The man who founded what was once among the nation’s largest mortgage lending companies was found guilty this week of numerous counts of fraud by a federal jury in Virginia, having cheated investors and the federal government out of $2.9 billion.
Lee B. Farkas, former chairman of Taylor, Bean & Whitaker, “masterminded one of the largest bank fraud schemes in history,” Assistant Attorney General Lanny Breuer said in a press release from the Department of Justice. “His shockingly brazen scheme poured fuel on the fire of the financial crisis.”
Farkas received $20 million for his role in the scheme and used the money to buy multiple houses, a jet, a seaplane, and a collection of classic cars, according to the DOJ statement.
Beginning in 2002, executives at Taylor, Bean & Whitaker began lying to Colonial Bank, overdrawing their accounts to cover up their own losses, according to the Justice Department. Next they sold $1.5 billion worth of mortgages to Colonial, many of which already had been sold to other banks and investors, as reported here on Credit.com.
As Colonial faltered under the weight of the fraud, Farkas and his fellow executives convinced the bank to apply for $570 from the federal Troubled Asset Relief Program (TARP). The program required Colonial to have already lined up $300 million from private investors. Farkas promised the government that he had raised the money, when in fact he hadn’t.
Colonial, once one of the nation’s largest commercial banks, went bankrupt in August 2009, the same month as Taylor, Bean & Whitaker.
“In 2008, Lee Farkas boasted that he ‘could rob a bank with a pencil.’ And he did just that,” U.S. Attorney Neil H. MacBride said in the press release. “Now he’s being held responsible for the financial ruin he left in his wake.”
The conviction was a rare win for federal prosecutors trying to pin down perpetrators responsible for the tidal wave of bank fraud that led to the worst economic disaster since the Great Recession. The Justice Department dropped a criminal investigation against Angelo Mozilo, former CEO of Countrywide Financial, after he settled a civil suit brought forth by the Securities and Exchange Commission for $67.5 million. The SEC accused him of “misleading shareholders about the quality of the loans on Countrywide’s books,” according to the Guardian; Mozilo admitted no wrongdoing. No executives of any Wall Street firms has yet been indicted for their alleged roles in orchestrating the subprime mortgage fiasco.
Farkas was found guilty on Tuesday 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. Several of the charges carry maximum prison terms of 30 years. His sentencing is scheduled for July 1, 2011.
Taylor, Bean & Whitaker has not been quite so lucky. So far, six executives of the company have pleaded guilty for their participation in the scam, including former chief executive Paul Allen. Some of those former leaders testified against Farkas during his 10-day trial.
[Featured tool: Get your free Credit Report Card from Credit.com]
Image: Adrian Ruiz, via Flickr