Recent developments in a pair of Massachusetts credit union fraud cases are adding to the spate of nationwide criminal troubles in the credit union industry. In one Massachusetts case, a former credit union treasurer will face several years in jail; in the other, a former CEO avoided jail time but must apologize and go on probation.
These latest local cases come on the heels of several multi-million dollar credit union failures in the U.S. In those instances, regulators say institutions’ own CEOs stole millions before they were found out, and they eventually ruined their credit unions.
Most such cases demonstrate the ease with which an unsupervised individual can make off with thousands – sometimes millions – and often destroy the credit union.
Local Troubles
That’s what happened in the case of Stephen Shinnick, former treasurer of the Norwood School Employees Federal Credit Union, a tiny institution that never grew above $800,000 in assets. He pleaded guilty to stealing more than $300,000 over several years, spending the money on himself and his family. The theft eventually sank the credit union, and Shinnick was sentenced to two and a half years in prison this month.
Robert Griffin, principal of C.M. Callahan Elementary School in Norwood and a former board member of the credit union, said members trusted Shinnick’s accounting.
“We’re a bunch of teachers, and we’re not financial experts by any stretch of the imagination,” he told Banker & Tradesman. Shinnick, who was himself vice principal of Coakley Middle School, had almost no outside oversight, Griffin said, and members assumed everything was in order.
Finding out otherwise was “a bombshell,” he added. The credit union subsequently failed.
The Norwood School Employees Federal Credit Union members’ deposits were covered by deposit insurance through the National Credit Union Administration (NCUA), the industry’s regulator, and their accounts were moved to $1 billion-asset Rockland Credit Union.
Cheryl D’Antonio, vice president at Rockland, said the Norwood school employees’ transition went smoothly, and that the institution has plenty of fraud-prevention tactics.
Duties are segregated so no single individual is allowed unsupervised access to funds, she said, citing a common tactic for keeping internal fraud risk low.
In the other recent, local case, Robert Koss, former CEO and treasurer of Springfield-based Western Massachusetts Electric Credit Union (Wemelco), was given probation in March for embezzling $225,000 over a period of many years.
According to court documents filed by Koss’ attorney, Jack F. St. Clair of Springfield-based Bacon Wilson law firm, Koss had a sterling reputation as leader of the $72 million-asset institution. After his retirement, however, Wemelco discovered financial irregularities on the books, and hired a forensic accounting firm to look into the matter. It found that Koss frequently billed the credit union for personal expenses, such as meals spent on friends.
Koss’ attorney said this could be attributed in part to the 72-year-old Koss’ physical disabilities: Koss has cerebral palsy, and worked hard to overcome that disability throughout his education and career.
He wanted to make a positive impact on people’s lives, St. Clair said, and “Over time, his social outlet became one of generosity, by treating people to lunches, etc., which he pursued because he could not participate in sports or other physical activities. Unfortunately, he failed to use due restraint.”
St. Clair argued for a lighter sentence because of Koss’ clean criminal record and his fragile health, and the former CEO was sentenced to four years of supervision and must write a letter of apology to the credit union.
Wendy Tariff, current CEO of Wemelco, had not returned messages as of press time.
Latest In A Line
The latest Massachusetts cases join a series of sometimes brazen credit union crimes nationwide that cost the credit union insurance fund millions, and are often cited as symptomatic of weak oversight by the National Credit Union Administration (NCUA).
In February, a West Virginia CEO was convicted of “misappropriating” millions to fund home improvement projects and side businesses. In December, a Texas credit union CEO was arrested for allegedly stealing $1.2 million. In March, nine people, including a CEO, were indicted in a multi-million dollar fraud scheme at an Ohio credit union that cost the deposit fund $170 million.
All went unnoticed by the NCUA’s regulators for years, and all led to the failure of those credit unions involved.
A prior Banker & Tradesman investigation into the NCUA’s culpability revealed several instances in which the agency’s independent watchdog, the Office of the Inspector General, noted failures in the NCUA carrying out its duties. In most cases, the OIG said NCUA regulators missed glaring red flags that should have tipped them off to trouble long before the credit unions failed.
