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McGrath to give up parking lot to make restitution
NEWARK, N.J. (6/16/09)--Michael McGrath, who pleaded guilty Thursday to swindling credit unions and others out of nearly $140 million while he headed the now bankrupt U.S. Mortgage Corp. and CU National Mortgage, will lose his interest in a Hoboken, N.J. parking lot to help make restitution. McGrath, who will also forfeit several bank and brokerage accounts, said he used some of the money obtained by selling fraudulent loans to credit unions to cover cash flow problems with U.S. Mortgage's operations as well as personal investments, such as the parking lot (The Jersey Journal June 15 and June 11). The restitution totals about $13 million. The rest of the swindled funds is lost in bad investments. McGrath admitted he directed the servicing manager of U.S. Mortgage to generate false reports for credit unions stating that their loans--which he had sold to Fannie Mae--were still in their portfolios, and to modify data in U.S. Mortgage's servicing system. He also admitted he directed the company's chief financial officer (CFO) to pay off or make monthly payments to credit unions for the fraudulent loans, and directed the CFO and a subordinate to falsify documents. In other actions involving the case, the company's surety bond insurer, Zurich American Insurance Co. and one of its units, Fidelity and Deposit Co. of Maryland, filed a motion Friday with the U.S. Bankruptcy Court seeking relief from a stay that prevents the company from withdrawing and canceling its surety bonds on behalf of U.S. Mortgage Corp. U.S. Mortgage filed for a Chapter 11 bankruptcy on Feb. 23. On April 1, its subsidiary, CU National Mortgage filed for Chapter 11. The court granted the bankruptcy applications on April 13. Before the petition date, Zurich issued 13 surety bonds to U.S. Mortgage. Two of the bonds were cancelled before the petition date. According to the motion filed in court, Zurich says that U.S. Mortgage and CU National Mortgage have ceased originating loans and no longer need the surety bonds to support or guarantee its business operations. The motion filed noted that since the surety bonds continue to secure U.S. Mortgage's obligations up to their withdrawal and cancellation, "U.S. Mortgage is in effect continuing to use the surety bonds as post-petition credit without Zurich's consent or agreement." Zurich is seeking adequate protection in case the mortgage company contests the request to withdraw and cancel the bonds. Zurich is also filing "an administrative priority claim" totaling $21,705.54 for premiums for the surety bonds "that provided a benefit to U.S. Mortgage's estate after the bankruptcy filing." McGrath faces 150 to 240 months in prison. He will be sentenced on Oct. 1.

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