It’s been a blockbuster year for the U.S. Department of Justice — with guilty pleas coming from six defendants in the Taylor, Bean & Whitaker Corp. fraud case. Now, the mastermind behind the $2.9 billion scheme has been convicted by a jury.
In the Fall of 2008 — when the rest of the financial world appeared on the brink of destruction — Taylor Bean appeared to be on the brink of becoming a financial institution. It was among the biggest U.S. residential lenders and it had reportedly lined up $300 million to acquire Alabama’s Colonial Bank — one of the 25 biggest banks in the country.
But it turns out that the company was just a house of cards.
In August 2009 — Taylor Bean lost its approval with the Department of Housing and Urban Development, was terminated by Freddie Mac and was suspended as an issuer of Ginnie Mae securities.
The Ocala, Fla.-based company then stopped originating new business and filed for relief under Chapter 11 of the U.S. Bankruptcy Code in U.S. Bankruptcy Court in Jacksonville, Fla.
At the same time, agents for the Special Inspector General of the Troubled Asset Relief Program raided Colonial Bank’s mortgage warehouse lending division — a sign that the problems went beyond bad business decisions.
In fact, Taylor Bean had been losing money since at least 2002 when the company’s founder and former chairman, Lee Bentley Farkas, allegedly hatched a plan to use overdrafts at Colonial Bank to hide the deficits.
But he couldn’t carry out the scheme alone — according to a host of defendants who have pled guilty to their roles in the scheme.
The players at Taylor Bean who have pled guilty include former chief executive officer Paul Allen; former president Raymond Bowman; former treasurer Desiree Brown; and former senior financial analyst Sean W. Ragland;
At Colonial Bank, which failed in August 2009, guilty pleas have come from former warehouse lending executive Catherine L. Kissick and former warehouse operations supervisor Teresa Kelly.
Farkas was arrested in June 2010 and subsequently released to home confinement.
Farkas, whose assets have been frozen, was defended by a court-appointed attorney.
News accounts of Farkas’ own testimony indicated he said that it was only banking errors — and not criminal actions — that caused the overdrafts.
Late Tuesday, the Justice Department announced that Farkas was convicted by a jury following a 10-day trail. He was found guilty of one count of conspiracy to commit bank, wire and securities fraud; six counts of bank fraud; four counts of wire fraud; and three counts of securities fraud.
In the government’s announcement, Assistant Attorney General Breuer called the case “one of the largest bank fraud schemes in history.”
“Mr. Farkas may have thought he could steal nearly $3 billion from investors and taxpayers and sail into the sunset,” Breuer stated. “But now a jury has told him otherwise, and he must face the severe consequences.”
The former Taylor Bean chairman has been remanded into custody.
In all, the government claims that the fraudulent scheme amounted to nearly $3 billion — with more than $1.4 billion misappropriated from Colonial Bank’s warehouse division and $1.5 billion misappropriated from Taylor Bean subsidiary Ocala Funding.
Ocala sold commercial paper to Deutsche Bank and BNP Paribas Bank and was required to maintain cash and mortgage collateral. The defendants allegedly created fake collateral to maintain asset compliance.
Because Taylor Bean lied on its application for Troubled Asset Relief Program assistance, the defendants fell under the jurisdiction of TARP’s special inspector general.
Farkas is scheduled for sentencing on July 1.
