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29
Oct
2021

Collateral: Embezzled Funds

Credit Union Board Member and Manager Pledged Embezzled Funds as collateral for Credit Union loan. 
 
Rebecca Caldwell was the manager, secretary and treasurer of Avondale Mills Bevelle Employees Federal Credit Union. She also served on the credit union’s Board of Directors.

Caldwell took a blank Certificate of Deposit from the credit union and directed a part-time teller to sign the certificate purporting to vest Caldwell with ownership of a $60,000 CD.

Caldwell never paid for the $60,000 CD. Thereafter, Caldwell pledged the $60,000 CD to First National Bank as collateral for two loans from the bank totalling $50,000.

She also borrowed money from the credit union and pledged the same bogus CD as collateral to the credit union.

The bank loans went into default and the bank sued the credit union for the CD pledged as collateral by Caldwell.

The trial court held against the credit union and ordered the CD be released to the bank, however, the appellate court reversed and found that since the debtor did not have a valid right to the CD to begin with, that the pledge of the CD as collateral was ineffective.

One can only pledge assets that they do in fact own. First National Bank of Alexander City v. Avondale Mills Bevelle Employees Federal Credit Union, (U.S. Court of Appeals, 11th Cir., Case No. 91-7436).

EDITOR’S COMMENT:

A pledge of a CD from any institution should be scrutinized. It is significant that in the case above, the bank did verify the CD with the same part-time teller who initially issued the CD. In this case, the CD in question, by its own terms, disallowed transfer or assignment of the certificate or any rights under it without the credit union’s written consent. The bank was not aware of this restriction and it never obtained an actual copy of the certificate.

If a credit union accepts a pledge of a CD as collateral on a loan, regardless of where the CD is invested, the credit union should obtain written verification of the CD and a copy of the CD to verify the individual can pledge it as collateral without restriction. This procedure should be completed prior to issuance of a loan.

By Charles R. Harroun, Attorney at Law


This entry was posted on Friday, October 29th, 2021 at 9:11 am and is filed under Employees, National, Secured Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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