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CU System
Auditor responds to NCUA suit in New London failure
NEW HAVEN, Conn. (6/21/10)--The auditors of the defunct New London (Conn.) Security FCU have filed a response to an amended lawsuit by the National Credit Union Administration (NCUA) in which NCUA alleges an unqualified auditor failed to act on a fraudulent situation for years before the credit union collapsed in 2008. The defendants in the suit--filed in the U.S. District Court, District of Connecticut, New Haven--are the credit union's former auditor, Beller, Shepatin & Co. P.C.; an employee at the firm, Robert Shutsky; and Ed Lorah & Associates LLC, a firm that is successor in interest to the Beller firm, which Lorah bought in 2007. In the response filed on June 11, the defendants' attorneys Marisa Lanza and Andrew F. Pisanelli denied NCUA's allegations of professional malpractice and breach of contract in performing audits and reviews of the credit union's financial statements. NCUA's suit alleges that Shutsky was unqualified and lacked the proper and necessary training and knowledge to perform auditing and review services, according to its amended complaint filed April 8. "As a result of the defendants' professional malpractice, and breach of contract, the credit union's investment in a fraudulent investment account went undetected for many years," said the complaint. "As a consequence of the defendants' professional malpractice, and breach of contract, the credit union was unable to prevent or mitigate the damages caused by the fraudulent investment account, ultimately losing virtually all of its assets," NCUA had charged. The fraudulent activity centered on assets in A.G. Edwards & Sons, which became Wachovia Securities (now Wells Fargo) in 2007. A.G. Edwards' employee, Edwin Rachleff, allegedly embezzled $12 million in funds from the credit union through numerous false account statements he filed between 1998 and 2008, the complaint said. NCUA found the credit union insolvent and placed it into involuntary liquidation in July 2008. Rachleff died the day the credit union was shut down. As a result of the liquidation, NCUA's National Credit Union Share Insurance Fund (NCUSIF) paid out about $9.7 million to members of the credit union on their insured shares, said the complaint. The agency is seeking reimbursement of more than $10 million--the $9.7 million NCUSIF payment, about $570,000 in uninsured shares that members of the credit union lost as a result of the liquidation, and administrative costs associated with the liquidation.


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