Taylor, Bean & Whitaker (TBW) was one of the nation’s largest mortgage lenders.Lee Farkas was the company’s chairman and majority shareholder in the company. Based in Ocala, Florida, TBW sold and serviced residential loans across the U.S. Most of those loans were later sold on the secondary market.
Beginning in 2002, TBW began to suffer cash flow problems. Instead of cutting costs, Farkas devised a complex scheme to misappropriate funds from Colonial Bank and ultimately, the U.S. government. Prosecutors say Farkas helped misappropriate more than $1 billion. They say his actions resulted in the collapse of both TBW and Colonial Bank.
At first, Farkas and TBW began selling fictitious mortgages to Colonial. Sometimes it sold mortgages that had already been sold to others.
Like all Ponzi schemes, at some point the fraud collapses under its own weight. As the debt grows, Farkas and his conspirators had to engage in an increasingly voluminous paper shuffle hoping to hide their tracks. Phony loans were “recycled” to make it look like new mortgages were coming in and collateral replenished.
In late 2008, the scheme began to unravel. Colonial, a large multistate bank with 350 branches, began to struggle to stay solvent.At that point, the government says Farkas engaged in a conspiracy to gain a major stake in Colonial and access federal bailout monies from the government.
Prosecutors say that Farkas positioned himself as a white knight, ready to match private equity with taxpayer dollars in order to keep the bank afloat. Little did regulators know then that the primary reason Colonial was nearing insolvency was all the bad and fake loans sold by Farkas.
To further add insult, the $25 million “good faith” deposit required of Farkas was actually fraudulently taken by Farkas from another funding company.
The feds did not bail out Colonial and Farkas was arrested.
After a lengthy trial, on April 19th a federal jury in Alexandria, Virginia convicted Farkas of multiple counts of wire fraud, conspiracy, bank fraud and securities fraud. After the jury’s verdict the court took Farkas into custody.
Farkas faces hundreds of years in prison went sentenced later this year. His lawyers’ have filed a motion with the court to have him released until sentencing. Prosecutors, however, aren’t buying it.
Assistant United States Attorney Charles Connolly wrote in a court filing earlier today that Farkas is a flight risk. Prosecutors say that after the investigation began, Farkas transferred millions in property for little or no apparent consideration. They worry that Farkas has stashed money to help him escape if released.
Farkas continues to maintain his innocence. His days of fun in the Florida sun are probably over for good, however.
The story is significant because to date, no major players in the economic meltdown have been brought to justice. Mortgage companies, banks and brokerage firms seemingly failed on a daily basis in 2008 causing a financial crisis not seen in decades. Greed and fraud was claimed by many as the reason for the crisis yet no key players were successfully prosecuted. Until Lee Farkas.
POSTSCRIPT- The day after I wrote this story, the WSJ ran a great opinion piece by Holman Jenkins. Jenkins suggests that Farkas’ problems began prior to 2002. According to the WSJ piece, TRW’s cash crunch began when Fannie Mae abruptly severed it relationship with the mortgage giant. Why?
Apparently Fannie Mae discovered it had been sold 6 loans that it had previously rejected – loans that went into default without a single payment being made. Jenkins says that several of those loans had been issued in Farkas’ own name.
About the author.Brian Mahany is a partner at the law firm of Mahany & Ertl, LLC, a leading national firm concentrating in fraud and asset recovery. From Ponzi schemes to offshore fraud recoveries to legal malpractice, our fraud recovery lawyers can help get back your hard earned money. For more information, contact Brian directly at (414) 704-6731 or at
Mahany & Ertl, LLC – Milwaukee, Wisconsin; Detroit, Michigan & Portland, Maine. Services nationwide.