Risk & Compliance

Ex-Credit Union CFO Claims Wrongful Firing

Timothy Ross alleges Nutmeg State Financial Credit Union fired him for trying to expose an "illegal scheme" to boost the CEO's pay.
Matthew HellerJune 6, 2016

The former CFO of Nutmeg State Financial Credit Union and his top aide have sued their former employer, alleging they were fired in retaliation for trying to expose accounting gimmicks intended to boost the chief executive’s pay.

According to a complaint filed in Connecticut state court, both ex-finance chief Timothy Ross and former Vice President of Lending Shannon Hall objected to “questionable business practices” that were part of “an illegal scheme” by CEO John Holt to “profit personally at the expense of the credit union and its members.”

Among other things, the complaint said, Holt encouraged the plaintiffs to understate Nutmeg’s loan loss provision for the “sole purpose of maximizing [its] short term earnings” so Holt’s bonus targets would be met.

After they allegedly communicated their concerns to bank examiners, Ross and Hall were terminated in January. Nutmeg had hired them in July 2015 and October 2015, respectively.

The credit union illegally retaliated against both Ross and Hall for their “open communication with state and federal regulators as well as [their] attempts to uncover and expose defendant NSFCU’s unlawful behavior,” the plaintiffs allege.

The suit, which also names Holt as a defendant, says his compensation package included a supplemental executive retirement plan (SERP) that cost Nutmeg $45,000 a month to fund. In addition, he received bonus payments if specific profit targets were met.

Banks are required to set aside a reserve to protect them from probable credit risks in their loan and lease portfolios. But Holt allegedly refused to allow Hall to make the proper provision for Nutmeg’s reserve, instructing him “to push the loss out to some future date, rather than record the loss within that month, as required by GAAP.”

“By pushing out the losses, Defendant Holt was able to keep Defendant NSFCU’s profits artificially inflated, which allowed his bonus and SERP to be funded, even in months when Defendant NSFCU’ s profit targets would have fallen short,” Ross and Hall allege.

Nutmeg provided the Hartford Business Journal with a letter in which external auditor Nearman Maynard Vallez said its report from the most recent audit period “supports that the credit union is following GAAP.”