Ex-Mich. Supreme Court justice pleads guilty to bank fraud

Hathaway faces up to 18-month prison term

Diane M. Hathaway

ANN ARBOR, Mich. — A former Michigan Supreme Court justice pleaded guilty to bank fraud today for concealing assets, including a debt-free Florida home, while urging a bank to let her unload a Michigan house in a short sale, claiming financial hardship.

Diane Hathaway could face up to 18 months in prison under the terms of her deal with federal prosecutors. But her attorney, Steve Fishman, said after the hearing that he will ask a judge to sentence her to probation.

Hathaway, who resigned from the state's highest court last week, left the courthouse without commenting. U.S. District Judge John Corbett O'Meara had allowed her to answer “yes” to a series of questions about her misdeeds that were read by Fishman.

Fishman told reporters that her crime was “dumb. It made no sense.” He believes the bank, ING Direct, would have allowed the short sale even if Hathaway had disclosed everything.

“She feels terrible. She let down a lot of people,” Fishman said.

In short sales, banks let distressed owners sell properties for less than what's owed on them, providing a significant benefit to borrowers who typically can't afford to keep paying the mortgage but want to avoid foreclosure.

Prosecutors say Hathaway and her husband Michael Kingsley, who has not been charged, transferred their Florida property to a relative so that they could show financial hardship and have a better chance of qualifying to short-sell their Grosse Pointe Park home, which carried a mortgage of more than $1 million.

In a court filing in November, the government said that the couple got out from $600,000 of debt by short-selling the home. But prosecutors indicated today that the actual loss claimed by the bank appears to be less than $100,000.

ING Direct declined to comment about the case.

Fishman said a sentence of probation seems appropriate when Hathaway returns to court on May 28.

“If this isn't enough, what is?” he said outside court, referring to the embarrassing scandal and a guilty plea from someone who was a statewide public official.

Hathaway's real-estate transactions were first reported last spring by Detroit TV station WXYZ. She refused to speak publicly about them despite calls from critics to explain the suspicious property deals.

The U.S. attorney's office signaled that a criminal probe was in progress when it filed a civil lawsuit in November to seize the Windermere, Fla., home as the fruit of bank fraud. The government is dropping that lawsuit as part of the deal with Hathaway.

Hathaway, a former Wayne County judge, shook up the Supreme Court when she defeated Republican Chief Justice Cliff Taylor in the 2008 election. Democrats then controlled the court for two years before GOP victories in the 2010 election put Republicans back in the majority.

Hathaway quit the court on Jan. 21, halfway through an eight-year term. Gov. Rick Snyder has yet to name her replacement, but the new justice will expand the Republican majority to 5-2, at least through 2014.