By Mike Colpitts
More than three years after the financial crisis erupted on Wall Street, a New Jersey based mortgage company president is the first person to be sentenced to federal prison in the government’s efforts targeting criminals in the financial crisis. The sentence was imposed as a result of a major conspiracy to defraud investors of more than $136-million.
Michael J. McGrath, 47, of Montclair, New Jersey was sentenced to 14 years in prison for his role in orchestrating a scheme that bankrupted U.S. Mortgage Corporation and its subsidiary CU National Mortgage, according to U.S. Attorney Paul Fishman.
McGrath, who was the controlling shareholder of the company pled guilty to one count of mail and wire fraud conspiracy and one count of money laundering. The charges stem from allegations that McGrath conspired to fraudulently sell giant U.S. mortgage lender Fannie Mae hundreds of loans belonging to credit unions.
The loss to investors has been estimated to be around $139-million, but restitution has been calculated by government investigators to be less, requiring McGrath to pay $136 million to his victims.
The case is part of President Barack Obama’s Financial Fraud Enforcement Task Force, which established an interagency special financial task force to wage an aggressive effort to investigate and prosecute financial crimes. McGrath is recognized as the first person to be successfully prosecuted as a result of the task force’s efforts.
Other members of the conspiracy included U.S. Mortgage’s chief financial officer, Leroy Hayden. McGrath directed Hayden, who provided reports to credit unions “falsely stating that loans that had been sold were still in the credit unions’ portfolios, to falsify records to conceal the fraudulent sales.”
The mortgage company president admitted that he devised a scheme to prop up U.S. Mortgage Company’s value, using the proceeds from the sales to fund his company’s lending operations, personal investments, including a house and a yacht and other investments he made for the company.
The pace of the fraudulent sales made to Fannie Mae increased during 2008 and 2009 as the mortgage market became unstable as a result of the financial crisis, and growing doubts over the loans authenticity.
In January 2009 dozens of law enforcement officers and federal agents executed a search warrant at U.S. Mortgage and CU National’s Pine Brook, New Jersey headquarters, resulting in hundreds of employees losing their jobs. Just a few weeks later the company filed for bankruptcy.
As part of a sentencing agreement, McGrath consented to forfeit $14-million in assets that the government had seized or froze in bank accounts associated with him and the business.