Fall River Mayor Jasiel Correia II said in a motion last month that there was $306,000 available in escrow to pay the seven lenders.
Correia's attorney, Kevin Reddington, said in the motion to withdraw the request filed Tuesday that a federal prosecutor "remained unchanged" about allowing contact with the lenders.
U.S. Attorney Andrew Lelling pushed back against the characterization of Correia's withdrawal, saying he failed to mention that they offered transferring the money to a court-controlled fund.
Lelling says Correia's actions show the motion was not made in "good faith."
Correia has pleaded not guilty to tax and wire fraud charges for allegedly defrauding investors in his app.