WEBVTT NOTE This file was generated by Descript 00:00:00.040 --> 00:00:02.010 Samantha: Hello, this is Samantha Shares. 00:00:02.610 --> 00:00:07.040 This episode covers N C U A’s letter to credit unions number Eighty six 00:00:07.040 --> 00:00:11.400 dash C U dash eighty four on Insider Dealing and Conflicts of Interest 00:00:11.818 --> 00:00:15.648 The following is an audio version of that advisory and the press release. 00:00:16.068 --> 00:00:19.318 This podcast is educational and is not legal advice. 00:00:19.538 --> 00:00:23.458 We are sponsored by Credit Union Exam Solutions Incorporated, whose 00:00:23.458 --> 00:00:26.538 team has over two hundred and Forty years of National Credit 00:00:26.538 --> 00:00:28.508 Union Administration experience. 00:00:28.768 --> 00:00:32.438 We assist our clients with N C U A so they save time and money. 00:00:32.748 --> 00:00:36.678 If you are worried about a recent, upcoming or in process N C U A 00:00:36.678 --> 00:00:40.958 examination, reach out to learn how they can assist at Mark Treichel DOT COM. 00:00:41.138 --> 00:00:44.948 Our founder Mark Treichel started his career in nineteen eighty six, the 00:00:44.948 --> 00:00:49.238 year he began at the agency and it is also the only letter to credit unions 00:00:49.238 --> 00:00:51.078 from that year that is still active. 00:00:51.628 --> 00:00:55.858 Also check out our other podcast called With Flying Colors where we provide tips 00:00:55.858 --> 00:00:58.398 on how to achieve success with N C U A. 00:00:58.769 --> 00:00:59.629 And now the letter. 00:01:00.046 --> 00:01:02.386 Insider Dealing and Conflicts of Interest 00:01:02.828 --> 00:01:06.748 Much has been said recently within the credit union movement about an unpleasant 00:01:06.748 --> 00:01:10.588 subject for credit unions - insider dealing and conflicts of interest. 00:01:11.048 --> 00:01:14.808 We are addressing this subject now for two reasons: first, to set the 00:01:14.808 --> 00:01:18.418 record straight on the nature of this problem; and second, to tell you 00:01:18.418 --> 00:01:20.058 what the agency is doing about it. 00:01:20.526 --> 00:01:24.576 The agency recently completed a comprehensive report, including case 00:01:24.576 --> 00:01:28.806 reviews of insider dealing and conflicts of interest in federally-insured credit 00:01:28.806 --> 00:01:32.946 unions over the last two years, and of the laws, rules and procedures 00:01:32.946 --> 00:01:36.846 in place to prevent these cases and to resolve them when they do occur. 00:01:37.233 --> 00:01:40.203 The first thing you should know is that the number of such cases, 00:01:40.353 --> 00:01:43.853 as a percentage of the 15,000 federally insured credit unions in 00:01:43.853 --> 00:01:45.763 the United States, is very small. 00:01:46.243 --> 00:01:50.453 Thus, the existence of a limited number of cases does not impart a bad name to 00:01:50.453 --> 00:01:54.863 the credit union movement, or to the vast majority of honest, hard-working 00:01:54.863 --> 00:01:57.463 volunteers and employees in credit unions. 00:01:57.829 --> 00:02:01.379 It is true, however, that a limited number of cases have resulted in 00:02:01.379 --> 00:02:04.799 millions of dollars in financial costs to your insurance fund. 00:02:05.219 --> 00:02:09.579 A review of ten of the major cases over the last two years, for example, indicates 00:02:09.579 --> 00:02:14.069 potential aggregate costs to the Insurance Fund from these cases alone in the range 00:02:14.069 --> 00:02:16.279 of fifty to seventy five million dollar. 00:02:16.469 --> 00:02:20.789 The problems include the following: embezzlement, preferential and substandard 00:02:20.789 --> 00:02:24.999 loans to officials and employees, substandard commercial loans to management 00:02:24.999 --> 00:02:29.059 officials and their business interests, refinancing of nonperforming loans to 00:02:29.059 --> 00:02:33.329 cover up past-due principal and interest, conversion of credit unions' assets 00:02:33.329 --> 00:02:37.269 (businesses, and real and personal property) to personal use and benefit, 00:02:37.599 --> 00:02:41.449 ownership by management officials of fixed assets that are leased by the credit 00:02:41.449 --> 00:02:46.029 union on less than arms-length terms, and receipt by credit union officials and 00:02:46.029 --> 00:02:50.439 employees of commission and fee income in connection with the business transactions 00:02:50.439 --> 00:02:52.339 of the credit union and its members. 00:02:52.756 --> 00:02:56.436 Obviously, these practices have no place in the credit union movement, 00:02:56.826 --> 00:03:00.776 and it is incumbent upon the National Credit Union Administration to consider 00:03:00.826 --> 00:03:02.766 every reasonable means of prevention. 