A Marion County judge has ordered an Indianapolis credit union to pay its former CEO $3.4 million, saying it wrongly froze the executive's accounts after accusing him of financial improprieties three years ago.
The stinging judgment issued Aug. 4 by Judge Thomas Carroll represents three times the $1 million that had been in the accounts, plus interest and attorney's fees. Carroll found that Jet Credit Union, now part of Illinois-based Credit Union 1, committed criminal conversion by exercising unauthorized control over business and personal accounts tied to former CEO John Loudermilk.
The credit union, which primarily serves employees of Allison Transmission and Rolls-Royce Corp., locked down the accounts in October 2003 and didn't release them until May 2004, after Carroll ruled it lacked authority to hold them.
"You just can't take other people's money when you feel like it," said Greg Hahn, an attorney with Tabbert Hahn Earnest & Weddle representing Loudermilk. "That's what the justice system is for. If you do, you are going to do it at your own peril."
Attorneys with Barnes & Thornburg representing Jet declined to comment in detail.
"Obviously, we're disappointed with the result and are reviewing our options regarding an appeal," said Christian Jones, a partner with the firm.
In court papers, they say the credit union froze the accounts beyond the 60 days normally permitted after receiving advice from its regulator, the Indiana Department of Financial Institutions.
"The undisputed … facts show that Jet reasonably believed … that its actions were authorized and justified," a filing by the credit union says. DFI officials did not respond to requests for comment.
Jet sued Loudermilk three years ago, and the former executive later filed a counterclaim alleging criminal conversion. The credit union continues to press ahead with allegations that Loudermilk engaged in self-dealing and other financial improprieties, costing the west-side financial institution millions of dollars. A two-week trial is scheduled for December. Attorneys for Loudermilk deny the allegations.
The legal brouhaha has cast an unflattering spotlight on the business dealings of Jet and Loudermilk, who'd led the credit union for 42 years when he retired in August 2003.
Court records show DFI wanted him out. He departed under the terms of a letter of agreement between Jet and the regulator, which had expressed concern over the operation of the $43-million-in-assets institution after conducting an examination.
A few months later, Jet agreed to merge into Credit Union 1, a $338-million-in-assets institution with headquarters in Rantoul, Ill. At the time, Mark Powell, supervisor of DFI's Credit Union Division, told IBJ: "The Jet board did reach the decision [to merge] on its own, but certainly the department didn't look at the merger with a disapproving eye."
Loudermilk, now in his mid-70s, was no buttoned-down banker. While earning as much as $235,000 a year in salary for his full-time Jet post, he had his hand in a long list of entrepreneurial ventures.
At one point, for instance, he owned the Entrepreneur Business Center, a small-business incubator at 55 S. State St. Court records listed him as president of at least eight companies, from Geneva Life Insurance Co. to Frazier Farms Ltd. and Associated Property Services.
Jet's lawsuit charges that Loudermilk's business and credit union dealings frequently intersected.
For example, the suit charges that Jet made loans to a group of RV-rental-and-sales companies he intended to purchase. The loans, which far exceeded Jet's permissible lending limit, went into default, costing the credit union $2.9 million, court records allege.
In another case, Jet said Loudermilk co-signed for a loan to an Indianapolis roofing contractor and put up $100,000 of his own money in a Jet account as collateral. The suit says Loudermilk later had Jet release the collateral on the loan, which slid into default.
According to the lawsuit, Loudermilk also wrote off loans to friends and associates, costing Jet $90,000, and sold automobiles repossessed by Jet for personal profit, costing it $100,000.
Jet says the executive enriched himself in other ways, as well. For example, in 2001 and early 2003, he proposed amendments to his retirement package, then joined fellow board members in voting to adopt them. The changes had the effect of boosting his lump-sum retirement payout by $375,000 and allowed him to receive it four months early.