Mortgage Lenders former CEO appeals denial of criminal prosecution injunction

By Caroline Salls

Pittsburgh, April 19 - Mortgage Lenders Network USA, Inc. director and former chief executive officer and president Mitchell Heffernan appealed the order denying his request to keep the State of Connecticut from beginning criminal prosecution against him for unpaid employee commissions, according to a Thursday filing with the U.S. Bankruptcy Court for the District of Delaware.

According to Heffernan's motion for an injunction, during the 45-day period before the company's bankruptcy filing, its largest secured creditor Residential Funding Co., LLC, Residential's restructuring consultant Navigant Capital Advisors, LLC and Mortgage Lenders' restructuring consultant Scouler Andrews took over the company's cash management, and all financial transactions and payments to creditors were required to be approved by Residential and Navigant.

As a result, Heffernan said he had no control over payments to any of the company's creditors, including employee commissions, from mid-December through the Feb. 5 bankruptcy filing date.

In addition, Heffernan said he was directed not to pay any commissions to employees because the commissions were disputed and the bankruptcy court would require the commission payments to be repaid to the company as preferential payments.

As previously reported, Heffernan reached a stipulation with Mortgage Lenders counsel James I. Stang, of Pachulski Stang Ziehl Young Jones & Weintraub LLP, to clarify that Stang did not advise the company whether to pay or not pay employee commissions.

Mortgage Lenders Network, a Middletown, Conn.-based lending company, filed for bankruptcy on Feb. 5. Its Chapter 11 case number is 07-10146.

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