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Guilty Plea in $1.4 Billion Secondary Fraud Case

Desiree Brown pleads guilty to Taylor Bean fraud

Feb. 25, 2011

By MortgageDaily.com staff


In August 2009, Taylor Bean and Whitaker Mortgage Corp. began a downward spiral that ended in its collapse. This week, one of the company's former executives admitted to her role in the scheme.

Just a few days after losing its Federal Housing Administration approval a year and a half ago, Taylor Bean suspended originations and told nearly 1,000 employees they were out of a job.

The quick unraveling of the Ocala, Fla.-based lender stunned the mortgage community and put lenders on notice that the Department of Housing and Urban Development was going all out to hold lenders accountable for their FHA originations.

Turns out there was more to the collapse of the mortgage giant than poor lending practices.

Two top executives of the company, including its former chairman Lee Bentley Farkas, are accused of conducting fraudulent loans sales that helped prop up the company's balance sheet.

The fraud at Taylor Bean also led to the collapse of Colonial Bank, which held the warehouse lines secured by bogus loans from the company.

On Thursday, the Department of Justice announced that Desiree Brown pleaded guilty to her role in the secondary fraud scheme.

Brown, the former treasurer of the Taylor Bean, pled guilty to conspiring to commit bank, wire, and securities fraud. She admitted that from 2003 until 2009 she conspired with Farkas to defraud Colonial, Deutsche Bank and BNP Paribas so that funds intended for the financing of production could instead be used to cover expenses at the money-losing company.

Internally at Taylor Bean, the scheme was dubbed "plan b," according to the government.

"The conspirators accomplished this by sending mortgage data to Colonial Bank for loans that did not exist or that [Taylor Bean and Whitaker] had already committed or sold to other third-party investors," the news release stated. "As a result, the Plan B loan data was recorded in Colonial Bank's books and records, and gave the false appearance that Colonial Bank had purchased legitimate interests in mortgage loans from [Taylor Bean and Whitaker]."

In an effort to cover up the crimes, Taylor Bean made a failed bid to acquire Colonial -- a move that might have forestalled the discovery of the scheme.

Farkas was arrested in June 2010 and is scheduled to go to trial in April.

In addition to selling $400 in worthless loans to Colonial, Farkas and Brown allegedly misappropriated $1 billion in collateral and attempted to fraudulently obtain $570 million in funds from the Treasury Department's Troubled Asset Relief Program.

In a separate announcement Thursday, the Securities and Exchange Commission said that Brown was charged with aiding and abetting in securities fraud for her role in attempting to obtain TARP funding.

Brown allegedly contributed to public statements that Taylor Bean had obtained investment commitments of $300 million for the acquisition of Colonial even though no such funding had been secured.

The SEC charged Brown in its complaint, which was filed in U.S. District Court for the Eastern District of Virginia, with violations of the antifraud, reporting, books and records and internal controls provisions of the federal securities laws. She agreed to a consent judgment.

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