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Employees Come Forth Some Say They Knew Of Franklin Problems- Dec 18, 1988 - Omaha World-Herald

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Dec 18, 1988 Employees Come Forth Some Say They Knew Of Franklin Problems; [Sunrise Edition] Paul Goodsell. Omaha World - Herald. Omaha, Neb . pg. 1.B

Full Text (1392 words)
(Copyright 1988 Omaha World-Herald Company)

When federal regulators accused Lawrence E. King Jr. of diverting millions from the Franklin Community Federal Credit Union and closed Franklin's doors last month, some of King's employees were stunned.

"It was a blow to me, like everyone else," said Robert Eckert, a teller.
He said he had no inkling that anything was amiss.

But other Franklin employees said they were aware of large sums of money flowing in and out of the credit union.

Two employees, who spoke on the condition they not be named, said they and other staff members believed that Franklin had not recorded all deposits and the credit union's money was being spent on King's personal or business expenses.

"I know it was illegal," one employee said. "But where the money came from, it wasn't my responsibility."

Said another employee: "I'd be lying if I said there weren't times in the middle of the night when you'd wonder, 'Could something be going on?' "

J. Leonard Skiles, regional director of the National Credit Union Administration, said the federal agency learned - only after closing the credit union - that some Franklin employees knew about alleged improper transactions.

"But no one ever told us," Skiles said from his office in Austin, Texas. "No one ever talked to us. No one even suggested anything."

Franklin was closed Nov. 4. NCUA officials have said that the credit union issued $39.5 million in certificates of deposit, but did not record about $38.5 million of those CDs on its books.

The NCUA has filed a $34 million lawsuit against King alleging that he diverted the money.

King has denied the allegations. William Morrow, King's attorney, said Saturday that King was not aware of improper activity at the credit union.

Besides King, at least 22 people worked for Franklin and were paid by the credit union's affiliate, Consumer Services Organization Inc. CSO is a non-profit organization established to provide consumer and credit counseling services to Franklin's mainly low-income customers.

The Franklin employees were mingled with CSO staff and other people on CSO's payroll records, which listed 66 salaried employees and two hourly employees as recently as Nov. 3 - the day before the NCUA closed Franklin and effectively shut down CSO. All but six of the employees were listed as full-time workers.

Through early November, CSO had paid $859,847 in wages and was on a pace that would have exceeded $1 million in payroll costs for 1988, according to the records.

Payroll List

Not all of the people listed on the payroll records worked at Franklin's main office, 1723 N. 33rd St., or at the south branch at 2429 M St., employees said.

They said the payroll list also included people who worked for King's private businesses, such as:

- Rodney Evans, who manages the Cafe Carnavale restaurant. Evans declined to answer questions about why he is shown on CSO's payroll.

- Omar Tinsley, who testified Friday in U.S. District Court that he is employed as a chef by the King Co. catering business.

- Tony Evans and Patrick Thompson, also employees of the King Co.

- Keith Allerton, part owner and operator of the Upstairs Dinner Theatre, 221 S. 19th St. Allerton said he did public relations work for Larry King Enterprises and was not employed by Franklin or CSO.

Allerton said he received his paychecks from CSO "as a courtesy" from King, since Allerton's public relations business had only one client and was not prepared to set up a billing system. The paychecks included withholding for Social Security and state and federal income taxes.

Allerton said he did public relations work, prepared public service announcements and promoted King's fund-raising benefits. He said he also did extensive work, drawing on his theatrical background, for Brownell-Talbot school's annual fund-raiser that King organized.

Germaine Attebery, manager of King's rented house in Washington, D.C., also received her salary through CSO.

Karen Lloyd, a former CSO employee, remains on the payroll, even though she heads the non-profit Cooperative Development Inc. that operates the Martin Luther King day-care center. She said King agreed to pay salaries for her and another employee as a donation from CSO.

Morrow said he did not know why the names of people who were not Franklin or CSO employees were on the payroll list.

'Employees Hurt'

Skiles said it appears that CSO's payroll was financed mainly by the money diverted from Franklin. The NCUA's lawsuit alleges that $980,000 was transferred from Franklin to CSO in 1988.

After Franklin was closed, some credit union employees were questioned by NCUA, FBI, and Internal Revenue Service agents. Several said they testified before a federal grand jury.

The Franklin and CSO employees have found themselves out of jobs; few of those interviewed said they have found new ones.

"The employees have been hurt the most," said William Bohn, who worked in Franklin's loan department.

Bohn said he and other employees have been tarred by the allegations, which have affected the way other financial institutions view their job applications.

"One credit union (official) laughed in my face," he said. "I never got interviewed."

Martha Johnson, loan manager and head of the south office, said she worked for Franklin for nine years and took pride in the credit union's loan record. She said Franklin did not have a problem with bad loans and said she doesn't believe loans were part of any improper activities.

"I'm really upset about it," she said. "It's affected my life."

Bohn said he believes that only a few Franklin employees had a hand in any improper activities.

"I had nothing to do with it, that's for sure," he said. "Ninety percent, I would say, just did their job. Nobody questioned anything. Why should they? We didn't have access to things that have come out."

Outside Brokers

Robert Morley, one of three Franklin employees who solicited deposits from investors, said he thought the credit union had $10 million to $15 million in deposits. He said his estimate was based on monthly summaries that listed CDs that were maturing that month.

Morley said he knew that Franklin's books showed about $2.5 million in deposits and asked about the discrepancy. He said his superiors told him that the balance sheet had to list only deposits by credit union members who lived in the community served by Franklin.

Co-worker Larry Murray said he knew that the development staff - he, Morley and Noel Seltzer from the south office - were handling millions of dollars in certificates. But Murray and Seltzer said they figured that with redemptions and interest payments, the credit union was either treading water or growing slightly.

"Money goes in, money goes out. That's what I thought," Murray said. "Now I see differently."

The three development workers said they were not given full information about outstanding CDs that would have tipped them off to the existence of $39.5 million in certificates. They said they now assume that the additional certificates were issued by other Franklin employees or through outside brokers.

In the months before Franklin's closing, independent brokers began to call from around the country. The brokers said they heard that Franklin was brokering its CDs, employees said.

The calls were perplexing, development workers said, because they understood that it was illegal or contrary to Franklin's rules to sell CDs through brokers who received commissions. The three Franklin workers said they did not use such brokers.

NCUA officials have said that regulators discourage the use of brokers by credit unions, but that it is not illegal.

Meanwhile, the development staff received commissions on the deposits they attracted or retained, the three employees said. The commissions depended on the amount invested, how long a CD would be held, and whether the deposit was new or a renewal.

Commissions could be as high as 2 percent, one of the employees said. Quarterly commission checks ran as high as $10,000 to $15,000, especially during the past year.

Regular salaries for the development staff were about $14,400 annually, payroll records indicate.

Seltzer, Morley and Murray said they were unaware that the money they were raising allegedly was used for King's expenditures.

Other workers also said they had not heard about improper spending.

"If I had known that, I wouldn't have stayed there," said William Schuermann, a CSO counselor. "I would have left."

Bank Failure

Credit: World-Herald Staff Writer

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