MADISON, Wis. (8/21/12)--Fifteen credit unions have filed a suit in a Wisconsin circuit court against Dick Jungen, former CEO of the defunct Central States Mortgage Co. (CSMC), and others, alleging that they were involved in a secret loan pool that caused millions in losses to credit unions.
The Wauwatosa, Wis.-based Central States was 70% owned by credit unions and originated and sold residential and commercial mortgage loans as a credit union service organization (CUSO) about 250 credit unions in the Midwest.
CSMC closed abruptly on March 9, 2008 and was appointed a receiver to oversee its liquidation in April 2009. The collapse resulted in several lawsuits by credit unions and CSMC's parent company, alleging that Jungen and others had used another business, Interim Funding, to funnel bad mortgages to Central States, causing a $15 million loss (News Now April 10, 2009).
The newest suit, AM Community CU et al vs. M&D Investment Co. LLC of Hartland, Wis., was filed on June 12 in Dane County Circuit Court in Madison, Wis. Fourteen of the credit unions suing are based in Wisconsin; the 15th is in Illinois. The amended complaint alleges unjust enrichment/constructive trust and fraudulent transfer under a Wisconsin statute.
Specifically, the amended complaint alleges that Jungen and others had disclosed the existence, terms and identity of the investors in certain loan participation construction pools but failed to disclose their involvement as investors in another loan-participation pool, P-55. Also, P-55 contained a full recourse provision allowing the pool's participants to require CSMC to redeem their participation interested upon 90 days written notice to CSMC, said the complaint.
"The failure to disclose the identity of the P-55 Pool participants and the terms of the P-55 Pool participation agreements deprived plaintiffs of the opportunity to take measures to protect themselves against fraud and self-dealing, and to object to or establish oversight and/or control over the relationship between CSMC and the P-55 Pool," said the document.
The amended complaint also alleges that Jungen and the other defendants failed to disclose the terms of the contract that require CSMC to pay back investors of the pool and that they improperly liquidated the P-55 Pool without adequate notice. P-55 Pool participants were paid using CSMC corporate assets, including credit and cash causing monetary losses to the credit unions, said the court document.
News Now obtained the amended complaint from an attorney for the plaintiffs, Terrence M. Polich of Madison-based law firm Clifford & Raihala.