Wisconsin Credit Union Takes $13M Charge in Fraud Scheme

One of the largest credit unions in Wisconsin has been hit by a recent fraud scheme involving fake US Department of Agriculture loans. The Madison-based UW Credit union has taken a $13.1 million loss contingency charge against its earnings in response to the fraud. Even with the loss charge, the credit union is still profitable for the year with almost $1.9 billion in assets.

"At this time, there continues to be considerable uncertainty regarding the final loss, if any, which may result in connection with this matter," Paul Kundert, president and chief executive of UW Credit Union, said in a statement.

UW Credit Union is the second Wisconsin financial institution to say that it invested in what officials now think are nonexistent USDA loans from Milwaukee-based Pennant Management Inc. Late last month, Beloit's Blackhawk Bancorp Inc., said the same fraud scheme cost it almost $1.6 million.

Pennant buys USDA-guaranteed loans and puts them into funds that financial institutions can invest in. The USDA backing traditionally makes these types of loans a low-risk investment. But Pennant says that an hotelier in Florida sold them fake USDA-backed loans. The hotelier has been charged with wire fraud in the case.

Several other financial institutions, including one in Texas and two in Illinois, have also reported investing millions in the nonexistent loans.