The Federal Deposit Insurance Corp. has been sued by Bank of America, N.A., on behalf of investors whose claims were denied by the agency. The investors say they lost more than $1 billion because executives at two failed banks allegedly helped a subsidiary of Taylor, Bean and Whitaker Mortgage Corp. deceive them.
BofA, acting as trustee on behalf of Ocala Funding LLC, filed the federal lawsuit earlier this month in the nation’s capitol against the FDIC as receiver for Colonial Bank and Platinum Community Bank. Ocala is a wholly owned, special purpose, bankruptcy-remote subsidiary of Taylor Bean that only acquired loans from the failed lender.
Colonial operated a warehouse lending division, and Taylor Bean — which originated $30 billion during 2008 — was its biggest client. Warehouse lending capacity exceeded $3 billion even as other sources of warehouse financing dried up.
Colonial faced a cease-and-desist order in June 2009, and it failed in August 2009.
Platinum was a subsidiary of Taylor Bean. After July 2008, Taylor Bean — which serviced 512,000 mortgages for $80 billion as of July 2009 — began using Platinum to handle the escrow accounts on those loans.
Taylor Bean starting having liquidity problems as early as 2002. So, according to court documents, it conspired with executives at Colonial to divert funds from Ocala to cover its losses. Among those executives were senior vice president Catherine L. Kissick and Teresa Carrier.
Among multiple schemes to hide the shortfalls was one that transferred overnight money between accounts to make it appear accounts were not overdrawn. Another alleged scheme had fake mortgage packages being created and pledged to multiple investors.
Taylor Bean began dipping into Platinum’s escrow funds and was eventually siphoning off all of those funds for its own operations.
For seven years, Colonial’s regulators were deceived as a result of the fraud at Taylor Bean. By June 2009, Taylor Bean was unable to provide adequate documentation to its auditor, Deloitte LLP — which refused to sign off on the financial statements. In August 2009, as Taylor Bean was quickly disintegrating, a last-ditch effort was made to alter MERS records in an attempt to make it appear sufficient collateral was available.
But the jig was up on Aug. 3, 2009, when federal agents raided both Colonial’s and Taylor Bean’s offices. Terminations by Freddie Mac, Ginnie Mae and the U.S. Department of Housing and Urban Development soon followed — as did its collapse.
Platinum failed on Sept. 4, 2009.
“As the primary lender to and co-conspirator with Taylor, Bean & Whitaker Mortgage Corp., a home mortgage originator and servicer, Colonial actively participated in a multi-year, multi-billion dollar fraud, which directly contributed to approximately $1.75 billion in losses for Ocala Funding’s investors,” BofA stated in the complaint. “As an affiliate of and co-conspirator with TBW, Platinum also participated in the fraud and contributed directly to Ocala Funding’s losses.”
Because of the fraud, Ocala was unable to repay short-term notes held by Deutsche Bank AG and BNP Paribas Mortgage Corp. that were used to finance Taylor Bean’s originations.
BofA said it filed a proof of claim in the Colonial receivership on Nov. 19, 2009, while a claim was filed in the Platinum receivership on Dec. 9, 2009. But the claims were each denied by the FDIC, and no explanation was given why.
So BofA sued.
“FDIC-receiver’s disallowance of the trustee’s claims violated FDIC-receiver’s statutory duty to pay all valid claims in accordance with the FDI Act,” the complaint says.
Bank of America, National Association, as indenture trustee, custodian and collateral agent for Ocala Funding LLC, 101 South Tyron Ste., Charlotte, N.C. 28202, Plaintiff, -against- Federal Deposit Insurance Corp.. in its capacity as receiver for Colonial Bank, and in its capacity as receiver for Platinum Community Bank, Defendants.
Case No. 1:10-cv-01681-RBW, Oct. 1, 2010 (U.S. District Court for the District of Columbia).
