A decade later, New London credit union closure still confounds
New London — Ten years ago, on July 28, 2008, federal regulators arrived early in the morning at the tiny New London Security Federal Credit Union to close down the more than 70-year-old institution, only to find that someone apparently had broken in to the office overnight.
“It looked like somebody had tried to get past the molding to pop the lock,” recalled Gary Meisinger, an examiner in the Hartford office of the National Credit Union Administration, in a January 2014 deposition The Day obtained as part of a Freedom of Information Act request involving more than 2,000 pages of transcripts.
On that day, the credit union regulatory agency, which already had called in the FBI to investigate, declared the institution insolvent, leaving dozens of investors to wonder what had happened and whether they would ever get back their money. Meisinger said a locksmith had been called to open the office door as the NCUA prepared to preserve records of what it suspected was a massive fraud involving millions of dollars.
Liz Whitehead, an NCUA regional director, was about to step inside when Meisinger blocked her, afraid someone might still be inside the narrow second-floor office, not much bigger than a large closet, where the credit union did business.
“We did not know what we were going to find in there,” Meisinger testified. “So I went in first, and then the others came in.”
Once inside, they found the deadbolt disengaged. The safe was unlocked, as was a normally secure file cabinet that credit union manager Janice Brady testified had been closed the night before.
“I was shocked ... disbelief,” she said.Edwin F. Rachleff, in the undated photo that ran with his obituary in the July 30, 2008, edition of The Day.
A few hours later, Edwin F. Rachleff, longtime investment adviser at the credit union and beloved stock broker for the now-defunct A.G. Edwards in New London and Waterford, would be found dead after jumping from the 11th floor of the Mohican Senior Apartments.
His friend and credit union board member, the late Reubin “Rip” Levin, wouldn’t hear about the financial institution’s demise until the next day, when he read it in the paper. According to a transcript, Levin called someone to ask what was going on.
“What did Eddie say,” Levin remembers saying to the unidentified associate.
“Eddie’s dead,” came the reply.
“That’s how I knew,” Levin testified. “A shock for all of us.”
About a year later, federal authorities identified Rachleff as the likely sole perpetrator of an embezzlement scheme that they later said lasted 20 to 40 years and cost insurers and local depositors about 64.8 billion Ponzi scheme in New York City involving financier Bernie Madoff that unraveled the same year.
In the hundreds of pages of sometimes redacted transcripts from a lawsuit that later was settled out of court, there is no indication where most of the money went. The question was barely pursued by lawyers on either side of the lawsuit the NCUA brought against Wells Fargo Advisors, which bought A.G. Edwards shortly before the scam was discovered and therefore inherited the brokerage house’s legal liabilities.
In one of the few unredacted questions that directly addressed what Rachleff had done with the money, Wells Fargo attorney Richard Szuch asked Charles Funderburk, a senior auditor for the NCUA, whether he ever concluded where the money went and when it was misapplied.
“I don’t recall if we did or didn’t,” Funderburk said in a January 2014 deposition about seven and a half years after the credit union’s failure.
The NCUA did not immediately respond to questions sent Tuesday about whether it in fact ever did try to trace the Rachleff money to find out what it was used for, or if the scam simply went back too far to identify pertinent records.
According to the transcripts, Rachleff enjoyed well-made suits, occasional overnights in New York City and golf outings with friends, but he didn’t flaunt his wealth or have expensive habits.
He attended synagogue regularly and had supported local nonprofits, most notably Lawrence + Memorial Hospital. He was a former president of the prestigious downtown Thames Club and a longtime member of the Masons, Shriners and New London Kiwanis, also serving as president of the local Navy League.
“He was a very outgoing person, very well known in the community,” said former board Chairman Herbert Linder in a December 2012 deposition. And when they went out, “We always split the check.”
“He wasn’t a profligate spender,” Levin recalled in a December 2012 deposition. “He didn’t go on great vacations. ... It’s a puzzlement to everybody.”
Describing Rachleff’s Reyquinn Street home that he shared with wife Naomi, Levin said, “No million dollar estate. No castle. Furnished very tastefully but not extravagantly.”
‘We’ve never seen anything like it’
While the biggest question left after the embezzlement remains a mystery based on the public record, some new details emerged from the transcripts.
Rachleff, in the last two decades or so of the scam, actually was putting money — over 12 million to fall under the threshold for more aggressive regulation by NCUA. The credit union over the last few years of its existence also had put progressively smaller monthly limits on the amount that members could add to their accounts, another attempt, perhaps, to keep the credit union’s assets below that 375,000 in uncompensated losses
For people like Florida resident Mark Fetcher, the improved supervision came too late. Fetcher had one of 13 credit union accounts whose deposits were in excess of the 200,000 in losses, but got half the amount. He said he will be searching for legal representation to try to get all of the money he lost returned and would like to see those responsible for supervising Rachleff held responsible.
“The credit union board and officers neglected to properly supervise him and make changes that they were ordered to do, either on purpose or due to being ‘asleep at the wheel,’” he said in an email last week. “A.G. Edwards/Wells Fargo should be held accountable for the actions of their representative.”
In all, according to NCUA, local depositors received 375,000 in uncompensated losses after the NCUA’s settlement with Wells Fargo.
With recriminations on all sides, attorneys during the lawsuit depositions shifted blame to the various parties involved in overseeing the money. For longtime board member Levin, it didn’t make sense that it had taken so long to catch up with Rachleff and his “fake investments.”
“What I can’t understand is why nobody, the accountants who made a certified statement (every) year, the NCUA who was in every three months, why didn’t anyone ever ask to see the assets — to verify the assets?” he said. “They verified our bank statements, or balances every year. Didn’t someone have to say, ‘Let me see the bonds?’”
“This is not a brilliantly made up operation where we have 100 people in the back office turning out false statements,” he added. “This is one guy. It’s incomprehensible.”