KANSAS CITY, Kan.–Twenty-five North Dakota credit unions have filed a lawsuit against NCUA alleging the agency is withholding more than $10 million owed them as part of the resolution of the failed corporate credit unions.
As CUToday.info reported here, the credit unions allege the funds are being withheld over a “technicality” being cited by NCUA. As explained in the report, prior to the financial collapse in 2008–2009, the largest corporate credit union in the United States, U.S. Central Federal Credit Union (U.S. Central), provided services to other corporate credit unions, including Midwest Corporate, acting as a "corporate credit union's credit union." In early 2009, in response to investment losses incurred at U.S. Central, NCUA placed U.S. Central into conservatorship.
As further noted in a letter sent earlier to the agency by North Dakota’s two senators and in the complaint, “The investment losses at U.S. Central exceeded their Member Contributed Capital, which led to the extinguishment of nearly all the contributed capital. Under the corporate restructuring plan, corporate credit unions were required to either recapitalize, merge, or liquidate. At the time, credit unions in North Dakota chose not to re-capitalize Midwest Corporate or merge with another corporate credit union,” according to the letter.
On April 29, 2011, Midwest Corporate officially closed its doors.
Claim Receipt Cited
According to the Dakotas Credit Union Association, the senators’ letter to NCUA, and the complaint, prior to the dissolution of Midwest Corporate, in October 2010, NCUA issued Midwest Corporate a claim receipt for Member Contributed Capital represented by Paid-In Capital (PIC) totaling $3.3 million and Membership Capital Accounts (MCA) totaling $10,448,323.99.
The association and the senators said the claim receipt states that it enables Midwest Corporate owners “to share pro rata in the net proceeds, if any, to the extent of the PIC and MCA Balances as of the record date” and “no further action is required on their part to file or activate a liquidation claim.”
Checks Not in the Mail
But North Dakota’s 30 credit unions haven’t received the funds they are owed, according to the DCUA and the senators’ letter.
Now, in a complaint filed in the United States District Court for the District of Kansas, the plaintiffs state, “Nearly a decade later, the NCUA determined there were sufficient funds available to make an interim distribution for former MCA holders of U.S. Central. However, even though the NCUA previously informed Midwest Corporate that Midwest Corporate had a claim for which no further action was required, the NCUA advised the former capital members of Midwest Corporate that Midwest Corporate was ineligible to receive a distribution because Midwest Corporate no longer existed.
“The NCUA then advised that the former capital members of Midwest Corporate could file individual claims. Although Plaintiffs filed individual claims seeking their pro rated share of Midwest Corporate’s claim receipt, the NCUA disallowed the claims.”
What’s Being Requested
The 25 North Dakota CUs backing the lawsuit are asking the court to find Midwest Corporate’s claim to be valid and for a pro rata distribution to its former members, or that their claims be deemed allowed and paid, or that a judicial determination be made that Midwest Corporates valid claim be held in constructive trust for the benefit of its former members and be distributed pro rata.
‘Arbitrary Confiscation’
In an earlier statement DCUA President/CEO Jeff Olson said NCUA has “arbitrarily decided to confiscate these assets from everyday North Dakotans…”
Moreover, Olson also raised questions over other statements made by NCUA and actions it took related to North Dakota’s state regulatory agency.
“…We know that the U.S. Central liquidating agent, the NCUA, reached out to the North Dakota Department of Financial institutions (ND DFI) to give them a ‘heads up’ that reimbursement checks were about to be released to North Dakota credit unions,” Olson stated earlier. “We know this as the ND DFI deputy commissioner shared this information with us. ND DFI then informed the liquidating agent that the corporate had been liquidated years ago,” Olson wrote. “Clearly, the NCUA was aware that the corporate was federally charted, and ND DFI had no regulatory oversight.
“Why would the agency reach out to the state regulator if they weren’t about to send out reimbursement checks to North Dakota credit unions? What would have happened if the deputy commissioner would have simply said, ‘Send us the checks and we’ll get them out’?” he continued. “Why couldn’t the ND DFI serve as the ‘legal entity’ to pay these claims to the rightful owners since they served as the liquidating agent for Midwest Corporate?”
‘Interesting Situation’
Added Mike Bell, an attorney with the firm Honigman, LLP, “This is an interesting situation that should be watched closely by the CU industry. I’m certain neither party in this dispute is taking it lightly and both feel they are correct.”
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