ALEXANDRIA, Va. (3/24/10)--The National Credit Union Administration (NCUA) has followed up its recent lawsuit against Wells Fargo Investment Advisors by also filing suit against the former auditors of now defunct New London Security FCU, Ed Lorah & Associates, L.L.C. The NCUA began the first suit after it uncovered alleged fraud that was perpetrated by former A.G. Edwards (which is now owned by Wells Fargo) employee Edwin Rachleff. Rachleff embezzled $12 million in funds from the credit union through numerous false account statements that he filed between 1998 and 2008, and these statements eventually contributed to the failure of New London FCU, which created a $10 million loss for the NCUA’s share insurance fund. (See related story: NCUA seeks recoup of $10M following Conn.-based fraud case, Feb. 4, 2010.) The NCUA is also seeking $10 million in damages from Ed Lorah & Associates. The latest NCUA lawsuit alleges that “professional malpractice” and “breach of contract” by audit firm Beller Shepatin & Co., P.C., which has since merged with Ed Lorah & Associates, L.L.C., prevented New London FCU from detecting Rachleff’s fraudulent activities. “As a consequence of Beller Shepatin's 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,” the complaint adds. According to the NCUA complaint, Beller Shepatin & Co. “performed the services for which it was retained in a negligent and careless manner” and failed to comply with standard auditing practices, “to properly request confirmation of the accounts being audited,” to “adhere to proper standards by maintaining control over the entire confirmation process,” to “ascertain the independence and authenticity of the financial statements and documentation it received,” and to “detect, identify, and question the inconsistencies and differences in the account statements it received for the two separate Credit Union accounts at A.G. Edwards.” A summons to Ed Lorah & Associates was filed on March 19, and a date for the trial has not yet been set.