ALEXANDRIA, Va.–In the administrative charges NCUA has filed against a former CEO, it is being alleged that he may have committed one of the largest and long-lasting frauds in credit union history, with allegations including the personal approval of more than $185 million in questionable loans, free luxury trips and other travel for himself and wife from the New York Jets and other vendors, a free residence, a bogus naming rights deal, and even free limousine rides for himself and his extended family.
As CUToday.info reported here, NCUA has turned to an infrequently filed authority to file Administrative Charges against Alan S. Kaufman, former CEO, treasurer, and board member of Melrose Credit Union.
NCUA said it is seeking a prohibition order against Kaufman and requesting he be ordered to pay restitution of at least $3.5 million. In addition, the NCUA board assessed Kaufman with a civil money penalty of $1 million.
The seven-count notice of charges was filed with the Office of Financial Institution Adjudication, which is the executive body charged with overseeing the administration of administrative enforcement proceedings for the NCUA, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation.
NCUA declined to comment further to CUToday.info on the nature of the loans involved and whether there is any collateral on those loans. The agency also declined to comment on whether any criminal charges would be sought separately.
Kaufman has one of the more interesting stories of credit union employment in the country. His grandfather helped to found the Briarwood, N.Y.-based credit union in 1922 and served as its CEO and was, in turn succeeded by Kaufman’s father as CEO, before Kaufman himself became CEO in 1998 (after joining the credit union in 1984). Like his grandfather and father, Kaufman also served as treasurer and a member of the board.
Kaufman was removed for cause by the board in July of 2016, and removed from the board in Oct. 25 of that same year. The credit union was placed into conservatorship in February of 2017 due to loan losses and being rated a CAMEL 4.
Long Pattern of Abuses Alleged
The assumption made by many was the conservatorship was due purely to losses related to taxi medallions, loans for which are Melrose’s chief line of business. It made loans in New York, Chicago, Philadelphia and Miami, according to NCUA.
But the Administrative Charges filed by NCUA allege a far deeper pattern of abuse for the benefit of Kaufman and his family. Among those benefiting were Kaufman’s father, the previous CEO, who had been paid more than $5,000 per month for consulting services for nearly 20 years. The Administrative Charges do not allege wrongdoing by Kaufman’s father, whose name, along with others, is redacted in the document.
In its Administrative Charges, NCUA said the credit union had written policies in place regarding fraud, gifts from vendors (which were not to exceed $100), and bribery. The agency alleged Kaufman violated all of those policies and accepted free luxury trips from vendors of Melrose, NCUA said in its statement. “At relevant times, CBS Radio, Madison Square Garden (MSG), and the New York Jets were substantial vendors to Melrose. Kaufman repeatedly solicited and accepted on behalf of himself and his wife from vendors to Melrose…”
Super Bowl Trips, Voodoo & More
Among the free trips NCUA said in its Administrative Charges that Kaufman accepted included: A CBS Radio free world trip to Paris in 2010; MSG's free trip to Stockholm, Sweden, to watch the New York Rangers play hockey 2011; CBS Radio’s free trip to Hawaii in 2012; MSG's free trip to the “Voodoo Event” concert series in New Orleans in 2012; CBS Radio’s free trip to the Super Bowl in New Orleans in 2013; the New York Jets’ free trip to San Diego to watch the Jets play the Chargers in 2014; the New York Jets’ free trip to Chicago to attend the VIP 2015 NFL Draft Experience, and the New York Jets’ free trip to Dallas to watch their game against the Cowboys in 2015.
NCUA alleged that at one point CBS Radio had told Kaufman Melrose had not spent sufficient funds on advertising to earn a trip to the Super Bowl, which upset Kaufman. According to the agency, “Kaufman wrote on January 22, 2013, to his CBS radio contact "You better tread carefully here, I spent $620,000 last year and committed over $240,000 just last week. My patience is growing thin and time is running out.”
Upon receipt of Kaufman's email, CBS Radio acceded to Kaufman’s demands and provided Kaufman and his wife the free luxury trip, from January 30, 2013, through February 4, 2013 to the Super Bowl in New Orleans.
