There were some rather significant developments recently in the criminal courts relating to Colonial Bank. First, on February 24th, the former treasurer of what had been one of the country’s largest privately-held mortgage lenders pleaded guilty to a nearly $2 billion fraud conspiracy that authorities say contributed to the failure of her employer as well as Colonial Bank. Desiree Brown, who is from Hernando, Fla., could receive up to 30 years when she is sentenced in June. Ms. Brown was an executive at Ocala, Fla.-based Taylor, Bean & Whitaker, which filed for bankruptcy in 2009.
Ms. Brown has admitted that she willingly participated in a scheme to sell more than $400 million in fictitious mortgages to Alabama-based Colonial Bank. While other mortgages sold to Colonial actually existed, those had already been sold to other parties and were therefore worthless to the bank. When Colonial collapsed in 2009 it became the sixth-biggest bank failure in U.S. history. It was reported that subsequently Taylor Bean and Colonial used those fraudulent balance sheets to support an application by Colonial in October 2008 for $570 million in taxpayer funding under the government’s Troubled Assets Relief Program (TARP). It should be noted that neither Taylor, Bean nor Colonial actually received TARP funding. But in December 2008, the Treasury Department had issued conditional approval for $553 million in funding to Colonial.
The former CEO of the company, Lee Bentley Farkas, is scheduled to go on trial this month. Ms. Brown’s plea agreement requires her to testify against Farkas if prosecutors want her testimony. Also, the Securities and Exchange Commission filed related civil charges last month against Brown, accusing her of aiding the alleged fraud scheme and attempted TARP scam. The SEC will also seek civil penalties against Ms. Brown. Lorin Reisner, Deputy Enforcement Director at the SEC, said in a statement:
Brown willingly participated with Farkas in a $1.5 billion fraud on Colonial Bank and its investors. Brown also aided efforts by Farkas to mislead Colonial Bank and its regulators regarding the bank’s application for TARP funds.
In another development, Catherine Kissick, a former executive at Alabama-based Colonial Bank, pleaded guilty to the fraud conspiracy. Ms. Kissick, who is from Orlando, Fla., entered her guilty plea in the same federal court in March. She admitted that she had conspired with the executives at Taylor, Bean.
Finally, another executive has also pleaded guilty to the billion-dollar fraud conspiracy. Teresa Kelly of Ocoee, Fla., pleaded guilty on March 16th to conspiring to commit bank, wire and securities fraud in federal court in Alexandria, Va. Ms. Kelly, a supervisor at Colonial Bank, has admitted knowingly being a part of a scheme involving the Bank’s buying hundreds of millions of dollars in worthless mortgages from Taylor Bean. I don’t know exactly where this ongoing investigation is headed, but these guilty pleas may prove to be most significant in the coming weeks.
Sources: Associated Press and Montgomery Advertiser
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