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Suit claims defunct CUs embezzlement required accomplice
BRIDGEPORT, Conn. (7/27/10)--More charges and countercharges have been filed in a U.S. District Court in Bridgeport, Conn., related to a decades-long, $12 million embezzlement of funds that prompted the collapse of New London (Conn.) Security FCU in July 2008. The latest countersuit, by Wells Fargo Advisors, alleges that the credit union's long-time investment adviser, Edwin F. Rachleff, had help from inside the credit union. Rachleff , an employee of investment firm A.G. Edwards & Sons, had an office at the credit union and allegedly funneled the investments of members into Elmore Shoe Co., a business owned and operated by Rachleff as part of the fraud, said the complaint. The embezzlements occurred from 1988 until July 2008, when the fraud was discovered. Rachleff committed suicide the day the credit union was shuttered. Wells Fargo Advisors is the company succeeding in interest to Wachovia Securities, which bought the A.G. Edwards investment firm. Wells Fargo's third party complaint, filed in the U.S. District Court for the District of Connecticut on March 29, faulted the credit union's board and manager for not discovering the fraud and providing safeguards and its external auditors, Ed Lorah & Associates and Beller Shepatin & Co., for allowing the fraud to go undetected. The countersuit noted that "Rachleff's misconduct was amateurish, even obvious, but it went undeterred for years, even decades, due to the third party defendants' lack of care." "Rachleff's eyesight was seriously compromised, and ... he was legally blind," the complaint said. "The vision issue created a need for Rachleff to have an accomplice to effect the fraud," it added, saying he "looked no further than New London's management to find 'eyes' to perpetrate his plan." The document alleges that Mary Richards, New London's manager at the time, "manually typed the statements bearing the indicated, but fraudulent and fabricated, investment entries and investment returns ... every month, month to month, year to year." On July 6 one of several memorandums in support of a motion to dismiss the countersuit was filed by board members of the credit union. It noted that if the fraud was that obvious, "Wells Fargo was in a much better position to monitor Mr. Rachleff's conduct. In essence, the employer of the thief has now sued the victims, claiming that the victims owed a duty to the thief's employer to prevent the thief from stealing from them." The countersuit responds to a suit brought by the National Credit Union Administration, which said the National Credit Union Share Insurance Fund lost $10 million from the credit union's failure.


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