BRIDGEPORT, Conn. (12/14/11)--A U.S. District Court in Connecticut has dismissed a civil lawsuit by Wells Fargo Advisors LLC, which had sought contributions from the directors of the now-defunct New London Security FCU, whose investment broker committed suicide after the National Credit Union Administration (NCUA) discovered $12 million missing from the credit union in 2008.
Wells Fargo Advisors LLC is the successor of Wachovia Securities, a successor in interest to A.G. Edwards & Sons brokerage firm, which had employed Edwin F. Rachleff, the credit union's' investment manager. The firm is being sued by NCUA, which is trying to recoup $10 million in losses to the National Credit Union Share Insurance Fund when the credit union was shuttered on July 28, 2008.
Wells Fargo then sued the former board members--Herbert Linder, Martin Yavner, Reuben Levin and Martin Lazars--alleging the board was negligent and seeking contributions from them in the liability related to the case. In its complaint filed, it cited a loss review report issued by NCUA's Office of Inspector General in October 2009, which allegedly faulted the credit union board for allowing Rachleff "run of the house" on investments, according to the court ruling document.
In granting the board members' motion to dismiss the suit, U.S. District Senior Judge Warren W. Eginton said that Wells Fargo failed to sufficiently demonstrate a right to indemnity or contribution under Connecticut law. The firm had cited a state statute on joint liability in third-party negligence, which the judge said did not apply because "all alleged losses are purely commercial in nature."
Rachleff, who was 82 at the time he died, allegedly represented to the credit union that he was opening investment accounts with the credit union's funds. Instead, he allegedly used the funds for personal investments.
The collapse of the credit union has generated several lawsuits. In addition to Wells Fargo, NCUA has sued Rachleff's estate (News Now March 12, 2009) and the former credit union's auditors (News Now March 24, 2010), and uninsured depositors of the credit union have sued NCUA seeking damages (News Now March 8).