The Allegations
Here are the other allegations as outlined in the various counts:
Count Two: Kaufman Improperly Solicited and Accepted for More Than Two Years the Exclusive Rent-Free Use of a Residence from a Vendor of Melrose.
“At all relevant times (three redacted names) were the majority owners which leased in or around 2010 a derelict property in Astoria, N.Y., and which it helped to build a 1,200 seat entertainment venue. On or about October 14, 2011, Kaufman executed on behalf of Melrose a five-year, $2-million naming rights agreement making (name redacted) one of the vendors of Melrose. At all relevant times (redacted names), which until approximately 2014 were together one of Melrose’s largest borrowers…
“In or around 2010, Kaufman began experiencing financial difficulties. After Kaufman informed (redacted name) of Kaufman's personal financial difficulties, Kaufman and (redacted name) consummated an agreement under which (redacted name) agreed to purchase at (redacted name’s) sole expense a residential dwelling for Kaufman's exclusive, indefinite, rent-free use and possession. “On December 1, 2010, at Kaufman’s direction, (redacted name) purchased for $630,000 the dwelling located and selected by Kaufman in New York. Beginning on or about December 1, 2010, and continuing through on or about February 1, 2013, Kaufman resided rent free.”
The document says the estimated fair value for the rental was initially $3,650 per month, a figure that eventually rose to $4,600 per month. Kaufman never informed the Melrose board he was residing in a residence owned by a Melrose vendor and member, NCUA said.
“Kaufman personally approved loans with special terms to (name redacted). Between 2009 and 2012, Kaufman repeatedly bypassed Melrose’s normal loan application and approval process and personally approved loans to (name redacted) on terms that were favorable to (name redacted) and that were not available generally to other borrowers at Melrose,” NCUA alleged. “On or about October 15, 2009, Kaufman personally approved $36,750,000 in loans to (redacted name) and his related companies on terms or favorable to (name redacted). On or about July 27, 2010, Kaufman personally approved $62,250,000 in loans to (name redacted) and his related companies on terms that were favorable to (name redacted) and not available generally to other borrowers at Melrose.
“On or about July 1, 2011, while living rent free and the residence owned by (redacted name), Kaufman personally approved $60,520,000.
“On or about November 1, 2012, while living rent free in the residence owned by redacted name, Kaufman personally approved $26,400,000 in loans to (redacted name) and his related companies on terms were favorable…”
The document alleges the board was not informed of what would have been $185.6 million in loans.
Count Three: Kaufman Misled the Melrose Board of Directors into Approving a $2 Million Naming Rights Agreement That Had Essentially No Value to Melrose, But Greatly Benefited Kaufman’s Personal Benefactor
“Kaufman strongly advocated in favor of the naming rights agreement with (name redacted) before the Melrose board, while making material misrepresentations to the Melrose board and omitting material facts from the Melrose board,” NCUA said. “Kaufman misled the Melrose board to believe the naming rights agreement with (name redacted) had a value to Melrose of at least $2 million, when it had only negligible value to Melrose. Kaufman misled the Melrose board to believe that Melrose’s director of marketing and head of lending supported the $2 million naming rights agreement, when in fact Kaufman never consulted with either or with any qualified professional. And when in fact both were opposed to the agreement.”
“On or about October 14, 2011, Kaufman executed on behalf of Melrose a naming rights agreement with (name redacted) that differed materially from the earlier proposal by (name redacted) and Kaufman's representations to the Melrose board; and the agreement executed by Kaufman was in violation of the specific limitations and conditions required by the Melrose board.”
