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Mortgage Lenders' former CEO loses appeal of criminal prosecution ruling
By Caroline Salls
Pittsburgh, Jan. 22 - Mortgage Lenders Network USA, Inc. director and former chief executive officer and president Mitchell Heffernan lost his appeal of a bankruptcy court denial of his request to keep the State of Connecticut from beginning criminal prosecution against him for collecting unsecured company debts for employee commissions.
As previously reported, the U.S. Bankruptcy Court for the District of Delaware denied Heffernan's motion in April 2007. The bankruptcy court ruling was affirmed Thursday by the U.S. District Court for the District of Delaware on appeal.
In Thursday's ruling, judge Gregory M. Sleet said he agreed with the bankruptcy court's conclusion that a criminal matter against the former officer is not subject to the automatic stay imposed by the company's bankruptcy filing.
According to Heffernan's motion, 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 2006 through the Feb. 5, 2007 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.
Mortgage Lenders Network, a Middletown, Conn.-based lending company, filed for bankruptcy on Feb. 5, 2007. Its Chapter 11 case number is 07-10146.
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