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NCUA is proper plaintiff in New London suit agency claims
ALEXANDRIA, Va. (12/14/10)—It is the National Credit Union Administration (NCUA) as liquidator, and not former members of New London Security FCU (NLSFCU), that has the right to pursue claims on behalf of the failed Connecticut credit union, according to a motion recently filed by the agency. The NCUA shut down the New London credit union in July 2008, later alleging that its longtime financial adviser, the late Edwin F. Rachleff, had been engaged over years in a multimillion-dollar embezzlement. Five individuals who lost investments when NLSFCU was shut down filed a $4 million lawsuit this July against the credit union's board and longtime manager, auditors, legal advisers, a brokerage firm and the widow of the credit union's longtime investment adviser, Rachleff. The NCUA, as liquidating agent for the NLSFCU, filed a motion late last month seeking to be substituted for the investors as the “real party of interest” in the lawsuit. The NCUA claimed that “by operation of law, the NCUA board, as the liquidating agency, succeeded to all rights, titles, powers and privileges of the credit union and of any members, accountholders, officers or directors of the credit union with respect to its assets.” The NCUA said the NLSFCU situation must go through the normal liquidation process and claimed that the investors, by filing suit, are seeking to jump ahead of other creditors. In its motion filed with the U.S. District Court of Connecticut, the NCUA told the court, that as liquidating agent the agency has filed suit against some of the same defendants, seeking the same recovery that the five investors seek in their action. All investor’s with uninsured share certificates will be paid out “if and when” the NCUA recovers “sufficient obligations and money due.” “In short, allowing the plaintiffs’ to pursue their action independently would interfere with the liquidating agent’s ability to effectively and properly perform its functions in liquidating the credit union pursuant to federal statute, and would be in direct contravention of Congress’ intent in enacting the Federal Credit Union Act, as amended, to ‘establish a comprehensive scheme for efficiently administering all claims resulting from failed [financial institutions].'” CUNA’s Michael Edwards said the NCUA’s motion is not surprising since the credit union was liquidated. “NCUA’s involuntary liquidation regulations are codified at 12 CFR part 709 and virtually all claims involving a liquidated credit union have to go through the administrative liquidation process; general unsecured creditors are behind secured creditors and the NCUSIF in terms of priority so they usually do not get anything but some recovery is theoretically possible,” he said.


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