PNC Bank last month subpoenaed Banc of California and Metropolitan Commercial Bank for documents to determine what happened to servicing funds Sprout owed PNC, according to court records. The Pittsburgh giant also served a deposition request on ex-CEO Michael Strauss, who has been accused by the trustee for the failed lender of misappropriating millions of dollars owed to mortgage counterparties. 

The trustee also filed a complaint against American Express, claiming Sprout transferred over $5 million to Amex to cover Strauss' bills, which allegedly had no legitimate business purpose. A previous filing accused Strauss of using the lender's money to pay for a Hamptons home, horse racing and college expenses. 

Sprout, a non-qualified mortgage shop, went out of business in July 2022, putting over 600 employees out of work. The bankruptcy trustee has claimed Strauss' mismanagement, rather than market conditions, caused the company to fold. Court documents allege the CEO transferred $24.4 million from Sprout to himself in a two-year span through affiliate companies.

An attorney for the trustee declined to comment Friday, while a lawyer retained by Strauss this week didn't respond to a request for comment. The banks involved also didn't respond to inquiries.

PNC's subpoenas don't specify how much money it believes Strauss funneled away from it through the other banks, although its unsecured claim against Sprout is $420,497. It's one of hundreds of mortgage counterparties seeking a combined $66 million from the Long Island lender.

The Internal Revenue Service has a $24.4 million claim against Sprout, and the bankruptcy trustee claims Strauss didn't forward payroll taxes to the government since 2017. Sprout also received over $6 million in Paycheck Protection Program relief despite its IRS obligation.

The bankruptcy also halted a $3.5 million settlement from Strauss to former employees who sued Sprout for owed back pay shortly after its shutdown.

Former executives for Sprout and its parent company, Recovco Mortgage Management, have testified in the bankruptcy case they didn't know how Strauss managed the transfers. According to case filings, Strauss left the company with just $13.49 in its bank accounts as of last September, as the bankruptcy got underway. 

Strauss' checkered past includes a disciplinary action from his management of a lender during the Great Recession, and a pulled originator license from a short-lived effort last year. He has also attempted to sell his upscale New York City apartment, according to court records; Zillow records show the apartment still on the market for $19.5 million.