Mortgage exec gets 30 years for $3 billion fraud
Friday, July 1, 2011
ALEXANDRIA, Va. (AP) — An executive convicted of orchestrating a nearly $3 billion fraud as chairman of one of America’s largest private mortgage companies was sentenced Thursday to 30 years in prison by a judge who accused him of lacking remorse.
The case against Lee B. Farkas, former chairman of Florida-based Taylor Bean & Whitaker, is one of the most significant prosecutions arising from the nation’s financial crisis. The fraud spanned more than seven years, put thousands of employees out of work and contributed to the collapse of Colonial Bank — the sixth-largest bank failure in U.S. history.
“He deserves to be punished severely in light of the enormity of his crimes. The losses from this case are, in fact, off the charts,” Patrick Stokes, a federal fraud prosecutor, said in urging a judge to send Farkas, 58, to prison for the rest of his life.
Farkas, who denied any wrongdoing when he testified at his trial, was convicted in April of all 14 counts, including securities fraud and conspiracy. On Thursday, he acknowledged taking risks and making errors in judgment to keep his company afloat and his employees earning paychecks. But he did not directly apologize for any fraud.
“When faced with the prospect of Taylor Bean & Whitaker sinking, I had to take risks,” said Farkas, who has been in custody since the verdict. “I let Taylor Bean & Whitaker get out of control by letting it grow too fast.”
U.S. District Judge Leonie Brinkema told Farkas she detected no remorse as she sentenced him to 30 years — twice the 15-year sentence requested by his attorneys.
The fraud began in 2002 and took multiple forms until Taylor Bean collapsed two years ago and the scheme unraveled, prosecutors said. The company shut its doors after a federal raid in August 2009.
Taylor Bean would routinely overdraw its main account with Alabama-based Colonial Bank by a few million dollars, with mid-level executives at Colonial agreeing to transfer money into Taylor Bean’s accounts at the end of each day to avoid generating overdraft notices. Taylor Bean eventually double- and triple-pledged mortgages it held to a variety of investors, and sold more than $1 billion in worthless mortgages to Colonial. The bank listed the mortgages on its books and on its quarterly reports as legitimate assets, prosecutors alleged.
Farkas appeared in court in a green prison jumpsuit, a far cry from a lavish lifestyle he once enjoyed with classic cars, a private jet, sea plane and expensive East Coast real estate — including a Key West home. The government is seeking to have him forfeit $38.5 million.
Farkas, of Ocala, Fla., is the last of seven employees and executives from Taylor Bean and from Colonial to be sentenced. The other six cooperated with the government and agreed to testify against him in hopes of securing lighter sentences for themselves. All received prison sentences ranging from three months to eight years.
Colonial, which had been one of the country’s 25 largest banks, was cheated out of more than $500 million. Two other banks — Deutsche Bank and BNP Paribas — lost nearly $2 billion.
Prosecutors say Farkas and his co-defendants also tried to fraudulently obtain more than $500 million in taxpayer-funded relief from the government’s bank bailout program, the Troubled Asset Relief Program, also called TARP. Ultimately, neither Taylor Bean nor Colonial ever received any TARP money, even though TARP at one point gave conditional approval to a payment of roughly $550 million, investigators say.
Farkas’ lawyer. Bruce Rogow, argued Thursday that prosecutors had magnified Farkas’ role in the fraud and said that while his client may have made naove, foolish and even delusional decisions, he was not a calculating criminal deserving of a life sentence. He said each of Farkas’ co-defendants deserved blame for allowing the fraud to continue for years.
“He is not the ogre that the government makes him out” to be, Rogow said.
Neil MacBride, United States attorney for the Eastern District of Virginia, said after the sentencing hearing that he found Farkas’ apparent lack of remorse astounding.