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Franklin Board of Directors Named in Federal Lawsuit - Dec 1, 1989 - Omaha World-Herald

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Dec 1, 1989 Franklin Board of Directors Named in Federal Lawsuit; [Sunrise Edition] David Thompson. Omaha World - Herald. Omaha, Neb. pg. 1

Full Text (896 words)
(Copyright 1989 Omaha World-Herald Company)

Federal regulators filed a lawsuit Thursday against the Franklin Community Federal Credit Union board of directors and its supervisory committee, seeking to recover $39 million missing from the credit union.

The National Credit Union Administration said the money disappeared as the result of illegal actions of Franklin's manager-treasurer, Lawrence E. King Jr., and head accountant, E. Thomas Harvey Jr.

The civil suit names 16 directors and former directors and 10 members and former members of the supervisory committee. Two of the defendants served at one time or another on both groups, the suit said.

Former Mayor Walt Calinger and his wife, Nancy, were among those named as former members of Franklin's board of directors.

The lawsuit was the fifth filed by the NCUA since Franklin collapsed Nov. 4, 1988. Earlier suits named King; his wife, Alice Ploche King; a trust established in the name of their son, Lawrence E. King III; and the Consumer Services Organization, which was affiliated with Franklin.

Seven People Charged

King and his wife were among seven people charged with fraud and tax crimes as the result of their alleged actions in Franklin activities.

In the suit filed Thursday in U.S. District Court, NCUA contended that while Franklin was under the control of King and the board of directors, the credit union sold millions of dollars of certificates of deposit at above-market rates of interest.

King committed "a long series of fraudulent, dishonest and illegal actions by which funds were transferred from Franklin to himself" and others, the suit said.

Harvey, Franklin's head accountant, also misappropriated credit union funds between 1975 and the time of the collapse, the suit said.

NCUA said the board of directors' "negligence, inaction, mismanagement" caused the $39 million loss.

Specifically, the suit said, the directors:

- Relied on audits by the NCUA and failed to have their own audits conducted from 1984 until the time Franklin failed.

- Ignored warnings of the NCUA and delegated "excessive authority and discretion to credit union officials," especially King and Harvey.

- Ignored complaints by Franklin employees about "improprieties" and approved without question the activities of King and Harvey.

- Allowed King to pick replacements for directors without questions and elected some people who were without the necessary qualifications.

- Made no attempt to find out where King obtained money that he spent lavishly.

- Allowed Franklin funds to become "hopelessly" mixed with the personal and business affairs of King.

- Failed to question how the credit union was able to offer certificates of deposit at higher-than-market rate.No Audits

The supervisory committee contributed to the losses by failing to have any audit conducted between July 31, 1984, and November 1988 even though annual audits were required by law and were ordered by the NCUA, the suit said.

The lawsuit asks for $39,084,454.

The suit names as defendants these 10 people who were on the board at the time Franklin was liquidated and six other former directors. Those allegedly on the board at the time of liquidation were:

Charles Jean-Baptiste, chairman, who now lives in Kansas City, Kan., where he is an assistant to the regional director of the U.S. Department of Housing and Urban Development; James C. Hart Jr., an assistant city attorney who was board secretary; Floyd Waterman, a University of Nebraska at Omaha professor; Jeanne Rogers, Druid Hill School principal who also served on the supervisory committee; Carnell Deason, a job placement employee with the Omaha School District; Helen Patterson, 4927 Pratt St.; Robert Jones, 2218 Evans St., retired; the Rev. Stan Kessler, Dundee Presbyterian Church; Glenn E. Mitchell Sr., staff assistant in the Omaha School District office; and Mrs. Calinger.

Former Members

Those named as former board members were Arthur Miller, chairman prior to 1985 and a City of Omaha Public Works Department employee; Myrtle Browder, a member of the Nebraska Urban League Guild; Jarrett Webb, who is married to a cousin of King; June Swanigan, associate director of United Methodist Community Center who also served on the Franklin supervisory committee; Marie Bastian, Bergan Mercy Hospital secretary; and Calinger.

Named as defendants for their role on the supervisory committee were these former members: Dr. Paul Lee, who served in 1983-85 before moving to Greensboro, N.C.; Dr. William Johnson, of Omaha, also 1983-85; Thelma Dean, wife of a Union Pacific car attendant; Thomas O. Davis, acting executive director of Boys' Clubs of Omaha; Tommie Adams, Omaha electrical contractor; Glenn Thomas, 6005 Bridle Path; S.P. Benson, acting city planning director; and Rev. Negil McPherson, pastor of Pilgrim Baptist Church.

Benson said Thursday he was asked to serve on the committee, but he declined because he was already involved with the city employees credit union and did not have time. He said he never went to any meetings and did not receive any information about the supervisory committee.

No Meetings Held

McPherson said in an earlier interview that he agreed to serve but no meetings were ever held.

Davis said earlier that he was never notified of any meetings and wasn't aware the committee was responsible for audits.

Adams said in an earlier interview that he attended a couple of committee meetings involving the completed 1984 audit, but he did not know the committee was responsible for audits.

Ms. Swanigan said she received a letter naming her to the committee but no duties were stated and no meetings were held.

Credit: World-Herald Staff Writer

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