A former manager of Borinquen Federal Credit Union in Philadelphia has admitted to embezzling $2.3 million from the institution, a theft that led to its closure last year.

Ignacio "Nacho" Morales acknowledged during a hearing in federal court that a scheme to cash refund checks from fraudulent IRS returns spiraled into larger crimes, including diverting $500,000 for a cocaine deal that never materialized. He further admitted allowing an unidentified member of the credit union's board of directors to steal a half-million dollars from the institution.

Morales, 49, of Philadelphia, pleaded guilty to conspiracy, embezzlement, money laundering and tax and drug charges. He faces at least 10 years in prison but could receive a shorter sentence based on his cooperation with investigators. Sentencing is set for Dec. 7. He was allowed to remain free on bail.

Founded in 1974 to help low-income Hispanics, Borinquen had more than 7,000 members when it closed last year. National Credit Union Administration regulators had hoped to keep it open but could not because of the "condition of the records and the amount of money missing. And, while the deposits were insured, some customers have disputed the amounts credited to their accounts, according to Assistant U.S. Attorney Arlene Fisk.

From 2006 through 2011, Fisk said, Morales cashed hundreds of tax-refund checks issued for fraudulent tax returns, including some submitted under phony names and addresses. In each case, Morales kept 20% of the refund. During one stretch between 2008 and 2011, Morales collected an estimated $50,000 a month in kickbacks from just one person who dropped off nearly a dozen illegally obtained refund checks a week.

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came from people who were not credit union members, Morales altered records to suggest they were being deposited and withdrawn from legitimate accounts.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

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

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