A subprime mortgage lender withheld commission checks from 61 employees at the behest of one of its biggest creditors, according to an executive who is seeking to avoid arrest and criminal prosecution.

The Connecticut Department of Labor has applied for an arrest warrant against Mitchell L. Heffernan, the former president of Connecticut-based Mortgage Lenders Network USA Inc., charging him with failing to pay commissions ranging from $5,000 to $300,000.

MLN closed its wholesale lending division Dec. 29 when it could no longer obtain financing to make loans, and filed for Chapter 11 bankruptcy protection Feb. 5.

Heffernan, who is seeking an injunction in bankruptcy court to avoid arrest, maintains the decision to withhold the commissions came from Residential Funding Co., a division of GMAC Financial Services, Dow Jones Newswires reported.

Residential Funding is the second-biggest creditor in MLN’s bankruptcy proceeding. Attorneys for the company called Heffernan’s allegations “scandalous,” and are seeking to have them stricken from court records, Dow Jones reported.

MLN has laid off all but 100 of 1,800 employees, and the company is working to sell all its loans and cease operations by the end of April, Dow Jones reported.

A judge will rule on Heffernan’s injunction to prevent his arrest Tuesday. Connecticut Attorney General Richard Blumenthal told Dow Jones that he can’t force MLN to pay employees now that the company is in bankruptcy, but maintains the state has the right to pursue criminal charges against company executives for failure to pay wages.

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