SPRINGFIELD, Ill. (7/7/11)--CUMIS Insurance Society Inc., a provider of employee fidelity insurance to credit unions, and which also is part of CUNA Mutual Group, has filed a lawsuit to prevent a former credit union staffer convicted of fraud from discharging debt under bankruptcy. CUMIS is trying to recoup insurance money paid to Staley CU, Decatur, Ill., stemming from her fraudulent actions while employed at the credit union, saying the fraudulent actions occurred before she declared bankruptcy. Plaintiff CUMIS filed suit Friday against defendant Diane Shelton, a former loan officer at the credit union, in U.S. Bankruptcy Court for the Central District of Illinois, in Springfield. The insurance company paid nearly $1.7 million to Staley CU as a result of alleged fraud perpetrated by Shelton and two others--Terry Hart, a mortgage broker, and Mark Brown, an appraiser. The three allegedly conspired to inflate values on homes for the purpose of causing Staley to issue purchase-money mortgage loans using the homes as collateral, according to the complaint. CUMIS issued an employee fidelity bond to Staley that insured against dishonesty by Staley employees, including Shelton, said the complaint filed. When Staley found out about the fraudulent loan mortgage scheme, the credit union terminated Shelton’s employment and conducted an investigation into her actions. Subsequently, Shelton pleaded guilty to the charges, was convicted, and sentenced to more than 12 months in prison. After Shelton reported to prison March 2, she filed for a Chapter 7 bankruptcy and is looking to discharge all her debts. Co-defendant Brown entered into a plea agreement with the U.S. attorney and also is in prison. Co-defendant Hart committed suicide on the day he was to be sentenced, according to the court documents.