Federal Judge Dismisses NCUA’s $4.7 Million Lawsuit Against CUMIS
Federal agency alleges additional and extensive corruption of convicted Melrose CEO Alan Kaufman that led to losses.
A federal judge ordered the dismissal of an NCUA lawsuit that alleged CUMIS Insurance Society failed to pay a $4.7 million insurance claim of documented losses caused by the convicted CEO of Melrose Credit Union.
Court records showed the federal agency and CUMIS agreed earlier this month to dismiss the lawsuit with prejudice and each party pay its own court costs. Dismiss with prejudice means the NCUA is prohibited from filing the same lawsuit in a federal court. However, court records did not indicate whether the NCUA and CUMIS agreed to an out-of-court settlement.
The lawsuit revealed allegations of additional and widespread corrupt acts by Alan Kaufman, former president/CEO of the liquidated Melrose Credit Union in Briarwood, N.Y., who was sentenced to nearly four years in federal prison in September 2021 after a jury found him guilty of two bribery felonies. He remains free on bond, pending an appeals court decision regarding his conviction.
A month after Kaufman’s conviction, the NCUA’s lawsuit was filed in the federal court of the Eastern District of New York, which made multiple allegations against CUMIS, including that the Madison, Wis.-based company 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.”
In court documents that answered the NCUA’s claims, CUMIS repeatedly and flatly denied the federal agency’s allegations.
In February 2017, the New York Department of Financial Services conserved Melrose, which was one of New York City’s largest credit unions that approved loans for taxicab drivers and companies to buy medallions that allowed them to provide transportation services. When 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 September 2018, DFS liquidated Melrose primarily because of nearly $745 million in taxicab loan losses and appointed the NCUA as the liquidating agent.
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 losses that were caused by the dishonest conduct of Kaufman.
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’s CEO in 1998, he engaged in a series of extensive corrupt schemes that cost the credit union millions.