CU Victimized by Multi-Million Dollar Scheme, Woman Sentenced

CU Victimized by Multi-Million Dollar Scheme, Woman Sentenced
February 20, 2017 Marketing GrafWebCUSO

Learning from her father how to operate a $145 million circular check-kiting scheme that victimized a credit union and two banks, landed a Michigan woman in federal prison for 18 months.

U.S. District Court Chief Judge Robert J. Jonker in Kalamazoo, Mich., also ordered Brooke Lynn Vernier on Feb. 14 to serve two years of supervised release following her prison term and to pay $1,780,232 in restitution.

Vernier pleaded guilty to conspiracy to commit bank fraud in August, admitting to writing hundreds of checks that transferred or attempted to transfer approximately $145 million among seven accounts at the $140 million TruNorth Federal Credit Union in Ishpeming, Mich., formerly known as Ishpeming Community Federal Credit Union, Peninsula Bank and River Valley Bank.

In 2008, Vernier, a bookkeeper, learned a simple form of check kiting allegedly from her father, who controlled three businesses that were owned by Brooke Lynn. He allegedly set his daughter up in these businesses, in part, to avoid creditors from a previous bankruptcy case, according to court documents.

Although he promised to help his daughter run the businesses properly, the father allegedly exploited her by controlling the businesses and eventually financially ruining them, according to court documents.

“If it were not for him she would not have learned how to kite checks, she would not have been involved with the businesses whose banks were defrauded and she could not have agreed to kite with the false hope that things would work out eventually,” Vernier’s lawyer, Charles E. Chamberlain, wrote in court documents.

The businesses never operated on a budget and Vernier’s father allegedly ignored the day-to-day financial troubles and other economic realities, according to court documents.

Feeling trapped, Ms. Vernier began kiting checks. When the credit union and banks started clearing checks more quickly, however, she resorted to the circular check-kiting scheme in which she wrote multiple checks among the financial institutions to create inflated balances to pay the businesses’ mounting bills.

By January 2012, about a year after the businesses were operating, the credit union and banks noticed a pattern of check writing consistent with a checking kiting scheme. In September, Ms. Vernier met with TruNorth FCU and admitted that she had been writing checks to inflate account balances, according to court documents.

All three institutions held on to funds while they conducted their investigations. They determined that the net shortage among all of the accounts was $905,816, and they paid Ms. Vernier $978,100, representing what the financial institutions believed to be the remaining account balances.

She then deposited those funds with other banks and paid the businesses’ bills. What she did not realize, however, was that the banks had made an accounting error and mistakenly paid out those funds, which increased the credit union’s and banks’ loss to $1,783,916, according to court documents.

Vernier’s lawyer said his client did not use any of these funds for her own personal gain.

Although federal prosecutors conceded that Vernier had a difficult relationship with her controlling father, she nevertheless personally carried out an enormous circular check-kiting scheme to keep the businesses operating.

Prosecutors noted that Vernier wrote checks that amounted to $145 million between the seven corporate bank accounts when the total legitimate business activity of the three companies was about $15 million.

This suggests that Vernier wrote $130 million in checks, or about 15 checks a day, to carry out the circular check-kiting scheme. At the time the scheme was uncovered, Vernier had about $5.2 million in bad checks in circulation, prosecutors said.