I'm not certain how many bankers have been following the legal slug-fest between the National Credit Union Administration and Vensure Federal Credit Union, but it has all the earmarks of a heck of a story, when and if the final story is ever told. The latest recap of the battle is in this article by David Morrison in Credit Union Times, but stay tuned for more tidbits as the federal district court judge in the case, Rosemary Collyer, hears arguments, takes testimony, and makes rulings. The NCUA placed the credit union in a conservatorship on April 15, 2011, and like at least one federal thrift that was seized in March, the credit union decided to challenge the seizure in court.
It appears that Vensure has had an unconventional history and that its business plan seems perfectly suited for a Martin Scorsese film starring Robert De Nero and Joe Pesci.
In its filings leading up to a May 11 deadline, the NCUA suggested that it had known something was up about the institution, which the NCUA characterized as being a "sleepy little credit union" as early as 2008 when an organization calling itself the National Investors Financial Education Association applied for CU services through the Grand Adirondack Federal Credit Union (Vensure's name at the time).
NCUA's filings said the agency had "concerns" about the request, but that after they were answered, it allowed members of the organization's Manhattan chapter, located in New York City, to join GAFCU.
Prior to this addition, the NCUA characterized the CU as "self-liquidating," with assets dropping from $73,529 in December 1999 to $30,966 in December 2007.
But after the addition of NIFEA in April 2008, a delayed examination of the CU's books in November of that year found that the CU's assets had grown by more than ten times, to more than $349,000.
It was soon after, in early 2009, that the NCUA said it was surprised by the credit union's "sudden" move from New York to Arizona.
"NCUA was completely unaware of any intended move by GAFCU and caught off guard by the news because not only did GAFCU fail to convey its intention before it moved, it also elected not to notify NCUA first after it moved," the agency said in its filing.
Then, according to the NCUA, an almost comic search ensued around the country for the true location of the CU that involved the NCUA staffers phoning or visiting locations in New York, Florida and Texas before they finally found GAFCU, now headquartered in the small Arizona town of Gilbert.
Only by this time, the CU's assets had increased to $2.1 million, its balance sheet swelled, according to someone whose name was redacted from the filing, by fee and "other operating income" from two CUSOs: Account Process Systems and Verartis Inc., which offered financial transaction and financial counseling services.
But by the time GAFCU applied for and received permission to change its name to Vensure FCU, the NCUA said it had learned that the income had not come from transaction processing or financial counseling but from the "legally suspect source" of Internet gambling transaction processing.
The agency was immediately concerned and said it began pressing Vensure to stop the processing and sever its relationship with Trinity Global Commerce Corp., the third-party transaction provider for two of the largest online poker sites, PokerStars and Full Tilt Poker.
If I'd known these folks were working with PokerStars, I'd have asked them to set me up for a private game of one-on-one "No-Limit Texas Hold 'Em" with Vanessa Rousso. I never realized the sleepy world of credit unions had within its ranks institutions run by people who understand that when you scream "All IN!" you're not urging everyone at the pool party to jump in the water.
As might be expected, Vensure has an entirely different spin on its activities. Illegal? Fuggedaboutit!
Vensure reiterated its previous contentions that it had complied with the NCUA's demands to cease processing for Trinity and that the agency had been satisfied with the CU not renewing the contract and only processing for Trinity in the interim. The NCUA had only conserved the CU, Vensure argued, because its leadership was concerned about being embarrassed by the U.S. Attorney's actions.
The "U.S. Attorney's actions" are explained in a previous article in the Credit Union Times.
...Vensure was the only credit union on a list of 16 domestic U.S. financial institutions to have an account or accounts seized by federal officials after the U.S District Court for the Southern District of New York unsealed indictments against the principal owners and officers behind some of the largest Internet poker websites. The dual indictments, one criminal and the other civil, charged the owners and officers of PokerStars, Full Tilt Poker and Absolute Poker/Ultimate Bet and the companies themselves of conspiring to defraud banks to get them to process credit, debit and prepaid card transactions from their gambling sites.
I'm outside the loop on this one, and can only guess at how it will eventually play out. On the other hand, I've had decades of experience in representing certain people who think that because they can argue with a straight face that what they are doing is not technically illegal, the financial institution regulators should just leave them alone so they can use insured deposits to fund all of that fun stuff. I'm a slow learner, but even I have learned this about that sort of business plan: you will cast your bread upon the water and it will return to you as burnt toast. If you're doing something "edgy," do it outside a highly regulated business like a bank or a credit union. Unless, of course, you like spending lots of money on lawyers, in which case, please come right on in and double down.