A former bank branch manager who allegedly issued $2.75 million in cashier's checks in exchange for a Washington businessman's worthless personal checks, then transferred other depositors' funds to cover the shortage, pleaded guilty yesterday to misapplying bank funds.

Raymond C. Mowchan, 39, who resigned as manager of American Security Bank's Woodley Park branch last March after the alleged scheme was discovered, pleaded guilty in U.S. District Court to two counts of misapplication of funds by a bank official.

The government said in court documents that Mowchan, who is now cooperating with prosecutors, received a $5,000 cash payment from the businessman.

Mowchan, who lives in Manassas, faces up to five years in jail, a $5,000 fine or both on each of the two charges.

Judge Thomas Penfield Jackson, who accepted the guilty pleas yesterday, scheduled sentencing for Oct. 22.

Assistant U.S. Attorney Charles H. Roistacher told Jackson yesterday that between January 1980 and February 1982, about 195 cashier's checks were issued either to or in the name of Ibrahim Awadllah, 46, the owner of Watergate Limousine Service, Capitol Limousine & Sightseeing Service and Intra-World Travel Inc.

Roistacher told the court the money from the cashier's checks was used to finance Awadllah's business and personal expenses, including gambling debts. He said the government is investigating Awadllah's actions in the matter, but no charges have been brought against him.

In a telephone interview yesterday, Awadllah denied any wrongdoing. He said he understood the cashier's checks to be loans from a man he described as a rich "loan shark." Awadllah said he paid back all the money, with interest, to that man.

"Everytime I needed money, he sent me to American Security Bank to pick up the money," he said. "The bank never gave me money before I got a green light from that man.

"The problem is between Mowchan and the other man," he said. "I am not guilty."

Roistacher said government investigators have found no evidence to support Awadllah's account of the events.

In court yesterday, Roistacher said Mowchan, who has known Awadllah since the mid-1970s, first became involved in the scheme after Awadllah allegedly bounced a$19,000 check at the Woodley Park branch, at Connecticut Avenue and Calvert Street NW.

Mowchan, in an apparent effort to quietly straighten out the account, accepted additional personal checks from Awadllah, against bank officials' orders, the prosecutor said.

Thereafter, Roistacher told the judge, Awadllah allegedly threatened to turn Mowchan in to bank officials unless he agreed to issue him cashier's checks. According to the prosecutor, Awadllah then gave Mowchan a series of personal checks, which Mowchan knew were worthless, to back up the cashier's checks.

Mowchan, who contends he was intimidated by the alleged threats and concerned because he had accepted the $5,000 payment, transferred funds from other customers' accounts, including interest on certificates of deposit and savings accounts, to cover Awadllah's checks, Roistacher said.

Awadllah disputed the prosecutors' account. He said he did not bounce the $19,000 check, never paid Mowchan $5,000, and never threatened to turn Mowchan in to bank officials. Awadllah did say he gave signed blank checks, drawn on a number of accounts, including foreign ones, to Mowchan for use if Awadllah was late in repaying the loan to the third man.

The scheme was uncovered when a bank examiner questioned a $1 million check drawn by Awadllah on a British bank account that turned out to be closed.

A bank spokesman said yesterday that no customers lost funds as a result of the scheme and that the bank has filed a $3.5 million lawsuit against Mowchan and Awadllah to recover its losses plus costs and interest.