A second credit union has sued CUNA Mutual Group over a CUMIS Insurance Society bond the credit union says should reimburse it for funds lost in a $50 million fraud at ATM replenisher Mount Vernon Money Center, one of the biggest bank robberies in history.
In its suit, Bardonia, N.Y.-based Northeast Alliance Federal Credit Union claims that a CUMIS bond it took out with the credit-union insurer entitles it to reimbursement for $565,400 it lost in the massive ATM scam, for which two top executives at the suburban Manhattan cash carrier were convicted of fraud and sentenced to prison. The credit union says in its suit that CUMIS denied its bond claim.
The company provided a variety of cash management services, including replenishing cash in more than 5,300 ATMs owned by credit unions and banks. Mount Vernon Money’s owner, Robert Egan, a retired New York City police officer, and his chief operating officer, Bernard McGarry, in 2010 were convicted of using the commingled ATM cash to supply other ATMs and to pay business expenses (see story).
The massive bank heist has spurred a number of lawsuits. Actors Federal Credit Union, a credit union for Broadway actors and stagehands, also has filed suit against CUMIS to recover on its $4.3 million loss. ADP Federal Credit Union, of Roseland, N.J., has filed a civil suit attempting to recover some of its lost funds. Atlanta’s Delta Community Credit Union has a claim for $520,000. MSBA Employees Federal Credit Union in New York filed claims in federal bankruptcy court.
The biggest victim of the fraud was Webster Bank of Connecticut, which lost as much as $12 million. Cardtronics, the nation’s largest ATM operator, lost $2.1 million. Other victims include: Elan Financial Services, the ATM operations of U.S. Bancorp, ATM Access, New York Community Bank, MoneyGram, Domestic Bank, and Carver Savings Bank, as well as numerous area colleges and hospitals.
CUMIS declined several requests for comment last week.
At issue is who should be liable for the theft claims. The main target is Mount Vernon Money itself, which has been in bankruptcy since May 2010, after the fraud was discovered. The estate of the company currently is being unwound in Chapter 11, with leftover cash being used to satisfy some of the claims. Egan himself has agreed to forfeit $19 million under a plea agreement, which will be disbursed to credit union and bank victims of the fraud. Another potential target is Diebold, which contracted with Mount Vernon Money to provide ATM services to the credit union. The two credit unions claim their losses are covered under the CUMIS bond.
In its suit, filed Jan. 20 in U.S. District Court for the Southern District of New York, Northeast Alliance says that CUMIS denied the bond claim because the “In Transit” coverage under the bond did not protect the credit union from theft or embezzlement by Mount Vernon Money employees when credit union property (cash) was in Mount Vernon Money’s possession “but not within an armored motor vehicle.” The credit union claims CUMIS, during routine risk assessment reviews for its bonds, failed to explain that the “In Transit” coverage did not protect it from theft or embezzlement by the Mount Vernon Money employees when their cash was in the Mount Vernon Money vault or in the Mount Vernon Money bank account.
“CUMIS,” says the suit, “failed to offer the Credit Union a product to cover embezzlement and theft of Credit Union property by third party vendors while in possession of the third party vendor.” A “reasonable financial institution,” asserts the credit union, “having been apprised and aware of the risks, deficiencies and exposure contained in the Bond may not have proceeded with purchasing the Bond and/or may have chosen an alternative product/insurance company.”
Mount Vernon Money also provided payroll services to various employers, including area hospitals and universities, which allowed employees to cash their paychecks on their employers’ premises. In connection with these businesses, the company owned and operated several cash vaults, in which Mount Vernon Money and its affiliated businesses stored and processed cash collected from and distributed to its clients, and other cash depositories such as the Federal Reserve Bank.
Egan and McGarry engaged in a practice known as “playing the float.” The company was entrusted on a weekly basis to hold tens of millions of dollars for its clients for specific business purposes for a specified period of time. Relying upon the continual influx of funds, Egan and McGarry misappropriated the clients’ funds for their and their company’s own use, to cover operating expenses of the various operating entities, to repay prior obligations to clients, or for their own personal use.
By the time the Feds shut down in the business in February 2010, Mount Vernon Money had been entrusted with approximately $70 million to $75 million by its clients, but only held approximately $20 million to $25 million in cash in its vaults and bank accounts.
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