In this case, Grand Union Mount Kisco Employees Federal Credit Union filed an action against Sydney Kanaryk, its former treasurer, and sought to compensate the credit union for losses allegedly caused by that treasurer’s fraud and misfeasance.

Stanley Kanaryk had been employed by Grand Union Mount Kisco Employees Federal Credit Union (“Grand Union”) as its treasurer for eight years prior to his announcement to retire.

Prior to his employment at Grand Union, Kanaryk had been employed as an auditor with the NCUA for eleven years.

During Kanaryk’s employment at Grand Union, he was responsible for setting up appropriate reserves for bad loans and shared responsibility for maintaining the credit union’s financial statements and records. Kanaryk’s duties included maintaining the investment portfolio for the credit union’s assets.

In this action, the credit union alleged that Kanaryk prepared false and fraudulent financial records as to the investments and was culpable of misfeasance for accounting for the loan losses.

In fact, as a result of the manner Kanaryk maintained the records, the board of directors was led to believe that dividends should be paid to the members when, in retrospect, the credit union was actually suffering a loss and dividends should not have been paid.

Moreover, Grand Union alleged that Kanaryk caused a loss of more than $150,000 on poor investments.

Following a two day trial, Kanaryk’s attorney requested the court to dismiss all counts of the action arguing that Grand Union had not established a prima facie case.

The court granted Kanaryk’s motion to dismiss and found that the board of directors had been fully informed of the accounting methods utilized by Kanaryk and advised of his investment activity.

In addition, when the NCUA audited Grand Union while Kanaryk was treasurer, the NCUA discussed the financial records with the board of directors and requested changes to be made, however, the board of directors failed to take corrective measurers.

The court noted that the board of directors did not act to properly monitor Grand Union’s financial records, even though all the records were available to them.

The court found that there was no evidence of fraud by Grand Union’s former treasurer, no concealment of records and no misfeasance committed by Kanaryk. Hence, the court dismissed all counts of the complaint against this credit union’s former treasurer.

EDITOR’S COMMENT

The court above noted that the NCUA report to Grand Union stated, in part, “The glue that holds all this together is a board of directors who must get involved a little bit more to help the treasurer perform his job.”

Members of the board of directors should take appropriate measures to ensure that they are aware of the accuracy of the credit union’s financial records and are aware of the ramifications of the investment of credit union assets. The board of directors are ultimately responsible for the acts of their employees and officers, although the case above did not involve an action by the credit union membership against the board of directors.

The court above noted that:

The evidence at trial established that the plaintiff’s board of directors, who authorized this suit and many of whom testified against Kanaryk, either were aware of or were exposed to information, such as NCUA examiner’s reports, which would have made them aware of the accounting errors and financial statement inaccuracies.

Their position is not akin to that of an uninformed market participant because they not only had access to the reports, they had a duty to apprise themselves of the contents of the reports as credit union directors.

Grand Union Mount Kisco Employees Federal Credit Union v. Sydney Kanaryk (U.S. District Court, S.D. New York, Case No. 89-6890).

Author: Charles R. Harroun, Attorney at Law