$1 million in kickbacks alleged in AEA fraud case

Three Yumans have been indicted by a federal grand jury in Phoenix on 68 counts for allegedly taking part in a $1 million kickback scheme to obtain fraudulent business loans.

The indictment alleges that William Liddle, former vice president of business lending for AEA Federal Credit Union, conspired with Yuma businessman Frank Ruiz to approve suspicious business loans in exchange for almost $1 million in kickbacks to Liddle and his wife, Rhonda, according to a press statement from the Arizona Office of the United States Attorney.

Liddle, 50, his wife Rhonda, 45, and Ruiz, 61, were all arrested Thursday.
Two of Ruiz’s business ventures funded by AEA loans, the Yuma Fun Factory and Top of the Kress, ended in bankruptcy.

While still at AEA Liddle authorized more than $25 million in loans during this conspiracy, all of which remain in default, according to the U.S. Attorney’s Office. All three defendants recently declared personal bankruptcy as well.

Denise Sweet-McGregor, chief executive officer of AEA, said the credit union was notified Thursday morning of the charges against the Liddles and Ruiz and that it had cooperated fully with the FBI’s investigation over the past 11 months.

“The details of the investigation over the past 11 months have been difficult to suppress," said Sweet-McGregor. "While rumors have been rampant about what members of the community and the media have imagined, we were not at liberty to confirm or deny any of those rumors. However, now that the information about the alleged illegal actions of Mr. Liddle and others has been released by the FBI, the community can now understand why AEA has had to bear such severe financial losses this past year. The harm caused by these alleged actions to AEA’s members and dedicated employees is unconscionable.”

Sweet-McGregor said inconsistencies detected following William Liddle’s departure prompted an exhaustive audit of business lending activities, conducted by an executive committee appointed by AEA officials.

She added that the committee’s in-depth research into certain specific borrower’s loans revealed numerous infractions by Liddle of AEA’s policies and procedures which substantially impaired AEA’s business loan portfolio.

“It is believed that alleged actions of Mr. Liddle were structured to elude detection by both internal and external auditing entities,” Sweet-McGregor said. “While we cannot formally comment on Mr. Liddle’s guilt or innocence at this time, we strongly believe the facts will bear themselves through the judicial process.”

“Financial institutions are not personal fun factories for its officers and their anointed business pals,” said U.S. Attorney Dennis K. Burke.  “The defendants’ selfish scheme has come full circle and they are already paying a price for their greed. They have victimized not only a financial institution but an entire community and jeopardized that community’s faith in this institution. We will make sure they are also held accountable for their disregard of the law and the consequences suffered by the credit union.”

According to an article that appeared in the Yuma Sun in early November, in the latest call reports for the third quarter of 2010, published online by the National Credit Union Association, AEA’s net worth was 2 percent in September, down from 2.73 percent in June, and total foreclosures and repossessed assets rose to $9.3 million from $6.1 million.

Sweet-McGregor said in the latter part of 2009, as the business loan portfolio began to show signs of distress, AEA quickly instigated strategies to cut expenses and downsize. These actions included the closure of one branch and staff reductions of over 35 percent.

“While we always knew our members’ money was safe and secure because of the federal depository share insurance fund, it was still a difficult situation for our members to understand,” Sweet-McGregor said. “Some of our members have since withdrawn their money and closed their accounts because of the rumors we were going to close our doors. It has been heartbreaking to our board and to our staff to see this happen to us after so many years of strong growth and development.

“AEA has always been a strong community partner,” said Sweet-McGregor. “It has been very difficult to scale back with our contributions to the community, without being able to comment as to the reasons for reducing the contributions.”  

The severe losses AEA was absorbing due to the troubled business loan portfolio under Liddle’s supervision and management caused a drastic drop in AEA’s capital. This, in turn, Sweet-McGregor said, prompted the National Credit Union Administration (NCUA) to require preparation of a 5-year Net Worth Restoration Plan.  

“Everything we are doing now is aimed directly at ensuring AEA’s long-term commitment to serve the community,” said Sweet-McGregor. “Our community needs a credit union. AEA has filled that need for over six decades. Core product lines and services are viable and profitable.  Without the alleged fraudulent and reckless behavior which contributed to the majority of our business loan losses, AEA would have navigated this economic recession relatively unscathed.  We now need to move beyond this unfortunate situation using what we have learned to grow stronger for our members. The current strategies we have put in place are a positive first step.”

The FBI expressed their and other law enforcement branches’ commitment to  seeking out financial fraud in banking institutions.

“The indictment of Mr. and Mrs. Liddle and Mr. Ruiz is the culmination of an extensive FBI and International Revenue Service investigation that exposed their loan kickback scheme to obtain fraudulent business loans,” said FBI Special Agent in Charge, Phoenix Division, Nathan Gray. “The FBI and our law enforcement partners are committed to seeking out those who conspire to defraud financial institutions.”

According to Manny Tarango, spokesman for the U.S. Attorney’s Office in Phoenix, the Liddles and Ruiz made their initial appearances before a judge at the federal courthouse in Yuma and were released to pre-trial services. He added that they should all be arraigned sometime within the next two weeks to enter their pleas against the charges.

Convictions for the counts of fraud alleged in the indictment carry a maximum penalty of 30 years in prison, a $1 million fine or both. In determining an actual sentence, the district court judge will consult U.S. Sentencing Guidelines, which provide appropriate sentencing ranges.  The judge, however, is not bound by those guidelines in determining a sentence.

The investigation preceding the indictment was conducted by the FBI with assistance by representatives of the IRS. The prosecution is being handled by Monica Klapper and Peter Sexton, Assistant U.S. Attorneys, District of Arizona, Phoenix.

James Gilbert can be reached at jgilbert@yumasun.com or 539-6854.