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Ponzi scheme involves employee with CU ties

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LANSING, Mich. (7/21/10)--A group of University of Michigan Health System employees has filed a complaint with the state's Financial Industry Regulatory Authority about an alleged Ponzi scheme involving a broker representing a credit union service organization (CUSO). The filing comes four months after Michigan's Office of Financial and Insurance Regulation (OFIR) issued a cease-and-desist order against Mark Carpenter and revoked his securities and insurance licenses. Carpenter sold investment products through his company TGBG Financial, while employed with CUSO Financial Services from June 2007 through October 2008 (News Now March 9). CUSO Financial, a stock brokerage firm in San Diego, maintained a securities branch office inside MidWest Financial CU, a $185 million asset credit union based in Ann Arbor. The credit union and CUSO were not involved in the scheme (News Now March 3). The credit union has applied for a merger with DFCU Financial CU, Dearborn (News Now June 16). An attorney representing five clients--all physicians and administrators in the health system--said the group lost nearly $1 million by investing with Carpenter. Through securities arbitration, they are seeking recompensation from him and from CUSO Financial as his employer. Arbitration is similar to a lawsuit but offers an ability to recover money without going through the court system, the attorney, John Chapman, told Heritage Newspapers July 18). Carpenter has not been charged with any criminal activity but is under investigation by the Michigan Division of Securities. Carpenter himself was scammed in a larger Ponzi operation involving Michael Winans Jr. of the family gospel group, The Winans (News Now March 9) .

Tanker truck crashes into Sun FCU no one injured

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SOUTH PHILADELPHIA, Pa. (7/21/10)--The South Philadelphia branch of Sun FCU was scheduled to reopen today. It had been closed since Friday night, when an empty tanker truck crashed into the building. The credit union's website Tuesday said the branch would reopen today. No one was injured, according to the Pennsylvania Credit Union Association (PCUA) (Life is a Highway July 20). The crash was attributed to a medical related incident involving the truck driver, who was not identified in reports. Local news reports said the accident happened before 8 p.m. Friday, and that the truck contained 10 gallons of diesel fuel, which leaked after the crash (WPVI-TV July 17). While the branch was closed, members and shared branch guests were directed to nearby Sun FCU branches and shared branches, said PCUA.

Canadian Australian CUs succeed with alternative capital

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LAS VEGAS (7/21/10)--Credit unions worldwide are struggling to generate sufficient capital from retained earnings. During The 1 Credit Union Conference in Las Vegas last week, an international panel discussed how credit unions in Canada and Australia successfully raised alternative capital without impinging on their mutual structures. In British Columbia, equity shares were introduced in 1982, said Philip Moore, general manager, Greater Vancouver Community CU, British Columbia. Patronage shares and investment shares are treated as Tier 1 capital as long as the credit unions' rules limit encashment in any one year to less than 10% of the aggregate amount. System capital in British Columbia is allowed to include 50% of pro-rata shares of retained earnings at their central, and credit unions can use equity shares to supplement retained earnings. "This has led to some aggressiveness and prompted the regulator to require at least one-third of regular capital to be retained earnings," Moore said. In Australia, credit unions raised alternative capital as subordinated debt from institutional investors, while ensuring protection of their mutual status, according to Dave Taylor, CEO of SGE CU Ltd., Australia. Taylor described the first aggregated mutual capital issuance by 21 Australian credit unions in 2006. By working jointly, they accessed A$100 million (US$86.9 million) in capital through special vehicles in two tiers. Investors have no say in credit union governance. The Australian credit unions achieved a higher credit rating due to their collective strength and built market credibility. Implementation challenges included satisfying regulators, legal and tax structures of the special vehicles, ongoing licensing and management of the vehicles, and rating by Standard & Poor's. "These require strong trust and cooperation," and high levels of management and board expertise, Taylor said. Alternative capital can help maintain sustainable business, but is not a solution for underperformers, inadequate profitability and poor business models. Jim Updike, CEO, Honda FCU, Torrance, Calif., noted that he is "chagrined that the U.S. is so far behind in addressing capital." Credit unions' capital requirements at 7% to be well-capitalized are 200 basis points above banks' 5%. He noted three policy principles for alternative capital:
* Preserve the cooperative mutual credit union model; * Have robust investor safeguards; and * Maintain prudential safety and soundness.
"Alternative capital has proved its utility in other highly developed credit union movements," said Ralph Swoboda, moderator and principal, The ProCon Group. Done properly, they could constitute a viable capital source in the U.S., too. Swoboda pointed out that a change in federal law will be required whether capital is raised from members or from institutional investors. He also noted two other sets of issues:
* Compliance and distribution costs need to be considered, and * Rates paid on alternative capital should relate to risk.
"Setting up a facility to collectively raise capital from individual members is one alternative, while paying patronage dividends as equity share is another. But raising alternative capital requires a disciplined business and financial approach," he said. Earlier in the week, Credit Union National Association (CUNA) President/CEO Bill Cheney also addressed the subject of credit union alternative capital during the opening general session of The 1 Credit Union Conference. Cheney noted capital reform as one of the big challenges facing credit unions today. "We've seen very little growth in market share during the past 20 years and capital is a major constraint," Cheney said. "To remedy that, capital reform will have to be one of our top priorities. We have to be able to define our own future." The conference was presented by CUNA and the World Council of Credit Unions.

