Former Taylor Bean Chief Farkas Charged With Fraud (Update2)
June 16, 2010, 2:44 PM EDT
Bloomberg
(Updates with comment from Justice Department official in fifth paragraph.)
By William McQuillen and Justin Blum
businessweek.com
June 16 (Bloomberg) -- Lee Farkas, the former chairman of Taylor, Bean & Whitaker Mortgage Corp., was accused by the U.S. of helping run a more than $1.9 billion fraud scheme that unsuccessfully attempted to steal money from the government’s Troubled Asset Relief Program.
An indictment unsealed today in federal court in Alexandria, Virginia, alleges that Farkas, 57, sought to deceive financial firms and TARP by covering up shortfalls at his closely held mortgage lending company based in Ocala, Florida.
The scheme contributed to the failures of Colonial Bank, one of the 50 largest U.S. banks in 2009, and closely held Taylor, Bean & Whitaker, once one of the largest privately held mortgage companies in the U.S., the Justice Department said in a statement.
Farkas was arrested yesterday by the Federal Bureau of Investigation in Ocala after he finished a workout at a gym he owns, said Shawn Henry, an assistant FBI director in charge of the Washington field office. Farkas faces the possibility of spending the rest of his life in prison, according to court papers.
“The fraud alleged here is truly stunning in its scale and complexity,” said Lanny Breuer, the assistant U.S. attorney general in charge of the Justice Department’s criminal division, at a news conference in Washington. “This arrest and these charges send a strong message to corporations and corporate executives alike that financial fraud will be found, and it will be prosecuted.”
Unnamed Conspirators
Thomas Bever, an attorney for Farkas with Chilivis, Cochran, Larkins & Bever LLP in Atlanta, didn’t immediately return a call seeking comment.
The indictment said Farkas and unnamed conspirators sold Colonial Bank more than $400 million in fake mortgage assets. They also allegedly hid mortgage loans that were losing value, or were valueless, from regulators and auditors in fraudulent transactions to make it look like the loans were being sold onto the secondary mortgage market.
Farkas and his conspirators diverted about $1.5 billion from Ocala Funding, a mortgage lending facility controlled by Taylor, Bean & Whitaker, also known as TBW, to cover TBW’s losses, according to the indictment.
Commercial Paper
Ocala Funding sold asset-backed commercial paper to financial institution investors including Deutsche Bank AG, Germany’s biggest bank, and Paris-based BNP Paribas SA, according to the indictment.
Farkas misappropriated more than $20 million in TBW funds for personal use, according to the government’s pretrial detention memo. The government is seeking the forfeiture of property from Farkas, including a 1929 Ford Model A, a 1963 Rolls-Royce and seven other cars.
The Securities and Exchange Commission filed a separate civil complaint against Farkas in U.S. District Court in Alexandria today alleging a securities fraud scheme. The investigation is continuing and others may be charged, according to the Justice Department.
The fraud allegedly began as early as 2002 in an effort to hide operating losses at TBW, according to Breuer. The scheme evolved to include the misappropriation of “hundreds of millions of dollars” from Colonial Bank and Ocala Funding, he said.
Funding From TARP
In 2008, when TBW’s operating losses mounted, Farkas and his conspirators allegedly tried through Colonial BancGroup, Colonial Bank’s Montgomery, Alabama-based holding company, to obtain additional funding through TARP. TARP is the $700 billion U.S. government bailout program to stem the financial crisis.
The application for funding included false information, and investigators detected irregularities before any TARP money was released, according to the Justice Department.
The indictment alleges that Farkas and his conspirators committed wire and securities fraud by attempting unsuccessfully to persuade the government to provide Colonial with about $553 million in TARP funds.
Alabama regulators in 2009 seized Colonial Bank and appointed the Federal Deposit Insurance Corp. as receiver. Colonial BancGroup filed for bankruptcy last year.
The case is USA v. Farkas, 10cr200, U.S. District Court for the Eastern District of Virginia (Alexandria).
--Editors: Jim Rubin, Laurie Asseo.
To contact the reporters on this story: William McQuillen in Washington at bmcquillen@bloomberg.net; Justin Blum in Washington at jblum4@bloomberg.net
To contact the editor responsible for this story: Mark Silva at msilva@bloomberg.net |
