NEWARK, N.J. – Prosecutors have delayed sentencing for U.S. Mortgage/CU National Mortgage chief Michael McGrath from the end of this month until February while they negotiate guilty pleas with alleged co-conspirators in the $140 million theft of credit union funds.
McGrath, who stole the funds by selling credit union mortgages to Fannie Mae without authorization and kept the money, is expected to receive a long prison sentence, but others may receive lighter sentences after cooperating with authorities, according to several sources. Documents filed in the case list at least two top officers of the defunct mortgage bank for credit unions as co-conspirators.
Meantime, a group of 27 credit unions fighting Fannie Mae for return of the stolen funds is expected to reject an offer for about $25 million, or some 20% of the $125 million of the still missing funds. Fannie has given the group until the end of business today to accept the offer but few credit unions are biting, a loss the $100 million would push several of those credit unions under NCUA’s minimum capital standards, some of them into insolvency.
“The deal as proposed is ridiculous,” said James Forte, a New Jersey lawyer representing Picatinny FCU, a Dover, N.J., credit union that asserts Fannie Mae owes it almost $14 million of funds stolen by McGrath. Forte said Picatinny plans to pursue its claim in court and is proceeding with a lawsuit against Fannie for recovery of the funds.
Anthony Calascibetta, an examiner appointed to the case by the U.S. Bankruptcy Court, said other avenues of restitution are being contemplated in the case, claims against third parties in the case and bond claims against the credit unions’ insurer, CUNA Mutual Group.
McGrath pleaded guilty in June to charges of conspiracy to commit mail and wire fraud and confessed to selling almost $140 million of the credit unions’ mortgages to Fannie Mae and using the funds to keep his troubled mortgage firm afloat. Under a plea bargain, he has agreed to forfeit more than $13 million of assets, leaving a gap of about $125 million owed to credit unions.
His firm, which had become the largest mortgage bank for credit unions, filed for bankruptcy in February and has been liquidated. Under a plan approved by the bankruptcy court last month, all secured creditors have been paid off, leaving only the unsecured creditors, credit union victims and Fannie Mae as unsatisfied claimants. Any recoveries, about $17 million, which includes McGrath’s assets, will be paid to the credit union victims, according to Calascibetta.
Among the victim credit unions are: British Airways Employees FCU, ADP FCU, Delaware First FCU, Educational Systems FCU, First Florida CU, Jersey Trades Financial CU, JM Associates FCU, Lassen County FCU, Miami Firefighters FCU, Novartis FCU, Penn East FCU, Picatinny FCU, Sperry Associates FCU, Pinnacle FCU, Rutgers FCU, Suffolk FCU, Treasury Department FCU and Piedmont Advantage CU.
