Five former members of the defunct New London Security Federal Credit Union, who lost hundreds of thousands of dollars when the institution failed two years ago, do not have the right to pursue claims on their own, according to a motion in their civil suit seeking compensation.
The National Credit Union Administration, the agency that regulates federal credit unions, said in its motion filed last month that the five investors - Melvin Goldblatt, Joan Lazerow, Mark D. Fetcher, Gloria Johnston and Douglas C. Antupit - should be treated as "unsecured general creditors."
The agency added that allowing the investors' suit to proceed "would be in direct contravention of Congress' intent (to allow the NCUA to pursue claims and decide payoffs)."
The NCUA, as liquidating agent for the New London credit union, sought in court to have itself substituted as "the real party in interest in this action." The agency said investors, who already had been compensated up to the insurance limit at the time of $100,000 per account, would be paid any remaining money owed once the NCUA is able to collect on its lawsuits against parties allegedly culpable in the credit union's demise.
"The proper process is still ongoing," according to the motion. "By attempting to go forward on their own ... (the investors) essentially seek to jump ahead of other creditors."
The five investors filed a lawsuit in June seeking more than $4 million in compensatory damages, plus an unspecified amount for punitive damages, from the credit union's board, auditors, legal advisers, brokerage firm and the widow of its longtime investment adviser. The NCUA shut down the credit union in July 2008, later alleging that its longtime financial adviser, the late Edwin F. Rachleff, had been engaged in a multimillion-dollar embezzlement.
The lawsuit sought damages from the brokerage firm Wells Fargo Advisors; credit union board members Herbert Linder, Hinda Kimmel, Martin Yavener, Reuben Levin and Martin Lazarus, as well as longtime credit union manager Mary Lou Richards of Waterford. It also targeted former New London auditing firm Beller, Shepatin & Co. and Maxine Shepatin, the executor of the estate for its late principal, Hyman Shepatin; Edward Lorah, whose accounting firm succeeded Shepatin's; Naomi Rachleff, Edwin's widow and executrix of his estate, and the New London law firm of Suisman, Shapiro, Wool, Brennan, Gray & Greenberg, which served as general counsel and attorneys to the credit union.
The investors later extended their suit to include the NCUA, which they claimed had been negligent in overseeing the local credit union.
Among its allegations, the lawsuit claimed that Suisman Shapiro engaged in legal malpractice, Wells Fargo was negligent in its supervision of Rachleff, the credit union board was negligent in fulfilling its oversight duties and the auditors were negligent and careless in failing to discover financial discrepancies. All defendants were accused in the suit of violating the state's Unfair Trade Practices Act.
The NCUA also has sued many of the same parties. The agency paid out nearly $10 million in claims arising from the credit union's failure.
The NCUA said in another suit that credit union investors lost about $570,000 in accounts that exceeded the exisitng $100,000 insurance limit.