The former president of New Jersey-based U.S. Mortgage Corp. has been sentenced to 14 years in prison for his role in a $136 million fraud scheme that bankrupted the company and its subsidiary, CU National Mortgage, prosecutors said.
Michael J. McGrath, Jr., 47, pleaded guilty last year to one count of mail and wire fraud conspiracy and one count of money laundering in connection with a scheme to fraudulently sell Fannie Mae hundreds of loans belonging to various credit unions from 2002 to early 2009.
Other members of the conspiracy included U.S. Mortgage’s chief financial officer and its servicing manager, Leroy Hayden, of East Stroudsburg, Pa.. Hayden, 47, has pleaded guilty to one count of wire fraud conspiracy and is currently scheduled to be sentenced on March 24.
Prosecutors said that at McGrath’s direction, Hayden provided numerous reports to credit unions falsely stating that loans that had been sold were still in the credit unions’ portfolios.
McGrath admitted that he devised the scheme to prop up U.S. Mortgage, and that he used the proceeds to fund U.S. Mortgage’s operations, his personal investments, and investments he made on U.S. Mortgage’s behalf, prosecutors said.
Prosecutors said they expect McGrath will also be ordered to pay more than $136 million in restitution. A restitution order was postponed in order to allocate victims’ losses.
U.S. Mortgage and CU National filed for bankruptcy and hundreds of employees lost their jobs after law enforcement officers executed a search warrant at the companies’ Pine Brook headquarters in January 2009, prosecutors said.
Four credit unions have filed civil suits against Fannie Mae seeking to recover more than $64 million in loans they say were fraudulently sold by U.S. Mortgage, Reuters reported.