00:03:03.126 --> 00:03:07.226 Remember, every dollar in financial costs to the Insurance Fund reduces by 00:03:07.226 --> 00:03:11.286 one dollar the amount available to pay dividends on your deposit in the Fund. 00:03:11.738 --> 00:03:15.478 In our review of these cases, we determined that virtually every problem 00:03:15.478 --> 00:03:19.538 we encountered was a violation of a law or regulation already on the books, 00:03:19.798 --> 00:03:21.488 ranging from provisions of the U.S. 00:03:21.808 --> 00:03:26.308 Criminal Code to the rules of N C U A and the State Supervisors, to the Common 00:03:26.308 --> 00:03:28.668 Law doctrine of fiduciary responsibility. 00:03:29.188 --> 00:03:32.698 We concluded, therefore, that the solution does not lie in promulgating 00:03:32.698 --> 00:03:36.538 new restrictions, but rather in improving our efforts at education, 00:03:36.608 --> 00:03:38.318 investigation and enforcement. 00:03:38.790 --> 00:03:42.830 In that connection, we are taking a number of positive steps at agency 00:03:42.830 --> 00:03:44.450 that we want you to be aware of: 00:03:44.850 --> 00:03:48.370 • We have adopted new criminal referral forms and procedures that will 00:03:48.370 --> 00:03:50.120 improve the ability of the U.S. 00:03:50.280 --> 00:03:54.090 Department of Justice to investigate and prosecute criminal activity in 00:03:54.090 --> 00:03:56.030 federally-insured credit unions. 00:03:56.550 --> 00:04:00.680 We are reinstituting an examiner workpaper on "insider transactions" 00:04:00.730 --> 00:04:04.050 that will improve our ability to detect conflicts of interest. 00:04:04.466 --> 00:04:08.496 • We have recently hired one litigation specialist and authorized hiring 00:04:08.496 --> 00:04:12.116 another to deal primarily with enforcement actions and recovering 00:04:12.116 --> 00:04:14.426 claims in problem-case credit unions. 00:04:14.864 --> 00:04:18.184 • We are working with the National Association of State Credit Union 00:04:18.184 --> 00:04:22.284 Supervisors (NASCUS) to develop a so-called "model exam" - a 00:04:22.284 --> 00:04:25.784 core set of examination forms and procedures to be used by the 00:04:25.814 --> 00:04:27.794 agency and the state regulators. 00:04:28.202 --> 00:04:32.292 • We have reached agreement with NASCUS on the circumstances under which N C U 00:04:32.292 --> 00:04:36.372 A will participate in the examination of problem-case state credit unions. 00:04:36.782 --> 00:04:40.732 (We believe that N C U A, the state regulators and all credit unions 00:04:40.732 --> 00:04:44.262 are bound to benefit from improved coordination of examinations.) 00:04:44.678 --> 00:04:48.788 • We are reviewing N C U A's statutory enforcement powers (cease and 00:04:48.788 --> 00:04:51.198 desist, prohibition, removal, etc.) 00:04:51.658 --> 00:04:56.128 and may develop proposed legislation enhancing our ability to use those powers. 00:04:56.553 --> 00:05:00.743 • Finally, we are developing a chapter for inclusion in a forthcoming officials' 00:05:00.743 --> 00:05:04.683 handbook providing comprehensive guidelines on the subjects of conflict 00:05:04.683 --> 00:05:08.953 of interest and the responsibilities of credit union officials and employees. 00:05:09.359 --> 00:05:13.599 In the interim, this letter should remind everyone of the responsibility we all 00:05:13.599 --> 00:05:17.749 bear in maintaining the integrity and the reputation of the credit union movement. 00:05:18.183 --> 00:05:22.443 In closing, we would suggest, as a basic rule of thumb, that all officials 00:05:22.443 --> 00:05:26.223 and employees of federally-insured credit unions avoid situations where 00:05:26.223 --> 00:05:29.453 they would derive personal gain from the business of the credit union, 00:05:29.773 --> 00:05:33.843 other than normal salary, benefits and permissible, nonpreferential loans. 00:05:34.343 --> 00:05:38.313 Finally, all officials and employees should be mindful of their responsibility 00:05:38.313 --> 00:05:42.983 to report all suspected criminal activities to the N C U A Regional Office. 00:05:43.413 --> 00:05:47.443 If you have questions about a particular situation, do not hesitate to call 00:05:47.443 --> 00:05:51.363 upon your Regional Office or State Supervisor, as the case may be. 00:05:51.747 --> 00:05:52.517 Sincerely, 00:05:52.885 --> 00:05:53.655 ROGER W. 00:05:54.095 --> 00:05:54.575 JEPSEN 00:05:54.986 --> 00:05:58.036 Then Chairman National credit Union Administration Board 00:05:58.516 --> 00:06:02.986 This concludes the N C U A Letter on Insider Dealing and Conflicts of Interest 00:06:03.126 --> 00:06:07.066 If your Credit union could use assistance with your exam, reach out to Mark Treichel 00:06:07.066 --> 00:06:09.646 on LinkedIn, or at mark Treichel dot com. 00:06:10.056 --> 00:06:12.716 This is Samantha Shares and we Thank you for listening.