A New Jersey broker was indicted this week for allegedly misappropriating nearly $5 million in funds belonging to the Johns Manville Corp. credit union.
Richard J. Arnold and his firm, Arnold & Co. of Somerville, N.J., were charged with converting $4.9 million to their own use over a four-year period. An official of the National Credit Union Administration, which regulates federal credit unions, said the alleged fraud was not discovered earlier because no independent audit had been conducted. Even though J.M. Credit Union had approximately $13 million in assests at the time, it relied on the broker's word he had purchased the government securities and was holding them for the credit union.
That same cooperative spirit, typified by volunteer officer, resulted earlier this year in a Michigan credit union being bilked out of$6 million by its manager, who was also its broker. Server other credit unions suffered substantial losses this year when their naive officials were taken in by unscrupulous sellers of government securities futures.
According to NCUA, Arnold & Co. managed the J.M. Credit Union's entire portfolio.Arnold received funds from it to buy Ginnie Mae certificates starting in January 1974. Interest on the notes was paid regularly, funneled through a bank. Last January the union's treasurer decided it would get the interest quicker if it were paid directly, so he asked Arnold to produce the certificates.
For four months Arnold equivocated, telling the treasurer first that the certificates were kept in the Federal Reserve Bank of New York and later that Manufacturers Hanover Trust held them. Despite letters of confirmation of sales written by Arnold, no certificates were found.
Arnold & Co. was placed in receivership in July. According to NCUA, the receiver has succeeded in locating about $2 million of the money. Some of it was allegedly used for Arnold's tennis club and real estate ventures. The credit union's deposits are insured against loss by NCUA.
Arnold is scheduled to enter a plea to the 86 count indictment Jan. 5. He has already signed a consent decree with the Securities and Exchange Commission, NUCA said, in answer to charges that the alleged conversion violated antifraud provisions of federal securities law.