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U.S. v. CERTAIN FUNDS ON DEPOSIT

June 26, 1991

UNITED STATES OF AMERICA, PLAINTIFF,
v.
CERTAIN FUNDS ON DEPOSIT IN ACCOUNT NO. 01-0-71417, LOCATED AT THE BANK OF NEW YORK; ACCOUNT NO. 01-0-71425, LOCATED AT THE BANK OF NEW YORK; ACCOUNT NO. 092-00011-6, LOCATED AT THE EUROPEAN AMERICAN BANK (EAB); ACCOUNT NO. 81736021878-65, LOCATED AT MANUFACTURERS' HANOVER TRUST CO.; ACCOUNT NO. 81730625199-65, LOCATED AT MANUFACTURERS' HANOVER TRUST CO., DEFENDANTS.



The opinion of the court was delivered by: Spatt, District Judge.

MEMORANDUM DECISION AND ORDER

Claimants Baer & Baer, Efficient Management Service, Inc. and 137-41 South Fifth Avenue, Inc. ("the Baer Claimants"), move by order to show cause pursuant to Rule 12 of the Rules for Admiralty and Maritime Claims of the Eastern District of New York for the summary release of three of the defendant bank accounts from arrest and attachment. The Government opposes this application, which opposition is supported by the claimants Andrew Paulucci and Andrew Paulucci, Inc.

In addition, claimants Andrew Paulucci, Andrew Paulucci, Inc., Aurelio Paulucci, David Minor, Julia Paulucci, Michael Jacobs and Rosemary Jacobs ("the Paulucci Claimants"), move for leave to file late notices of claim.

For the reasons that follow, the motion of the Baer Claimants for summary release of the seized funds is denied, and the motion of the Paulucci Claimants for leave to file late notices of claim is granted.

I. FACTUAL BACKGROUND

United Independent Federal Credit Union ("United"), is a federal credit union located in the State of New York. The National Credit Union Administration ("NCUA"), has supervisory authority over all of the nation's approximately 11,000 federally insured credit unions. The NCUA charters, insures, examines the financial status of, and conserves or liquidates such institutions when required. A "federal credit union" is a "cooperative association" of seven or more natural persons, organized "for the purpose of promoting thrift among its members and creating a source of credit for provident or productive purposes" (12 U.S.C. § 1752[1], 1753).

United became chartered as a federal credit union in 1936, including in its "field of membership" persons who are members of the United Independent Young Men's Benevolent Society, Inc. of New York, New York, a Jewish fraternal organization, as well as immediate family members. United presently has 433 members and, as of June 30, 1990, its asset size was $1,244,000. United is controlled by claimants Aaron Baer and Maurice Baer.

United shared office space with various business entities controlled by Aaron Baer and Maurice Baer, including their accounting firm Baer & Baer, Efficient Management Service, Inc., 137-41 South Fifth Avenue, Inc. and 147 Franklin Realty Corp. Together, the Baer brothers own more than 40% of the shares on deposit at United and are on the Credit Committee.

The Government contends that from between June 1, 1989 and June 30, 1990, Aaron Baer received $504,757 and Maurice Baer received $195,500 in loans from United.

On October 18, 1990, counsel for claimant Andrew Paulucci contacted the NCUA, advising them that Andrew Paulucci was a member of United under the alias "Andrew Paul", as was Aurelio Paulucci under the alias "Aurelio Paul". At a subsequent meeting with the NCUA, Andrew Paulucci allegedly revealed the details of several allegedly improper loans made by United in February 1990.

Paulucci alleges that he was requested by Baer & Baer to apply for membership in United by using the alias surname "Paul", so as to create the appearance that he is within the "field of membership". The Baers also suggested creating the corporation Andrew Paulucci Inc. ("AP Inc."). The Baers retained a 50% voting interest in the corporation and received 40% of the shares of stock in exchange for obtaining financing for the Paulucci's. The Baers arranged for AP Inc. to acquire $288,000 by virtue of a series of $36,000 loans from United. With the knowledge of Baer & Baer, Paulucci allegedly executed fraudulent loan applications to United on behalf of himself, as Andrew Paul, and five other borrowers, namely, Aurelio Paul, David Minor, Julia Paulucci, Rosemary Jacobs and Michael Jacobs. The named payees of the loans did not receive the proceeds of the loans, but rather through fraudulent endorsements, the Baers allegedly obtained the amounts of the loans on behalf of AP Inc. from United.

The total amount of funds received by AP Inc. was approximately $288,000, which was allegedly subsequently deposited in a bank account maintained by AP Inc. Immediately thereafter, the Baers withdrew the money from the AP Inc. account, and diverted it to various corporations in which they had an interest, such as Baer & Baer, Efficient Management Service, Inc., 137-41 South Fifth Avenue, Inc. and Skan Teknologies Inc., according to the Government.

In sum, it is alleged that the Baers misused the United credit union, in violation of the credit union by-laws, various statutes and the applicable regulations. It is the position of the Paulucci Claimants that the Baers used the AP Inc. corporation as a front to divert monies to themselves.

Based upon these allegations, the NCUA issued an order of conservatorship for United in November 1990 in an effort to conserve United's assets and to protect the interests of the credit union members and the National Credit Union Share Insurance Fund. On November 29, 1990, United was placed into conservatorship. The conservatorship is the subject of a separate action pending before this Court ...


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