The architect of one of the largest bank frauds in American history was sentenced to 30 years in prison late last week. Lee B. Farkas, former CEO of one of the largest mortgage lending companies during the subprime housing boom, also will have to pay $38.5 million in fines.
The scam cost banks and investors $2.9 billion. Farkas tried, and failed, to cover some of the losses with $570 million from the taxpayer-funded Troubled Asset Relief Program.
Thirty years in prison could be the equivalent of a life sentence for Farkas, who is 59. But it is far less than the 385-year term sought by prosecutors. Farkas was found guilty of 14 felony counts of selling falsified mortgage loans. Each count carries a possible life sentence, which is how prosecutors arrived at the impossibly long sentence.
The district attorney’s office in Eastern Virginia hoped that 385 years would “send the most forceful and unequivocal message to senior corporate executives that engaging in fraud and deceit in order to pump up your company or line your own pockets is unacceptable and will have severe consequences,” according to a sentencing document filed by the office.
[Related Article: Mortgage Scammer Faces Possible 385-Year Prison Term]
Even with a prison term only one-twelfth of what they sought, prosecutors nevertheless crowed about their victory.
“Today’s sentence ensures that Lee Farkas will spend the rest of his life in prison and is just punishment for a man who pulled off one the largest bank frauds in history,” U.S. Attorney Neil MacBride said in a press release.
In addition, Farkas must hand over $38.5 million, pretty close to the $42 million the D.A. originally requested.
As CEO of Tyler, Bean & Whitaker, one of the largest mortgage lenders during the subprime housing boom, Farkas orchestrated a giant scam that involved re-selling the same mortgages to three different groups of investors. He covered payments to the investors using a credit line from Colonial Bank, then one of the 25 largest banks on deposits in the country.
Farkas used the excess money he borrowed to buy mansions, bars, and a private jet valued at $28 million.
“Between 2007 and August 2009, as the country faced one of the worst financial crises in recent history—largely sparked by fraudulent mortgage-related transactions—Farkas ramped up his scheme to rip off banks through sales of fake mortgage assets and by double-and triple-selling mortgage loans,” MacBride said.
As the housing bubble burst and more homeowners stopped paying their mortgages, the investors clamored to be paid, only to discover that Farkas had sold them forged mortgages that he didn’t own and didn’t have the right to sell. Farkas applied for $570 million from the federal bailout program to cover some of his investors’ losses. Largely as a result of the scheme, Colonial went bankrupt.
The resulting bailout by the FDIC in 2009 cost taxpayers $2.8 billion.
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Image: Derek Key, via Flickr