STUDIO CITY, Calif.–How did the CEO of a $21-million credit union allegedly manage to steal $40 million from the CU?
It’s a key question at the core of the investigation by NCUA, the FBI and Los Angeles police as they work to reassemble what happened to C B S Employees FCU here. Now, two sources have offered CUToday.info one theory on how the CEO was able to pull it off.
As CUToday.info reported here and here, Edward Martin Rostohar, 62, the former CEO of the now defunct C B S Employees FCU, has been charged with embezzling over a two-decade span more than $40 million from the credit union, which has now been merged into University Credit Union.
Two Sets of Books
According to two sources who told CUToday.info they had spoken with NCUA officials involved in the investigation, Rostohar was able to keep two sets of books for the credit union, one of which recorded member certificates of deposit, while the other, official books did not. As a result, examiners and auditors never saw any of the deposited funds and, as a result, any missing funds. Certain members were also allegedly sent bogus statements separate from the credit union’s standard statements, according to the source, who did not have additional details on how that scheme might have worked.
According to investigators, there had been issues over the years with some members reporting unauthorized activities on their accounts.
It should be noted that NCUA did not confirm or deny the report, saying it is working with law enforcement and member accounts remain federally insured, and that it would not be providing any other comment.
Embezzlement ‘Ballooned’
One of the sources said the alleged embezzlement had been relatively small for most of Rostohar’s career at the credit union but had really ballooned over the last four to five years. The source described the situation as a “Bernie Madoff-like Ponzi Scheme” that ultimately collapsed.
One source who is a former examiner who said he knew Rostohar when he was also an examiner with the agency described him as a “smart guy.” The source also noted the nature of the alleged embezzlement meant Rostohar could not be away from the credit union’s offices for long due to the second set of recordkeeping.
Rostohar told investigators his experience as an examiner helped him to hide the alleged embezzlement. Additional details on how the scheme worked can be found here.
Another Challenge for NCUA
The questionable recordkeeping and potential double set of books also significantly raise the challenge to NCUA as it seeks to accurately reconstitute records and ensure members are made whole.
NCUA has declined to confirm or deny the sources’ explanation of what took place, citing the ongoing investigation.