A new civil lawsuit claimed $5.4 million in embezzlement that led to the Southern Pine Credit Union’s 21-month conservatorship of $42.2 million in Valdosta, Georgia.
The alleged embezzlement was detailed in court documents filed by the credit union on June 7 in federal court alleging that Southwest Marine and General Insurance Co. refused to pay a verified proof of loss claim of $5,471,518. stemming from an alleged 17-year-old internal theft scheme. by former president/CEO Leah Lehman and former comptroller Teresa Paulo, according to court documents.
Southern Pine alleged the embezzlement began in June 2003 when Lehman set up a loan account in her husband’s name, took a $7,850 advance, and transferred the proceeds to the joint draft account she shared with her husband. According to the credit union, over the next 17 years, Lehman continued to use her own joint accounts, her husband’s account, and accounts belonging to other family members to take out fraudulent loans, and used those funds for personal use and to conceal its theft.
In 2006, Paulo reportedly began transferring funds from relatives’ accounts “for temporary cash flow needs”. A year later, she set up a loan account that was allegedly secured and took advances to pay credit card bills and for other expenses, according to court documents.
His alleged fraud grew rapidly.
For example, as of July 1, 2014, she allegedly created approximately $42,000 in fraudulent loans, and as of January 1, 2015, that amount has grown to approximately $103,000. In successive one-year periods, however, the balance rose to approximately $270,000, $529,000, $750,000, $945,000 and $1,170,000, according to the fund’s claims in court documents.
Claimed losses on the Paulo loans totaled $1,233,201 and claimed losses on the Lehman loans totaled $4,238,317.
Southern Pine’s allegations were based on a “special procedures report” from Lillie & Company, a Sunbury, Ohio-based CPA firm specializing in internal fraud investigations.
Court documents showed an investigation had been opened by the FBI, but as of Wednesday afternoon no charges had been filed by federal prosecutors. An FBI spokesperson in Georgia declined to comment.
Lehman did not respond to CU time‘ requests for comments by phone and e-mail. Paul did not respond to CU time‘ requests for comments by telephone. A man who identified himself as Paulo’s husband said he would pass on a message to him regarding CU time‘ request for comment.
According to court documents, Southern Pine “froze” Lehman and Paulo’s pensions and they agreed to forfeit their pension amounts totaling approximately $125,000.
During the first or second quarter of 2020, through sources outside of Southern Pine, the NCUA became aware of questionable transactions involving Lehman and Paulo. On June 11, 2020, they were fired and the credit union was placed in conservatorship. Southern Pine, which serves nearly 1,500 members, was released from conservatorship in March 2022.
In early 2020, Southwest Marine automatically renewed Southern Pine’s Loyalty Bond Insurance which covered losses up to $2.5 million for acts of employee and director dishonesty. The policy was renewed after the credit union submitted, at Southwest Marine’s request, a copy of Southern Pine’s latest oversight board audit, information relating to the increase in delinquent credit union loans since 2018, the execution of the renewal proposal and a premium payment.
In December 2020, Southern Pine submitted a bond application with the insurance company. According to court documents, Southwest Marine reviewed the claim and said in its preliminary findings that statements made by the credit union as part of its application for bond coverage included one or more misrepresentations, omissions, concealments or misrepresentations. important facts.
“The negative net income reported with the adjusted financial statements as of June 30, 2020 suggests that the credit union had in fact consistently lost substantial amounts each year in prior years,” Southwest Marine wrote in its report. “Substantial losses each year are consistent with the credit union’s assertion that the alleged fraud began approximately 17 years earlier and grew steadily, until it grew at a rate of tens and hundreds. thousands of dollars every year starting in 2014.”
Based on Southern Pine’s adjustments to its reported financial position in light of the alleged fraud, it appears that the credit union’s total assets, net worth and net income were significantly overstated as of September 30, 2019. , the financial reports submitted as part of the bond application, the insurance report noted.
As noted in the bond application, Southern Pine had a net worth to total assets ratio 6.21 points higher than its peer institutions. But after the credit union adjusted its financial information in light of the alleged fraud, the net worth to total assets ratio fell 12.48 points and was 6.46 points lower than Southern’s peer group. Pine.
In its lawsuit, Southern Pine alleged that Southwest Marine’s denial of coverage was unlawful because it violated the credit union’s reasonable expectation that hidden and undetected embezzlement would be covered.
A spokesperson for Southwest Marine declined to comment when reached by CU time. As of Wednesday, the insurance company had not filed a response to the credit union’s lawsuit.