Former North Philadelphia credit union manager admits embezzling $2.3 million

A former manager of a credit union that for decades served Hispanics in North Philadelphia on Tuesday admitted embezzling $2.3 million from the institution, a theft that led to its collapse last year.

During a hearing in federal court in Philadelphia, Ignacio "Nacho" Morales acknowledged that what started as a scheme to cash refund checks from fraudulent IRS returns spiraled into broader crimes that ultimately toppled Borinquen Federal Credit Union.

Trying to cover his theft and keep regulators at bay, Morales diverted $500,000 for a cocaine deal that never materialized. He also admitted letting an unidentified member of the credit union's board of directors plunder a half-million dollars from its coffers.

Standing before U.S. District Judge R. Barclay Surrick, Morales pleaded guilty to conspiracy, embezzlement, money laundering, and tax and drug charges. The 49-year-old Philadelphia resident faces at least 10 years in prison but could receive a shorter sentence based on his cooperation with investigators.

Founded in 1974 to help low-income Hispanics, Borinquen had more than 7,000 members when it closed last year.

Regulators from the National Credit Union Administration had hoped to keep it open, Assistant U.S. Attorney Arlene Fisk told the judge, but could not "because the condition of the records and the amount of money missing from Borinquen made it impossible."

Auditors said more than $5 million was missing, Fisk said. And though deposits were insured, some customers have disputed the amounts credited to their accounts, she said.

A plea memo Fisk read in court portrayed Morales as a gatekeeper who used his authority to launder millions of dollars in illegal tax refunds.

From 2006 through 2011, she said, Morales cashed hundreds of tax-refund checks issued for fraudulent tax returns, including some submitted under phony names and addresses. In each instance, Morales kept 20 percent of the refund.

During one stretch between 2008 and 2011, Morales was collecting about $50,000 a month in kickbacks from just one person who dropped off nearly a dozen illegally obtained refund checks a week, the prosecutor said.

Because most of the checks came from people who were not credit union members, Morales altered records to suggest they were being deposited and withdrawn from legitimate accounts.

One of those accounts belonged to an unnamed director of the credit union. Morales then let that person make unlimited withdrawals, allowing the overdraft amount to climb to nearly $500,000.

Prosecutors said also Morales took $600,000 in cash from the credit union and used it to buy real estate in North Philadelphia, including a parcel down the block from the credit union's office on East Allegheny Avenue. And he bilked $700,000 from an organization that deposited $1.7 million in Borinquen.

The scheme collapsed when regulators began auditing the credit union's books. Morales confessed after being confronted by federal agents.

Facing the judge with his arms behind his back, Morales offered no explanation for his crimes during the plea hearing, instead answering a series of yes-or-no questions and waiving his right to a trial.

"You want to admit your guilt here this afternoon and take the consequences?" Surrick asked.

"Yes, your honor," Morales said.

In a successful bid to let Morales remain free on bail, defense attorney Nicholas Harbist said his client was a longtime Philadelphia resident who was helping the investigation by the IRS, FBI and U.S. Postal Inspection Service.

"Since the day he was confronted . . . he has cooperated with the agents and the U.S. Attorney's Office," Harbist said.

Neither he nor the prosecutor would discuss the scope of the cooperation or identify the possible conspirators.

Surrick scheduled sentencing for Dec. 7.