Mortgage Lenders secured creditor asks court to strike former CEO's 'scandalous' allegations

By Caroline Salls

Pittsburgh, April 4 - Mortgage Lenders Network USA, Inc. secured creditors Residential Funding Co., LLC asked the U.S. Bankruptcy Court for the District of Delaware to strike some allegations made by former Mortgage Lenders CEO Mitchell Heffernan in his motion to keep the state of Connecticut from prosecuting him, according to a Tuesday court filing.

According to the motion, in an attempt to enjoin Connecticut's alleged attempt to prosecute him, Heffernan "has littered the Heffernan pleadings with patently false allegations regarding the conduct of RFC, its officers and its advisors."

Specifically, Residential Funding said Heffernan repeatedly alleges that it and its financial adviser Navigant Capital Advisors, LLC took over Mortgage Lenders' cash management and that all financial transactions and payments to creditors required Residential and Navigant approval.

The motion said Heffernan also alleged that he was directed by Residential and Navigant not to pay any employee commissions.

Residential said Heffernan insists he had absolutely no control over creditor or employee commission payments since mid- December, and that Residential and Navigant were in control of the company's funds.

Residential called the allegations an attempt to deflect blame "by dragging RFC and Navigant through the mud."

Residential said it did not have control over the company or its cash management system, and it was not a signatory, let alone the sole signatory, on any Mortgage Lenders-owned accounts.

In addition, Residential said it did not have the right to give direction to the company's depositary banks to pay employee commissions, and no Residential or Navigant employee was an officer or director of Mortgage Lenders.

Residential said it believes that at all times before Mortgage Lenders' bankruptcy filing, decisions about disbursements of the company's funds were made by management, specifically chief financial officer Randy Roberge.

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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