SEC files civil fraud charges against Colonial Bank exec

The former operations chief at the failed Colonial Bank “enabled the (repo) sale of fictitious and impaired mortgage loans and securities” to Colonial Bank by its largest warehouse borrower, Taylor, Bean & Whitaker Mortgage Corp., according to a National Mortgage News account of civil charges filed by the Securities and Exchange Commission March 16.

Taylor, Bean & Whitaker, from Ocala, Fla.,is the subject of both criminal and civil actions which accuse company officials of pledging fake home loans and fake mortgage-backed securities as collateral for repo loans from Colonial Bank, based in Montgomery, Ala.

Taylor, Bean & Whitaker also sold the same fake securities to an off-the-books business it created, which then sold them to Fannie Mae, Freddie Mac and two major European banks, according to prosecutors who claim the complexity of the securities made the fraud difficult to detect.

From the National Mortgage News story:

In a statement, SEC associate regional director William P. Hicks said, “For nearly seven years, (Teresa A.) Kelly abused her access to Colonial Bank’s accounting systems, allowing [Lee] Farkas and TBW to defraud the bank and its investors out of more than $1.5 billion.” Farkas, who is under indictment, was a principal in TBW and its CEO.

Investigators say that before TBW failed it experienced liquidity problems “and overdrew its then-limited warehouse line of credit with Colonial Bank by approximately $15 million each day.”

The agency says Kelly, Farkas, and former Colonial warehouse executive Catherine Kissick “concealed the overdraws through a pattern of ‘kiting’ in which certain debits were not entered until after credits due for the following day were entered.”

Last week Kissick, a well known figure in warehouse lending circles, pleaded guilty to criminal charges tied to the collapse of TBW, one of the nation’s largest FHA lenders. She is now cooperating with the government’s investigation.

This week Raymond Bowman of Atlanta, the former president of Taylor, Bean and Whitaker Mortgage Corp. pleaded guilty to bank fraud. He, too, has agreed to cooperate with the prosecution, reported Bloomberg News.

Farkas, is expected to go to trial on fraud charges next month in Virgina, according to the Ocala Star-Banner in Ocala, Fla.

TBW filed for bankruptcy in late August 2009. Shortly thereafter, the Federal Deposit Insurance Corp. seized Colonial, reported the National Mortgage News.

The National Mortgage News did not mention repos.


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