DUTCHESS COUNTY, New York -- A Dutchess County car dealer accused of helping to arrange more than $1 million in bogus auto loans was arraigned on grand larceny charges, reported the Poughkeepsie Journal newspaper.

Jorge A. Manzanarez, 30, of LaGrange, entered a not-guilty plea to the charges through his attorney, William Tendy, in proceedings in Dutchess County Court.

Manzanarez and his business partner, Nilson Cortez, also of LaGrange, are accused of engaging in a scheme with a loan officer at the TEG Federal Credit Union, Senior Assistant District Attorney Edward Whitesell said.

The men were co-owners of Mega Auto Sales in LaGrange and the City of Poughkeepsie.

The loan officer, Shane Gordon, has since been fired from his job, credit union spokeswoman Stephanie Molinelli said.

Gordon was also indicted on grand larceny charges and is scheduled to be arraigned today. Cortez is due in court Tuesday. All three defendants were indicted on a single count of first-degree grand larceny, a felony punishable by up to 25 years in state prison.

Whitesell said Manzanarez and Cortez are accused of using false documents, such as pay stubs and tax records, on loan applications for car buyers who otherwise would not have qualified for loans.

Whitesell said Gordon was allegedly paid by Manzanarez and Cortez to process the loans, knowing the documents submitted were false.

The first loan applications were submitted in June 2007, and more than 80 were processed until the scheme was discovered in September, Whitesell said.

During that four-month period, more than $1.4 million in improper loans was approved, the prosecutor said. About $345,000 worth of the loans are already in default and others are delinquent, Whitesell said.

The scheme was discovered during a joint investigation by the credit union, the District Attorney's Office, the state Attorney General's Office and detectives from the Dutchess County Sheriff's Office, Whitesell said.

Molinelli declined to comment specifically on the details of the case, citing the ongoing criminal matter. But she added, "At TEG, we do take every measure possible to protect our members, and it was through the systems that we have in place that we were able to uncover this problem and take corrective action early on."

In a related matter, the Attorney General's Office discovered Manzanarez and Cortez were defrauding customers through a phony warranty scheme, officials said.

Rashmi Vasisht, deputy press secretary for Attorney General Andrew Cuomo, said Mega Auto Sales defrauded more than 90 customers in the scam.

According to court documents, Manzanarez and Cortez offered customers a warranty called SafeChoice as an add-on to a vehicle purchase. However, Manzanarez and Cortez knowingly defrauded customers by selling the $2,000 warranty - many times without the customer's consent - and never submitting the money to the warranty company, resulting in the coverage never being activated, Vasisht said.

Lawyers in the attorney general's Consumer Fraud Division in Poughkeepsie have filed suit against Manzanarez and Cortez seeking full reimbursement of more than $200,000 to more than 100 consumers who were defrauded, plus $5,000 in penalties for each deceptive act, $2,000 in costs and a required $100,000 performance bond before they are permitted to operate a business in New York state.