Mortgage Lenders' former CEO asks court to keep Connecticut from arresting him for unpaid commissions

By Caroline Salls

Pittsburgh, March 28 - Mortgage Lenders Network USA, Inc. director and former chief executive officer and president Mitchell Heffernan asked the U.S. Bankruptcy Court for the District of Delaware to keep the State of Connecticut from beginning criminal prosecution against him to collect unsecured company debts for employee commissions, according to a Wednesday court filing.

According to the 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 copmpany'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 by Mortgage Lenders' bankruptcy counsel, as well as Residential's Thomas Kelly, Navigant's Edward Casas and Scouler's Daniel Scouler, 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.

"The arrest of Mr. Heffernan for following the directions of bankruptcy counsel, RFC, Navigant and Scouler, and the procedures of the bankruptcy court cannot and should not be permitted," the motion said.

Heffernan also said in the motion that bankruptcy courts have enjoined criminal prosecution against directors and officers of corporate debtors where the proceeding is intertwined with the bankruptcy case.

Scouler and Mortgage Lenders' bankruptcy counsel James Stang is expected to join Heffernan in the motion, the filing said.

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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