NEW LONDON and BRIDGEPORT, Conn. (7/20/10)--Five individuals who lost investments when the New London (Conn.) Security FCU (NLSFCU) was shut down in July 2008 have filed a $4 million lawsuit against the credit union's board and longtime manager, auditors, legal advisers, brokerage firm and the widow of the credit union's longtime investment adviser. The suit was filed in U.S. District Court for the District of Connecticut in Bridgeport on June 14, by member investors Melvin Goldblatt, Joan Lazerow, and Douglas C. Antupit, all of Connecticut; Mark D. Fetcher of Florida, and Gloria Johnston of California, according to the court documents filed. They seek a jury trial and more than $4 million with punitive damages. Defendants include Wells Fargo Advisors, a subsidiary of Wells Fargo & Co., which is a successor in interest to Wachovia Securities and A.G. Edwards and Sons. The credit union's long-time investment adviser and former A.G. Edwards branch manager Edwin F. Rachleff committed suicide the same day that the National Credit Union Administration (NCUA) closed the credit union. NCUA later accused Rachleff of carrying out a long term fraud that led to the credit union's collapse. Other defendants include the credit union's former auditing firm Beller, Shepatin & Co., and former legal counsel, Suisman, Shapiro, Wool, Brennan, Gray & Greenberg, and Rachleff's widow, who is executor of his estate. Attorney Robert Reardon represents the plaintiffs. The lawsuit claims violation of the Unfair Trade Act. It alleges that the law firm engaged in legal malpractice, Wells Fargo was negligent in supervising Rachleff, the credit union board breached its fiduciary duties in overseeing the investments, and the auditors were negligent and careless in failing to discover the discrepancies of the embezzlement. The suit claims that Rachleff embezzled more than $12 million from 1988 until July 2008, when the fraud or imprudent investments was discovered. The suit alleges the credit union's board failed to maintain a system of internal controls such as establishing a credit or supervisory committee, failed to establish adequate lending policies, and failed to separate the investment adviser's and investment safekeeper's roles. The "lax internal control environment," said the document, "created an environment susceptible to fraud, misappropriation or imprudent investment. The board accepted "highly suspicious statements from" A.G. Edwards typewritten on black brokerage-firm forms and failed to conduct regular meetings or keep minutes. The law firm, the suit alleges, failed to recognize problems including the need for "periodic rotation of external auditors." Other lawsuits have been filed stemming from the fraud and the subsequent collapse of the credit union. In separate suits, NCUA--whose share insurance fund lost $10 million from the credit union's failure--has sued Wells Fargo Investment Advisors and former credit union auditors Ed Lorah & Associates LLC seeking to recoup the loss (News Now March 24). Credit union investors lost about $570,000 in accounts that exceeded the $100,000 insurance limit that was in effect when the credit union was shuttered (The Day July 17).