A 90-year-old Virginia woman is suing the NCUA over the loss of her life-savings of more than $227,000 following a multimillion-dollar fraud scheme that closed the Lynrocten Federal Credit Union.
Lawyers representing Ruby Van Scoten filed the civil lawsuit in U.S. District Court in Lynchburg on Oct. 31. They are seeking a jury trial in hopes of reclaiming Van Scoten’s money that the NCUA claimed it had a “right of offset” based on Van Scoten’s relative’s debts of more than $265,000.
In 2002, Van Scoten, 90, of Madison Heights became a member of the Lynchburg-based LFCU. In April 2013, NCUA examiners uncovered the fraud that began 2000 by a teller and the credit union’s former president/CEO Linda Sue Newcomb. By May 2013, the NCUA liquidated the credit union after determining it was insolvent.
Newcomb pleaded guilty and is serving a 10-year prison sentence. She also is under court order to make restitution of $11.7 million. Although Newcomb transferred some of these stolen funds into the account in her husband’s name, Arthur Newcomb, he was not charged with any crime and was not aware of the fraud. In 2004,
Arthur Newcomb is Van Scoten’s nephew, and in 2004, she began relying on him, according to the lawsuit.
Occasionally, Mr. Newcomb with Van Scoten’s consent, withdrew funds from Van Scoten’s account. That money was repaid by Newcomb with zero interest.
In 2009, Van Scoten requested LFCU give Mr. Newcomb a right of survivorship on her account, but it denied him the authority to withdraw any funds for his personal use without Van Scoten’s authorization, according to the lawsuit.
An undated account change card purporting to add Mr. Newcomb as the joint owner of the account was included in the file, but it was not executed by Van Scoten, her lawyers claimed. They also claimed that LFCU improperly structured this as a joint account to give the credit union’s manager’s husband an ownership interest in Van Scoten’s life savings against her wishes.
Van Scoten’s lawyer argued that Van Scoten believed and still believes that she only gave Arthur Newcomb a right to obtain the account upon her death and that all funds in her account remained her property.
“Ruby Van Scoten never wanted or requested to have (her account) become the current property of Arthur Newcomb, and the improper paperwork LFCU told her to sign was itself internally inconsistent and misleading,” Van Scoten’s lawyers wrote in the civil suit.
After LFCU was liquidated, Van Scoten filed a timely claim with documents that showed she contributed all of the funds to her account and she did not withdraw any funds.
After reconstructing the balance of Van Scoten’s account, the NCUA mailed a final disposition to her in September 2016.
The letter stated that Arthur Newcomb, who was listed as a co-owner of Van Scoten’s account, had a negative balance of $249,256, was a guarantor liable for an additional $6,202 and had pledged Van Scoten’s account as collateral for a delinquent account in the amount of $10,454.
That meant Van Scoten’s life-savings was gone.
According to the lawsuit, the NCUA letter described that the federal agency claimed the right to offset Arthur Newcomb’s loan delinquencies with the funds in the account he jointly owned with Van Scoten.
The NCUA letter, which was attached to the lawsuit, explained that the Federal Credit Union Act authorizes these offsets and withholdings. The letter also explained that because Van Scoten’s account was jointly owned by Arthur Newcomb and was pledged as collateral on outstanding loans, the federal agency had the right and responsibility to the LFCU estate to withhold Van Scoten’s funds.
However, the debt incurred by Arthur Newcomb is where his account was overdrawn due to the fraud perpetrated by Lind Sue Newcomb, Van Scoten’s lawyers argued in the lawsuit.
“The NCUA is thus collecting a debt of a fraudster’s from Ruby Van Scoten, the ninety year old victim of that fraud,” they wrote.
Van Scoten’s lawyers also argued that it is a general concept, accepted by courts nationwide since the 19th century, that rights of offset are limited to equitable principles and a separate debt cannot be offset against joint debt.
“Furthermore, it would manifestly be unjust for Ruby Van Scoten, the victim of fraud by her credit union officers, to now be punished for a second time,” Van Scoten lawyers argued in the suit.
The NCUA’s policy is not to comment on pending litigation, John Fairbanks, NCUA’s spokesperson said Friday.