Court action could make NCUA plaintiff for WesCorp claims CUNA

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WASHINGTON (7/21/10)--A U.S. District judge's tentative ruling, which granted the National Credit Union Administration's (NCUA) motion to substitute itself for plaintiffs claiming certain losses in a lawsuit stemming from Western Corporate FCU's (WesCorp's) conservatorship, leaves open the possibility the agency could be named substitute plaintiff for all claims, says the Credit Union National Association (CUNA). In the ruling Thursday, U.S. District Judge George H. Wu in the U.S. District Court Central District of California, Los Angeles, wrote that he is inclined to grant NCUA's motion to take over the derivative claims in the case "at the very least." He also stated that the plain language of the Federal Credit Union Act indicates that NCUA seems to be able to take over the "direct claims" as well, but that NCUA's brief seemed to concede that the plaintiff credit unions could make the "direct" claims. "If indeed NCUA is prepared to concede that point, the motion would be resolved in that fashion--permitting the NCUA (or its Board) to substitute in as plaintiff on any derivative claim(s) and allowing plaintiffs to continue as plaintiffs on any direct claims," said Judge Wu. CUNA reviewed the ruling. "This tentative ruling leaves open the possibility of NCUA being named the substitute plaintiff for all claims," explained Eric Richard, CUNA general counsel. "It will be interesting to see how the court rules going forward, especially considering that the plaintiff credit unions have attempted to make NCUA's performance as regulator a central issue," he told News Now. NCUA, as conservator of WesCorp, succeeded in transferring the lawsuit from state to federal court and sought to intervene as a plaintiff in a case brought by seven natural person credit unions against individuals who were former and current directors, officers and supervisory committee members at WesCorp when it went into conservatorship and against RiskSpan Inc., WesCorp's third-party risk management company. The plaintiffs--lst Valley CU, Cascade FCU, Glendale Area Schools FCU, Kaiperm Northwest FCU, Northwest Plus CU, Stamford FCU, and Tulare County FCU-- filed the suit on Nov. 24 in Los Angeles County Superior Court. They claim the defendants were negligent and breached their fiduciary duties in connection with WesCorp's investments in residential mortgage-backed securities and collateralized debt obligations. In opposing NCUA's substitution as plaintiff, they alleged the agency "is hopelessly conflicted regarding the failure of WesCorp and cannot be expected to diligently prosecute all claims that may belong to WesCorp." (News Now June 28). A status conference on the amended complaint is set for Aug. 5. A scheduling conference previously set for July 26 has been continued to Sept. 9.