Count Four: Kaufman Improperly Solicited and Accepted a $240,000 Personal Loan and the Co-Signing of a $200,000 Share-Secured Loan from a Vendor to, Member of, and Borrower from Melrose
“On February 1, 2013, through a scheme designed by Kaufman, Kaufman made it appear to others that Kaufman had engaged in an arms-length negotiation and purchase of the dwelling for $630,000,” the NCUA document alleges. “In fact, however, Kaufman dictated the $630,000 purchase price for (name redacted) on February 1, 2013, which was precisely the same price paid by (name redacted) for the dwelling approximately 26 months earlier. In fact, however, prior to February 1, 2013, Kaufman solicited and excepted from (name redacted) $240,000, which monies Kaufman immediately paid back to (name redacted) as part of the $630,000 purchase price…
“In fact, however, prior to February 1, 2013, Kaufman solicited (name redacted) to co-sign with Kaufman on a $200,000 loan for Kaufman at Melrose, as well as (name redacted) pledge of $200,000 of (name redacted) shares held at Melrose to secure the $200,000 loan for Kaufman, which $200,000 in loan proceeds Kaufman immediately paid to (redacted name) as part of the $630,000 purchase price for the residence. Kaufman's receipt and return of the $240,000 from and to (name redacted) at the February 1, 2013, closing for residence was never memorialized in any mortgage, written loan document, promissory note, or any other written agreement. On or about February 1, 2013, Kaufman would not have qualified for the $200,000 loan from Melrose without (redacted name) or another qualified person having cosigned on the loan with Kaufman and having pledged $200,000 to secure the loan…”
Count Five: Kaufman Improperly Converted Melrose’s Resources For His Personal Gain (Briarwood Transfer Services, LLC)
“Kaufman and a former Melrose (redacted name) formed Briarwood Transfer services, LLC, which served as a third-party broker between prospective sellers and interested buyers of taxi medallions. Kaufman personally kept the books for Briarwood. Briarwood, which never had any employees of its own, was physically located within Melrose’s building. In accordance with the scheme concocted by Kaufman and (name redacted), all of Briarwood’s business was conducted by (name redacted), Melrose medallion loan officer (name redacted) and secretary (name redacted), all of whom were full-time employees of Melrose, and all of home were being compensated by Melrose for the time they spent working on the business of Briarwood. During some years, approximately 40% of (name redacted) workday and approximately 20% of (name redacted) workday at Melrose was consumed conducting the business of Briarwood. Kaufman personally received approximately $201,000 and distributed profits generated from and by Briarwood. Neither Kaufman nor (name redacted) ever informed the Melrose board of Briarwood.
Count Six. Kaufman Improperly Maintained a Contract With His Father for More than 19 Years and Improperly Used Melrose’s Funds to Pay for His Father’s and Stepmother’s Airfare, Hotels and Meals
“In or about May 1998, Kaufman's father retired from Melrose. At or about the same time of retirement, Melrose entered into a consulting agreement with (Kaufman’s father). The consulting agreement obligated (Kaufman’s father) among other things to provide advice to Melrose, attend board meetings, and represent Melrose at conferences and seminars, for which Melrose was obligated to pay (Kaufman’s father) $5,600 a month. All expenses incurred in the performance of (Kaufman’s father’s) duties under the consulting agreement were to be borne by (Kaufman’s father). Kaufman was the sole person at Melrose who was responsible for monitoring, overseeing, and enforcing, and renewing the consulting agreement with his father.
“By the time Kaufman was terminated for cause in 2016, only one of the members of the Melrose board was on the board when the consulting agreement was approved in 1998. Nor were any of the post-1998 board members aware of the initial or continued existence of the consulting agreement with (Kaufman’s father).
“Beginning in 1998 and Melrose paid (Kaufman’s father) $5,600 per month, eventually being automatically effected through an automatic clearinghouse mechanism, and totaling approximately $1,310,400.
“Throughout the existence of a consulting agreement, and contrary to the express terms of the consulting agreement, Kaufman caused Melrose to pay for his father’s and stepmother's airfare, hotels, meals, and other expenses for annual week-long board meeting trips to Aruba; the cost and expenses for conferences and seminars, and for his father’s and stepmother's personal travel for family vacations in Puerto Rico and the places such as Nashville, Tenn., where Kaufman's (name redacted) was in college.”
Count Seven: Kaufman Improperly Converted Melrose’s Funds to Pay for Non-Business Limousine Trips That Were Taken by Himself and By Members of His Extended Family
“At all relevant times, Melrose maintained a corporate account with Intaboro Limousine Service that was to be used solely by Melrose employees in the discharge of their official duties on behalf of Melrose,” NCUA alleged. “Additionally, Kaufman repeatedly authorized his spouse, children, father, and stepmother, who were not Melrose employees, to charge to Melrose’s corporate account their personal trips. Kaufman never informed the Melrose board that he had charged and was charging his personal trips to the Melrose corporate account.”