The former chairman of what was once among the largest privately held mortgage lending companies in the country has been indicted for engaging in a $1.9 billion fraud scheme that led to the failure of Colonial Bank.
Lee Bentley Farkas was arrested Tuesday night and charged with conspiracy, bank fraud, wire fraud and securities fraud.
The indictment alleges that Farkas and others carried out the scheme at their company, Taylor, Bean & Whitaker (TBW) in Ocala.
According to court documents, Farkas also personally misappropriated more than $20 million from TBW and Colonial Bank. The indictment is seeking forfeiture of the money.
Farkas and his co-conspirators allegedly engaged in a scheme to misappropriate more than $400 million from Colonial Bank’s Mortgage Warehouse Lending Division in Orlando and about $1.5 billion from Ocala Funding, a mortgage lending facility controlled by TBW.
Farkas and his co-conspirators allegedly misappropriated this money to cover TBW’s operating losses.
The indictment further alleges that Farkas and his co-conspirators committed wire and securities fraud in connection with their attempt to convince the U.S. government to provide Colonial Bank with about $553 million in Troubled Asset Relief Program funds.
"This alleged fraud scheme is an example of the damaging and destabilizing impact financial crimes can have on our nation’s financial institutions. Individuals and companies that violate the law in a reckless pursuit of profits must be held accountable for their crimes," Assistant Attorney General Breuer said in a news release.
Taylor Bean shut down its operations in August 2009 and subsequently filed for Chapter 11 bankruptcy protection.
Bank of America later took over servicing of 180,000 Ginnie Mae-securitized mortgages that had been in its portfolio.
Court documents allege that the scheme began in 2002, when Farkas and his co-conspirators ran overdrafts in TBW bank accounts at Colonial Bank to cover TBW’s cash shortfalls, according to the U.S. Department of Justice.
Farkas and his co-conspirators at TBW and Colonial Bank allegedly transferred money between accounts at Colonial Bank to hide the overdrafts. After the overdrafts grew to tens of millions of dollars, Farkas and his co-conspirators allegedly covered up the overdrafts and operating losses by causing Colonial Bank to purchase from TBW more than $400 million in what amounted to fake mortgage loan assets, including loans that TBW had already sold to other investors and fake interests in pools of loans.
The Securities and Exchange Commission filed a related case against Farkas that alleges he sold more than $1.5 billion in fabricated or impaired mortgage loans and securities to Colonial Bank. The SEC’s complaint charges Farkas with violations of the antifraud, reporting, books and records and internal controls provisions of federal securities laws, a release said.
Read more: Taylor Bean & Whitaker’s former chief indicted - South Florida Business Journal