Head of major mortgage lender guilty of $ 2.9 billion fraud

The founder of what was once one of the nation’s largest mortgage lenders was convicted of fraud on Tuesday for organizing a scheme that cheated investors and the government of billions of dollars. It is one of the few successful lawsuits to emerge from the financial crisis.

After more than a day of deliberation, a federal jury in Virginia has declared Lee B. Farkas, the former chairman of Taylor, Bean & Whitaker, guilty of 14 counts of securities fraud, banking and electronic fraud and conspiracy to commit fraud. Mr Farkas, 58, faces decades in prison for his role in the $ 2.9 billion conspiracy, which prosecutors say was one of the biggest and longest-running bank fraud schemes in the world. American history and led to the collapse of the Colonial Bank in 2009.

“There is no doubt that this is a very important and very important case,” said Lanny Breuer, deputy attorney general in the criminal division of the Department of Justice.

The 10-day trial was a rare victory for federal prosecutors in the wake of the financial mess. The Justice Department has yet to file a complaint against an executive who ran a large Wall Street company before the disaster. An earlier case against hedge fund managers at Bear Stearns ended in an acquittal. Prosecutors have dropped their investigation into Angelo R. Mozilo, the former head of Countrywide Financial, who nearly collapsed under the weight of subprime home loans.

Six other executives at Taylor, Bean & Whitaker – including its former CEO and former treasurer – have already pleaded guilty. Some have agreed to testify against Mr. Farkas during his trial.

Mr. Farkas testified during the trial to defend his actions and deny any wrongdoing. A lawyer for Mr. Farkas did not respond to a request for comment.

The scheme began in 2002, prosecutors say, when executives at Taylor, Bean & Whitaker decided to hide the company’s losses, secretly overdrafting its Colonial Bank accounts, sometimes in excess of $ 100 million. dollars. To cover the shares, prosecutors said the lender sold Colonial about $ 1.5 billion in “worthless” and “bogus” mortgages, some of which had already been bought by other institutional investors. The government, in turn, guaranteed these fraudulent home loans.

In a related plot, Mr. Farkas and other executives created a separate mortgage transaction called Ocala Funding. The subsidiary sold commercial paper to large financial companies, including Deutsche Bank and BNP Paribas. When Taylor, Bean & Whitaker collapsed, the banks couldn’t get all of their money back.

During the fraud, prosecutors said, Mr. Farkas pocketed some $ 20 million, which he used to purchase a private jet, several homes and a collection of vintage cars. “His shockingly brazen plan added fuel to the financial crisis,” Breuer said.

As the credit crunch was in full swing, Mr. Farkas and other Taylor, Bean & Whitaker executives persuaded Colonial to seek $ 570 million in federal bailout funds through the Troubled Asset Relief Program, or TARP.

The Treasury Department has approved the bailout funds, on condition that Colonial is able to raise $ 300 million in private money. Executives at Taylor, Bean & Whitaker falsely led the bank to believe it had online investors. In the end, the government did not give money to Colonial.

Shortly thereafter, in August 2009, Colonial filed for bankruptcy, along with Taylor, Bean & Whitaker filed for bankruptcy.

“Today’s verdict ensures that Farkas will pay for his crime – an unprecedented ploy to defraud regulators at the height of the financial crisis and to steal more than $ 550 million from US taxpayers through TARP,” Christy Romero, the Interim Special Inspector General of TARP. program, said in a statement.

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