Brazilian CU execs learn about modern farms in Texas

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DALLAS (7/21/10)--Credit union executives from SICREDI, one of Brazil’s leading credit union organizations, now have a better understanding of milk production and the important role credit unions can play in solving farm issues, said the Texas Credit Union League. Twenty high-ranking staff and board members from SICREDI joined league officials on a tour Friday of two dairy farms in Stephenville and a credit union that is actively meeting the needs of area farmers, said the league. Marcos Fritzen, manager of resources administration with SICREDI, said the group was extremely impressed with the level of care the dairy farmers provide their animals, and the commitment of the farmers to producing a quality milk product. They also were impressed with the broad range of products and services Members Trust of the Southwest FCU in Stephenville offers to support agricultural growth in their community. “The goal of this tour was to provide our credit union partners in Brazil with greater insight into modern farming; the issues and concerns they face in daily operations, and to connect them with Texas credit unions like Members Trust of the Southwest FCU, who are meeting their unique needs,” said Bob Gallman, the league’s chief operating officer. Last week, the league and SICREDI, a trade association for 128 Brazilian credit unions, signed a “People to People” partnership at The 1 Credit Union Conference in Las Vegas, opening the door for the exchanges of ideas and best practices between the two organizations. Agricultural cooperatives are strong in Brazil, and many credit unions in Brazil started out serving farmers. Brian Gilbert, president/CEO of Members Trust of the Southwest FCU, said he appreciated the opportunity to engage in dialogue with SICREDI, noting that there are few agriculture credit unions in Texas. Collaboration between the league and SICREDI will continue in September, with a four-week visit by 11 SICREDI staff to the league and its member credit unions to get a better sense of how U.S. credit unions approach operational, marketing and member service issues. “SICREDI has had business relationships before, but never with another credit union organization,” said Manfred Dasenbrock, chair of SICREDI. “There is always room for learning from others, and we expect there to be a lot of idea-sharing and exchanges that will make all of our credit unions even better.” “We are enthusiastic about this new partnership with SICREDI,” said league President/CEO Dick Ensweiler “While they are a relatively young movement, they are quite sophisticated. I’m extremely impressed with the level of cooperation that exists between SICREDI’s member credit unions, and I’m confident that this will be a mutually beneficial relationship.”

3 CUs at forefront of Smartphone apps notes IChicago TribI

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CHICAGO (7/21/10)--Three credit unions are at the forefront of iPhone applications that allow members to deposit checks with a camera-enabled smart device introduced by Chase, said Monday. The article noted that credit unions offering remote-deposit services are:
* Sharon (Mass.) CU, which offers “VIP Deposit,” or virtual item processing. Consumers can deposit checks from home using their personal computer, a scanning device and software provided by the bank. It’s free for eligible consumers. Sharon is evaluating remote deposit for Smartphones, a spokeswoman told the Tribune. * Digital FCU, Marlborough, Mass., which allows members to deposit checks through a home-based scanner system and through Apple iPhones or Android-powered smart phones with cameras. Roughly $300 million has been deposited remotely in the credit union since it began its home scanner program in 2008. In April, it began offering remote deposit capabilities through the smart phones, Digital Public Relations Manager John Lahair told the Tribune. * Randolph Brooks FCU, Live Oak, Texas, which also offers an “eDeposit” service through a home-scanning system and through iPhone and Android devices.
“The great thing in all of this is that we actually launched our smart phone applications … three months before Chase,” Digital FCU’s Lahair told New Now. To read the article, use the link.

New Hampshire CU makes case vs. states BET

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MANCHESTER, N.H. (7/21/10)--A New Hampshire credit union believes the state’s Department of Revenue Administration should not ask credit unions to pay back business enterprise taxes (BET), according to a Tuesday editorial in Foster’s Daily Democrat. The New Hampshire Credit Union League concurs. “Two recent cases make the point of just how far the state is willing to stretch common sense and credulity in its quest to close a multimillion dollar budget gap,” said Foster’s Daily Democrat. “Last month the Department of Revenue Administration notified several credit unions they may need to pay back business enterprise taxes. The state argues that the dividends credit unions pay to members are really interest payments and therefore subject to taxation under the BET.” The paper mentioned how Michael L’Ecuyer, president/CEO of Bellwether Community CU in Manchester, highlighted the weakness of the state’s BET position. “L’Ecuyer noted that the BET has been in place since 1993 without the state trying to collect the tax,” the paper wrote. “That’s nearly two decades late to the dinner table for anyone from [the Department of Revenue Administration] who has trouble with math. In addition, L’Ecuyer's credit union has used three different audit firms that never interpreted the law in this manner.” The New Hampshire league agreed. “The Business Enterprise Tax was never applied to credit union dividends because the legislature specifically excluded credit union dividends from this tax in 1993 when the legislation was written,” Dan Egan, president of the New Hampshire and Massachusetts credit union leagues and the Credit Union Association of Rhode Island, told News Now. “We are working with legal counsel to make this clear to the Department of Revenue Administration.” To read the editorial, use the link.

