NCUA Sues Former Melrose Credit Union CEO and Attorney

The NCUA has filed a new civil lawsuit against the former CEO and attorney of Melrose Credit Union, alleging that they ran a side business that coordinated the sale of taxi medallions and pocketed more than $407,000 in profits.

The lawsuit is seeking a money judgement against former CEO Alan Kaufman and Attorney Mitchell Reiver because the NCUA alleged they breached their fiduciary obligations in other ways that caused the loss of millions at the credit union that was liquidated in September 2018.

In addition to the side business, the federal agency claimed Kaufman and Reiver, without the board’s knowledge or approval, tapped their split-dollar insurance agreements to get loans. The lawsuit also claimed that Reiver knew about Kaufman’s financial improprieties, facilitated them and failed to report these schemes to the board.

Kaufman and Reiver did not respond to multiple requests from CU Times for their comments.

The NCUA filed the lawsuit in U.S. District Court for the Eastern District of New York in Brooklyn on Jan. 9, just one day before a New York appeals court upheld Kaufman’s bribery conviction and 46-month prison sentence on Jan. 10. Although he has remained free on bond during the appeals process, a federal court order on what date Kaufman is to report to prison has not been filed as of Thursday afternoon.

On July 11, 2002, Reiver established Briarwood Transfer Services (BTS), a limited liability company, which was owned in equal shares by him and Kaufman. The company was organized to serve as a broker in the sale of taxi medallions, coordinating the sale and transfer of medallions with the New York Taxi & Limousine Commission and collecting a commission on each transfer.

BTS earned commissions primarily for the transfer of taxi medallions secured by loans from Melrose, which Reiver, Kaufman and other Melrose employees referred to as BTS. The company, however, never had any employees of its own and conducted its business from Melrose’s main branch in Briarwood, according to the NCUA.

Even though Reiver was a full-time employee as general counsel for Melrose making more than $300,000 annually in total compensation for several years, he devoted a significant amount of his time during his workday performing work for BTS, NCUA alleged.

As early as 2007, Reiver’s annual performance appraisal recognized that he was performing BTS services to the detriment of his Melrose duties, the NCUA alleged. What’s more, Reiver and Kaufman directed other Melrose employees to perform BTS functions during their workday and also diverged other Melrose resources for those employees to perform BTS functions, including the use of a Melrose-owned car.

In addition to his Melrose salary, Reiver received more than $206,000 in profits from BTS from 2003 to 2017.

Kaufman, who personally kept the books for BTS and was earning a seven-figure salary ranging from $1.1 million to $2.3 million in total compensation over several years, received $201,000 in BTS profits from 2003 to 2017.

According to the NCUA, the Melrose board was not aware of BTS.

What’s more, board members never authorized their required approval for a total of $2,568,000 in loans that Kaufman and Reiver borrowed against their split dollar insurance agreements that are whole life insurance policies, which had cash value for which the policies may be redeemed during the insured lifetimes and death benefits that are paid upon the insured’s death.

Melrose made total payments of $2.5 million to fund the life insurance policies. Because the loans must be repaid to the insurance company from the policies’ proceeds prior to any payment to Melrose, the loans taken by Kaufman and Reiver impaired Melrose’s financial interest in the policies, according to the lawsuit.

Kaufman accepted bribes from Tony Georgiton, owner of a taxi medallion brokerage company, and other businesses.

After Georgiton bought a $630,000 home in Jericho, N.Y., where Kaufman lived rent free for more than two years, the former credit union CEO repeatedly approved tens of millions of dollars in Melrose loans with favorable interest rates for Georgiton’s companies. What’s more, while he was living rent free at the home, Kaufman used $2 million in the credit union’s funds to pay for the naming rights of a local ballroom that was owned by one of Georgiton’s businesses.

Kaufman later purchased the home with an unsecured loan from Georgiton and a $200,000 loan from Melrose co-signed by Georgiton.

According to the NCUA’s lawsuit, Reiver participated in Kaufman’s improprieties because Reiver allegedly performed the closing for Georgiton’s purchase of the house in which Kaufman lived rent free, and also performed the closing when Kaufman later purchased the house from Georgiton with money and loans co-signed by the taxi medallion business owner.

The NCUA claimed Reiver did not disclose either transaction to the Melrose board.

Despite knowing that Georgiton was one of Melrose’s largest taxi medallion borrowers and that Kaufman had provided favorable loan terms and interest rates to Georgiton to the detriment of the credit union, Reiver also did not disclose this information to the board even though he expressed concerns about these loan terms in an email, the NCUA alleged.

The federal agency also claimed that Reiver facilitated the consummation of a naming rights agreement for $2 million that he knew had little or no value for the credit union. The lawsuit also alleged that Reiver did not disclose this issue to the board.

However, in a June 2016 letter, Reiver informed the New York Department of Financial Services about the financial improprieties. By that time, the board was already aware of these issues following an internal investigation.

Kaufman was removed as CEO by the board in late 2016 and Reiver was terminated on Feb. 17, 2017, when Melrose was conserved.