melrose was liquidated, the credit union submitted an extensive proof of loss document, including a 21-page analysis and 34 supporting exhibits, to CUMIS that sought reimbursement from the insurance company for $4,799,533 in documented losses that were caused by the dishonest conduct of Kaufman.

However, CUMIS allegedly “tactically dismissed (this) compelling evidence,” and additional evidence that the NCUA attempted to submit to the insurance organization by the NCUA. CUMIS allegedly refused to execute a non-disclosure agreement that would have enabled the federal agency to submit to CUMIS additional evidence that included non-public depositions of Kaufman, Melrose board members, supervisory committee members and the credit union’s attorney.

The lawsuit alleges that CUMIS conducted multiple ex-parte interviews with Kaufman and another person identified as BM. Moreover, CUMIS did not hire a court reporter to document what was said during these interviews with Kaufman and BM, but it did hire a court reporter for interviews with other Melrose CU employees, according to the NCUA.

The NCUA was not present in the Kaufman and BM interviews even though CUMIS was obligated to allow the federal agency to attend the interviews.

The federal agency characterized these Kaufman and BM interviews as “self-serving and insupportable credibility determination that Kaufman and BM were both credited to be honest,” while the corroborated affidavits and sworn statements of individuals identified as TS and RN and the sworn statements of other Melrose employees were “all unfairly characterized by CUMIS as dishonest.”

The NCUA also accused CUMIS of allegedly fabricating “non-existent interviews with former Melrose directors and officers.”