NASCUS changes CU leadership advisory group

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ARLINGTON, Va. (7/21/10)--The National Association of State Credit Union Supervisors (NASCUS) has announced changes to the Credit Union Executive Council, the governing group of NASCUS’ CU Advisory Council. The council comprises 12 directors that advise the NASCUS Board of Directors on issues impacting the state credit union system. Dan Kester, president/CEO of Sooper CU, Lakewood, Colo., for the past 14 years, has been appointed as a director on the council. Kester also has served on several national and state credit union committees and groups. Kester succeeds Ed Bigby of Norbel CU, which recently merged with Security Service FCU, San Antonio. Kester's term runs through September 2012. Steve Behler, executive council director and president of Kemba CU, Cincinnati, was elected secretary in place of Bigby, who held the office for the past year.

LSCU discusses what fed overhaul means on local IABCI

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TALLAHASSEE, Fla., and BIRMINGHAM, Ala. (7/21/10)--The League of Southeastern Credit Unions (LSCU) was featured on a local ABC news station for a story about regulatory reform and interchange fees. LSCU’s vice president of communications, Mike Bridges, discussed what the fed overhaul means on the news station WTXL four times--three times on Friday and once on Monday, the league said. The 2,300-page federal regulatory reform bill, passed Thursday, allows the government to set interchange fees. The Credit Union National Association and credit unions have opposed the language in the reform bill that allows this because they argue that it would be more difficult for credit unions to offer card products and services to members. Bridges told ABC that because of the new interchange rules, there’s fear that while retailers may see reduced rates in their fees, it doesn’t mean that the savings will be passed on to consumers. Also, there’s a cost to credit unions and banks if lower transaction fees would mean fees for consumers, he added. “[The bill] could cause credit unions who issue those cards to put a small fee back onto their members,” he said.

Midwest Corporate members move correspondent services to CUSO

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BISMARCK, N.D. (7/21/10)--Some credit union members of Midwest Corporate FCU, Bismarck, N.D., have moved their correspondent services from the corporate to its credit union service organization, ProDraft Services, as part of the corporate's liquidation plan. ProDraft provides services such as depositing, check imaging and remote branch to credit unions. ProDraft will use Fifth Third Bank of Cincinnati, Ohio, to offer the services that the corporate provided, said Trudy Wise, Midwest Corporate CEO. Some credit unions have already switched to ProDraft, while others are using Bank of North Dakota, Bismarck, N.D. Many credit unions already have a relationship with the state-owned Bank of North Dakota through agricultural loans and other services. “The [member credit unions] have never looked at Bank of North Dakota as a competitor,” Wise added. She also noted that the bank was interested in working with the credit unions. Midwest Corporate’s board has a liquidation plan and will meet Thursday to accept the plan. Credit unions are aware of the liquidation plan, which will take about a year to finalize. Midwest Corporate has roughly $1 million in member capital, Wise said. Former Midwest Corporate CEO Doug Wolf is now a consultant for Midwest Corporate and ProDraft. “It is always difficult when a credit union, including a corporate credit union, has to consider liquidation,” said Mary Dunn, Credit Union National Association (CUNA) senior vice president and deputy general counsel. “CUNA’s Corporate Credit Union Next Steps Working Group is focusing on ensuring natural person credit unions will continue to have access to the payment, settlement, and investment advisory services they need as the corporate credit union system continues to adjust to the economy and later to the National Credit Union Administration (NCUA) upcoming corporate CU rule.” The report of the Task Force is expected before NCUA issues its final corporate CU rule, anticipated in mid-September.