Financial Regulator's Top Lawyer Drank and Visited Strip Clubs on the Job, Investigation Finds

(Bloomberg) -- While on the job, the National Credit Union Administration’s former top lawyer visited strip clubs, drank heavily and was accused of using marijuana, conduct that clearly violated the terms of his employment, the financial regulator’s inspector general said in a report released Friday.

Joining ex-General Counsel Michael McKenna on his hours-long trips to strip clubs was his deputy, Lara Daly-Sims, according to the watchdog’s probe.

Daly-Sims told colleagues and NCUA investigators that she felt pressured by McKenna to go along, as he was her boss and he was positioning her to be his successor, the report said. In a Friday statement, Daly-Sims’s lawyer said she filed a complaint with the NCUA accusing McKenna of sexual harassment that triggered the inquiry into his behavior. The inspector general’s investigation does not reference Daly-Sims making a harassment claim against McKenna.

Attempts to reach McKenna on Friday and Saturday were unsuccessful. Calls to a number listed as his home phone in Reston, Virgina weren’t answered. He didn’t respond to a message sent to his LinkedIn account seeking comment.

NCUA Statement

McKenna, who retired in November after 30 years with the agency that regulates thousands of credit unions, admitted to drinking and going to the clubs during work hours but he denied using marijuana, according to the inspector general’s report. The document lists seven instances of him and Daly-Sims visiting strip clubs together between February 2017 and December 2018.

The NCUA commented on the inspector general’s investigation in a Thursday statement -- a day before the in-house watchdog released the report -- but didn’t reveal the specific allegations or name the officials involved.

“I was surprised and disappointed to learn of the activities described in the report,” NCUA Chairman Rodney Hood, whose tenure started in April 2019, said in the statement. “They are unacceptable and do not represent the values of this agency.”

Hood said the NCUA, based in Alexandria, Virgina, first learned of the alleged misconduct in November and immediately reported it to the inspector general.

Daly-Sims, now working as an attorney at a law firm, declined to comment on the report. In a statement, Daly-Sims’s lawyer said it was inappropriate for the inspector general’s office to name her client.

Discrimination Complaint

“Ms. Daly-Sims was sexually harassed by her former supervisor at the NCUA,” her attorney, Cathy Harris, said in the emailed statement. “We are dismayed that the IG investigation failed to mention or investigate her complaints of sexual harassment. We are appalled that the IG publicly released a report with the name of sexual harassment victim without her consent.”

Daly-Sims filed an employment discrimination complaint in December after reporting McKenna’s harassment to an NCUA supervisor in the previous month, Harris added.

Marta Erceg, the counsel in the inspector general’s office who signed the report, said “we conducted a thorough investigation.” She added that the information released was appropriate and that the office focuses on “investigations that may lead to criminal prosecutions.”

The inspector general’s report says the U.S. Attorney’s Office for the Eastern District of Virgina declined to prosecute either McKenna or Daly-Sims.

#MeToo Movement

The allegations against McKenna follow a deluge of cases in recent years exposed by the #MeToo movement of powerful men in media, finance and the broader business world abusing underlings. The federal government hasn’t been immune from such claims. In September, the Federal Housing Finance Agency, Fannie Mae and Freddie Mac’s regulator, settled with an employee who accused former director Mel Watt of making sexual advances while offering to advance her career. Watt denied wrongdoing.

The NCUA regulates more than 5,000 credit unions by writing rules, supervising institutions and insuring customers’ deposits. While not as well known as the Federal Reserve or Federal Deposit Insurance Corp., it often joins those agencies in passing regulations. The NCUA is also a member of the Financial Stability Oversight Council, a powerful panel of regulators set up after the 2008 financial crisis to spot emerging threats to the economy.

McKenna, who had worked at the NCUA since 1989 and was most recently in charge of all the agency’s legal matters, told investigators that he never used marijuana during work hours or at all during the three decades he was employed by the regulator. Daly-Sims indicated they’d consumed an edible version of the drug on a work trip, according to the inspector general’s report.

McKenna was among the agency’s highest paid officials, making $280,000 a year, according to recent public disclosures. Before joining the NCUA, he had been a U.S. Army judge advocate, focusing on criminal prosecutions.

Reviewing Policies

The inspector general’s report also said that Daly-Sims didn’t work as many hours as her logs stated, which resulted in the NCUA paying her $47,000 more than it should have. Daly-Sims’s attorney denied that she falsified work logs.

In his statement, NCUA Chairman Hood said “harassment and misconduct have no place” at the agency, and the regulator is reviewing its policies for reporting allegations of misconduct. The NCUA is also weighing the creation of an office of ethics counsel, Hood added.

--With assistance from Elizabeth Dexheimer.

To contact the reporter on this story: Jesse Hamilton in Washington at jhamilton33@bloomberg.net

To contact the editor responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net

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