Feds indict Florida mortgage lender

An indictment alleges the ex-CEO tried to steal $453 million in TARP funds and was a major reason for 2009's largest bank failure.

By Charley Blaine Jun 16, 2010 7:01PM
About every day, there's more news about scalawags who gamed the mortgage-lending system before and after the crash.

Here's another: A federal grand jury has indicted the chief executive of what was once among the largest privately held mortgage-lending companies. The indictment accuses Lee Bentley Farkas of scheming to steal more than half a billion dollars from the government’s Troubled Assets Relief Program.

Yes, you read that right. A half-billion. And that's just the beginning.

The indictment also accuses Farkas of participating in a $1.9 billion fraud that ultimately led to the 2009 failure of Colonial Bank of Montgomery, Ala. The failure of the $26 billion bank was the largest of 2009 and the sixth-largest U.S. bank failure ever.

The indictment in Virginia accuses Farkas and co-conspirators of carrying out the scheme at their company, the Taylor, Bean & Whitaker Corp. of Ocala, Fla., where Farkas was chief executive.

The Securities and Exchange Commission also filed a civil complaint.

Farkas and his co-conspirators “tried to steal $553 million” through TARP, but investigators uncovered the reported conspiracy before the theft could occur, Neil Barofsky, special inspector general for TARP, told a news conference.

Barofsky called it “an unprecedented scheme.”

Farkas, who was arrested late Tuesday in Ocala, is charged with conspiracy, bank fraud, wire fraud and securities fraud.

Taylor, Bean & Whitaker, which originated and purchased billions of dollars in new residential loans annually, filed for bankruptcy in August 2009.

The lender began to experience cash-flow problems in 2002. In an effort to cover the shortfalls, the company devised a scheme to misappropriate funds from Colonial Bank and eventually did so as well from the federal government, according to the indictment.

The indictment alleges that Farkas and co-conspirators caused Colonial's parent, Colonial BancGroup, to submit false information to the Federal Deposit Insurance Corp. and to the SEC when applying for TARP funds.

Colonial was taken over by BB&T Corp. (BBT).

The indictment claims Farkas and his co-conspirators tried to cover losses at the mortgage company by "misappropriating" $400 million from Colonial Bank’s Mortgage Warehouse Lending Division in Orlando, Fla., and approximately $1.5 billion from Ocala Funding, a mortgage lending facility controlled by Taylor, Bean & Whitaker.

The government said the fraud scheme contributed to the failures of Colonial Bank and Taylor, Bean & Whitaker.

The government is seeking to keep Farkas jailed before trial.

At its peak, Colonial had $26 billion in assets and 346 branches in Alabama, Florida, Georgia, Nevada and Texas. Georgia, Florida and Nevada have been hard-hit by the housing bust.
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