U.S. regulators open probe of credit union bond trades

October 03, 1992|By David Conn | David Conn,Staff Writer

Federal regulators have launched an investigation into the trading practices of a Lutherville credit union and its investments through the PaineWebber Inc. office in Hunt Valley.

The National Credit Union Administration, which regulates federally chartered credit unions, is looking into the trading relationship between the First Financial Federal Credit Union of Maryland and PaineWebber, according to Robert Schafer, regional deputy director of the administration.

"We've opened up a formal investigation. We have a variety of actions we can take," Mr. Schafer said yesterday.

"The investigation normally involves subpoenas and taking depositions," he said, adding that the search "could take awhile."

"We anticipate that the brokerage firm will comply rather readily," Mr. Schafer said. He has noted that First Financial is financially sound, and that its deposits are insured up to $100,000 per account.

This spring, on five trades of government agency bonds, the Hunt Valley PaineWebber office charged First Financial commissions far in excess of industry standards, according to internal documents. A story about the trades appeared in Thursday's editions of The Sun.

First Financial, a $150 million institution, is the credit union for school employees in Carroll and Baltimore counties as well as for federal workers and others.

A PaineWebber broker involved in the trades, Robert W. Sitton Jr., is married to a top official of the credit union, a situation that appears to be in violation of federal conflict-of-interest rules.

Mr. Sitton denied wrongdoing in a brief interview earlier but said company policy prevented him from discussing the matter. He declined yes- terday to elaborate on his relationship with First Financial or on the federal investigation.

Mr. Sitton's office manager, Kevin Broderick, also declined to comment. Both men referred questions to PaineWebber headquarters in New York. A spokeswoman for the company yesterday said PaineWebber had no comment.

According to PaineWebber order tickets The Sun obtained, the commissions Mr. Sitton and Mr. Broderick charged the credit union on the five trades totaled almost $200,000 for less than $12 million in bonds. Industry executives said those trades, involving the bonds of government agencies such as the Federal National Mortgage Association (Fannie Mae), typically cost no more than $14,000 and possibly as little as $3,500.

Although First Financial assured the National Credit Union Administration last year that Mr. Sitton was no longer the credit union's broker, his identification number appeared on two of the trades executed this spring. PaineWebber memos also show that last year a "split account" was established that named the office manager as the broker of record but sent him only 1 percent of the commissions from First Financial's trades. The memos show that 99 percent of the commissions were to go to Mr. Sitton.

First Financial's president, George O. Hansen Jr., said earlier that he had not overpaid for his investments with PaineWebber and was satisfied with its service and the profits he had made. He did not return calls for comment yesterday.

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