Feds Allege Former Kansas CU CEO Stole Hundreds of Thousands of Dollars

A new 29-count felony indictment alleged Rita Hartman, 68, of Atchison, Kan., allegedly embezzled hundreds of thousands of dollars while she was the president/CEO of the $6.5 million Muddy River Credit Union.

Hartman pleaded not guilty to the charges during a court hearing in U.S. District Court in Kansas City on Monday. The indictment included four counts of bank fraud, 10 counts of wire fraud, 11 counts of false entries in federal credit institution records and four counts of embezzlement.

From the early 1990s to January 2021, Hartman was Muddy River’s CEO. The NCUA’s profile reports also showed Hartman was the secretary and treasurer on a five-person board of directors. In 2013, she was appointed by then Kansas Gov. Sam Brownback to a three-year term on the Kansas Credit Union Council, which advises the Kansas Department of Credit Unions on issues and needs of credit unions.

From March 2010 through December 2020, however, federal prosecutors alleged a part of Hartman’s fraudulent scheme included crediting phony deposits and fake loan payments to her or a relative’s credit union accounts. She also allegedly stole cash deposits made by members.

As part of the scheme, Hartman allegedly concealed her fraud by altering or failing to properly record transactions in Muddy River’s books and records to make it appear the credit union held certain assets when, in fact, no such assets existed.

“For example, Hartman falsely represented in Muddy River’s general ledger and in Call Reports submitted to the NCUA that Muddy River held significantly more in Security Repurchase Agreements at Exchange Bank than it actually held,” prosecutors wrote in the indictment. “Falsifying and inflating the amount of these assets effectively concealed a corresponding amount of the fraudulent credits that Hartman made to her or a relative’s account or cash that was stolen.”

She also concealed her scheme by maintaining a cash on hand balance in Muddy River’s general ledger that was significantly more than the amount of cash that was actually held by the credit union. This helped hide the fact that cash was deposited by a member and credited to their account but not deposited in Muddy River’s account at Exchange Bank where the credit union held a deposit account, federal prosecutors alleged.

According to the indictment, the former credit union employee submitted NCUA Call Reports that significantly inflated the total cash that the Atchison-based Muddy River had on deposit in other financial institutions, namely Exchange Bank.

“If Hartman reported to the NCUA the inflated cash on hand balance that she maintained on Muddy River’s general ledger, it would have raised a red flag. Regulators would have expected no more than a couple thousand dollars in cash maintained at Muddy River,” according to federal prosecutors. “By overreporting to the NCUA the amount held at other financial institutions, Hartman helped prevent regulators from discovering her scheme to defraud thereby allowing her to continue to steal from Muddy River over a period of many years.”

Hartman’s court-appointed attorney did not respond to CU Times‘ request for comment.

Muddy River’s financial performance reports showed the credit union posted a loss of $28,649 at the end of the first quarter in 2021. At the end of 2017 and 2018, the credit union recorded losses of $240,089 and $129,155, respectively.

During the second quarter of 2021 the NCUA approved Muddy River’s consolidation because of its poor financial condition. The credit union was merged into the $192 million Frontier Community Credit Union in Fort Leavenworth, Kan.

To maintain their federal tax-exempt status, all state-chartered credit unions are required to file a Form 990, which includes financial, salary and operational information.

A Muddy River Form 990 submitted to the IRS by Frontier Community President/CEO Michael J. Augustine for the tax year beginning Jan. 1, 2021 and ending June 30, 2021, stated that during this period a “possible internal theft was identified and is under investigation. An allowance of $893,591 was recorded for the pending bond claim.”

This IRS Form 990 document, as well as an initial Form 990 form filed by Muddy River before it had been consolidated, showed that Hartman was paid $106,501 from Jan. 1, 2020, until the early part of 2021.

Read More: Hartman’s Indictment and Muddy River’s IRS 990 Form.