UPDATED: Eight highlights, no actions against chairman, noted in CU regulator’s inspector general report

Eight actions – including a notice of charges against a former credit union chief executive and the closing of the credit union that individual led – are cited as “highlights” by the federal credit union regulator in its semiannual report to Congress.

The report also notes that an investigation was closed regarding National Credit Union Administration (NCUA) Board Chairman J. Mark McWatters, with no actions taken.

The report, filed by the NCUA’s Office of Inspector General (OIG) and covering actions from April 1 to Sept. 30 of this year, is prepared and delivered to Congress every six months; it details the OIG’s independent oversight of the NCUA during the reporting period.

The “administrative charges” against former Melrose Credit Union CEO Alan S. Kaufman in August, and ultimately the closing of the Briarwood, N.Y., credit union later that month, are listed among the eight accomplishments for the six-month period. NCUA prohibited Kaufman from serving at another federally insured financial institution (without the approval of NCUA), well as ordering restitution of at least $3.5 million, and a $1 million penalty.

The $1.1 billion credit union was later that month closed, and its membership merged with $6.1 billion Teachers Federal Credit Union, of Hauppauge, N.Y.

Other highlights, according to the OIG report include:

  • Stress testing rule allows credit unions to conduct tests
  • Changes to member business loan definitions (as required under regulatory relief legislation, the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA, S. 2155) enacted this spring;
  • Field-of-membership rule changes;
  • $736 million share insurance distribution payments;
  • Proposal exempting more credit unions from “risk-based capital” rule; and
  • Proposal changing appraisal requirement threshold and exempting some transactions.

In other areas, the report notes the NCUA OIG has closed an investigation into Board Chairman McWatters. The report notes that the OIG had received information that, while McWatters owned American International Group (AIG) stock and warrants, he participated in a vote as a member of the Financial Stability Oversight Committee (FSOC), to rescind the committee’s determination that material financial distress at AIG could pose a threat to U.S. financial stability.

“The investigation confirmed that the Chairman owned AIG stock and AIG warrants at the time of the FSOC vote on AIG,” the report states. “During the investigation, the Chairman stated that he believed at the time of the vote that his AIG holdings fell under the Office of Government Ethics (OGE’s) de minimis exemption for publicly traded securities whose aggregate market value does not exceed $15,000, and therefore his recusal from the FSOC vote was not required.”

The report states that the Office of Government Ethics (OGE) advised OIG and McWatters that the exemption applied to the stock holdings, but not the warrants. McWatters, the report states, “provided information to the OIG and OGE asserting that warrants are treated the same as stock by securities lawyers and accountants and that warrants are publicly traded instruments.”

According to the report, the investigation was closed during the reporting period and no action was taken against McWatters.

The report also:

  • Notes that OIG, working as part of a joint review with other inspectors general of financial regulators, identified several “significant risks” the credit union agency faced. Those are: cybersecurity, interest rate risk, growing performance disparities between large and small credit unions, changing demographics, increasing competition and continuing consolidation, resolving troubled credit unions, and maintaining the equity ratio of the National Credit Union Share Insurance Fund (NCUSIF).
  • Summarizes investigations conducted by the agency OIG over the past six months. Those include that the office closed five cases, four involving involved NCUA officials/employees. According to the report, the employee in one of the cases received a reprimand and was required to reimburse the agency. In the other three cases, no action was taken. The fifth case, according to the report, involved a former NCUA credit union examiner who pleaded guilty to bribery in connection with receiving a loan from a credit union.

Semiannual Report to the Congress , April 1 – September 30, 2018

Semiannual Report to the Congress , April 1 – September 30, 2018