Five Years in Prison for Former Credit Union Controller in Embezzlement Case

A federal judge in Georgia sentenced Teresa Paulo last week to five years in prison for embezzling $1.2 million from Southern Pine Credit Union in Valdosta for nearly a decade while she was its controller.

U.S. District Judge W. Louis Sands also ordered Paulo to pay the $32 million Southern Pine Credit Union (SPCU) restitution in the amount of $1,238,638 and to two years of supervised release following her prison sentence, according to court filings.

Her sentencing memo to Judge Sands was posted on the federal docket, but it was not available to the public or the media. Paulo’s attorney did not respond to CU Times’ request for comment.

Paulo pleaded guilty last November to one felony count of bank fraud and one felony count of aggravated identity theft.

Her sentence comes four months after Judge Sands sentenced Leah Lehman, 63, in May to six years in prison for embezzling millions from SPCU while she was its president/CEO for three decades. Lehman was ordered to pay SPCU restitution in the amount of $4,491,253 and to two years of supervised release following her prison sentence.

Lehman has been incarcerated at the Marianna, Fla.-based medium security correctional institution with an adjacent minimum security satellite camp, according to the Federal Bureau of Prison. Her release date is scheduled for Sept. 28, 2029.

The $5.7 million embezzlement case led the NCUA to place the credit union into conservatorship in June 2020. The credit union was released from conservatorship in March 2022. Sometime in the first or second quarters of 2020, through sources outside of SPCU, the NCUA became aware of questionable transactions involving Lehman and Paulo.

As the controller, Paulo was authorized to originate all types of loans, was responsible for filing quarterly Call Reports to the NCUA and had access to all SPCU employees’ usernames and passwords for all of the credit union’s computers and software.

Her embezzlement began in October 2011 when she created a share secured loan in a SPCU account in Victim No. 6′s name using his name and Social Security number without his knowledge. What’s more, from November 2011 to May 2020, Paulo took out additional advances on the loan as well as additional loans under this account. The funds from the loans from this account were then transferred to Paulo’s joint account with Victim No. 6 for personal spending purposes, according to court documents.

By July 2014, Paulo created a share secured loan in a SPCU account in Victim S’s name using his dormant account without his knowledge. From September 2014 to April 2020, she paid off the loan for Victim S’s dormant account and rebooked it multiple times with additional advances using Victim S’s name or with a check written by Paulo from Victim S’s dormant account by forging his signature without his knowledge.

By May 2020, Paulo transferred the proceeds from the advances for the dormant account before transferring the funds to her joint share draft account, over which she had partial control, for spending purposes. By this time, the total balance for the loan in this dormant account was $1,233,201, excluding interest and legitimate payments made, court documents showed.

To conceal her activities with the loans for the dormant account, Paulo used two schemes, which she admitted to in her plea agreement with prosecutors.

The first scheme occurred from 2011 to May 28, 2020. During that time, she created false credit transactions using the user names and passwords of SPCU employees Victim No. 3, Victim No. 4, and other SPCU employees, without their knowledge, to simulate the payoff of the loans.

These transactions would advance the due date on the loans. Following these transactions, the former credit union controller created debit entries using Victim No. 3’s, Victim No. 4′s, and other SPCU employees’ user names and passwords to put the loans back on the accounts, which would often include interest accrued on the outstanding loans.

Specifically, on Feb. 5, 2020, Paulo created debit entries using Victim No. 3′s user name and password. She also would make additional loan advances simultaneously with those entries to advance the loan due dates.

Beginning in September 2014, Paulo used the second scheme to conceal her activities with the loans.

Specifically, she admitted in court documents that she would reflect the loans as being paid off at the end of each quarter to avoid possible detection of the artificial growth in SPCU’s loan portfolio from those loans on the quarterly NCUA Call Reports.

To do this, Paulo would write one or more drafts on a share draft account and use that to simulate the payoff of the loans. When the drafts cleared the following month, a new advance was taken on one of the loans and transferred to the share draft account on which the draft was clearing to ensure there were funds available to cover it.

This successfully reduced the outstanding loan balances on the loans at the end of the quarter, thereby not drawing attention to the steadily and rapidly increasing fictitious loan balances.

The drafts needed to pay off the loan balances at each quarter grew to an amount totaling $1,233,201, excluding payments and interest, as of May 31, 2020. Court documents showed that legitimate payments made to the loan balances totaled $7,736, and the interest accumulated totaled $5,436 as of May 31, 2020, court documents showed.

By early June 2020, the NCUA conserved SPCU.