Court order hints at red-flag clues to AEA crisis
One question that continues to circulate throughout the community is what — if any — red flags were there to indicate the mounting financial difficulties of AEA Federal Credit Union linked to a former business lending official.
It's hard to say as AEA's former top management officials no longer are there and current management referred all questions to National Credit Union Administration, where spokesman David Small said he couldn't comment. In addition, AEA's board of directors was removed when NCUA took over conservatorship of the credit union in December when its net worth/total asset ratio plunged to minus 7.63.
However, there are some clues in the scheduling order issued by the U.S. District Court for the District of Arizona in the case of the U.S. versus William Liddle, his wife, Rhonda, and Frank Ruiz.
The three are scheduled to go to trial on Jan. 10 in federal court in Phoenix on multiple charges of misuse of AEA funds and fraud that cost the financial institution millions of dollars and contributed to its insolvency. The case has been assigned to U.S. District Judge Susan Bolton.
Ashley Adams, a Scottsdale attorney who is representing Ruiz, and Phoenix attorney David Eisenberg, who is representing Liddle, told the Yuma Sun they are reviewing the evidence and preparing to go to trial. Otherwise, they both said it would be “inappropriate” at this time to comment on the case.
The legal document states that sometime around May 2005 to November 2009, Liddle, acting in his capacity as vice president of AEA's business lending department, approved millions of dollars in questionable loans to Ruiz. In return, Liddle and his wife allegedly received cash, a home, vehicles and other benefits totaling more than $1 million from Ruiz.
Liddle was hired by AEA in November 2004 as manager of the business lending department to introduce and manage business lending services. He subsequently was promoted to vice president.
During that time, the document states that Liddle approved Ruiz and his entities for approximately 50 business loans, with a total loan commitment of about $22 million in what the scheduling order referred to as a pyramid or ponzi scheme to enable Ruiz to obtain more funds to make required payments on existing loan balances as well as maintain a “lavish lifestyle.”
In several instances, those loans exceeded the maximum cap allowed by federal regulations for the “aggregate amount of net member business loan balances to any one member or group of associated members,” the scheduling order stated.
Liddle wrote the AEA policy implementing this regulation in December 2004. Two years later, he obtained a waiver from NCUA's regional director to increase the cap and wrote the amended policy for AEA. He then authorized or allowed several loans to Ruiz and his entities that exceeded the cap by up to $4 million in some cases.
That raises the question of who reviewed and signed off on the loans.
Ray Drysdale, former chairman of the AEA board, said that “the board was not involved in approving or disapproving loans,” except when they were for other board members or AEA management.
He said that loan committees would review loan applications, with each committee varying in its composition and criteria used, depending on the different categories of loans.
While he said he couldn't speak to the specifics of AEA, “usually a loan committee would review loans,” said Keith Leggett, an official with the American Bankers Association who also produces a credit union blog.
NCUA's Small said the board at each credit union is responsible for setting loan policies. “There is no overarching policy across credit unions.”
However, according to the NCUA website, a loan policy should address such things as maximum loan amounts for individuals, loan-to-value ratios, collateral requirements and loan monitoring.
Stated Leggett: “As part of the board meeting, they should review whether the credit union's lending is adhering to policy. If there were exceptions, what were they and why?”
Potential red flags would have been such questions as did a borrower's loans exceed the borrower limit, was there an excessive concentration in loans and did the business loan portfolio grow rapidly, Leggett said.
Liddle resigned from AEA on or about Nov. 20, 2009, “amid allegations of financial wrongdoing,” the court's scheduling order states.
A lengthy investigation was begun by the FBI and other agencies after Liddle's departure from AEA. In December, the three defendants were indicted by a grand jury on 68 counts of criminal activity.
Joyce Lobeck can be reached at email@example.com or 539-6853.