Desiree Brown, former treasurer and Raymond Bowman, former president of Taylor Bean & Whitaker Mortgage Corporation (TBW) have been sentenced to 72 months in prison and 30 months in prison, respectively, for their roles in a more than $2.9 billion fraud scheme tied to the failures of TBW and Colonial Bank by U.S. District Judge Leonie M. Brinkema in the Eastern District of Virginia.
Desiree Brown of Hernando, Fla., pleaded guilty in February 2011 to one count of conspiracy to commit bank, wire and securities fraud. Raymond Bowman of Braselton, Ga., pleaded guilty in March 2011 to one count of conspiracy to commit bank, wire and securities fraud and one count of making false statements to federal agents. Both admitted to conspiring with Lee Farkas, the former chairman of TBW, and others, to fraudulently obtain funding for TBW to cover expenses related to operations and servicing payments owed to third-party purchasers of loans and/or mortgage-backed securities (MBS). Farkas was convicted on April 19th, on 14 counts of fraud for his role in masterminding the scheme, which was one of the largest bank frauds in the country. Farkas is scheduled to be sentenced on June 27, 2011. The Securities & Exchange Commission (SEC) has a civil action pending against Farkas in the Eastern District of Virginia.
Co-conspirators Paul Allen, the former chief executive officer of TBW; Catherine Kissick, a former senior vice president of Colonial Bank and head of its Mortgage Warehouse Lending Division (MWLD); Teresa Kelly, a former operations supervisor for Colonial Bank’s MWLD; and Sean Ragland, a former senior financial analyst at TBW, have also pleaded guilty for their participation in the scheme.
“Raymond Bowman and Desiree Brown used their positions as high-level executives at TBW to help Lee Farkas perpetrate a sprawling $2.9 billion fraud,” said Assistant Attorney General Breuer. “Their crimes contributed to the failure of Colonial Bank and the collapse of TBW, harming hundreds of shareholders, investors and employees. Today’s prison sentences reflect the seriousness of their conduct, while also recognizing the substantial assistance they ultimately provided to the government in investigating and prosecuting Mr. Farkas and other co-conspirators.”
According to court documents and information presented at trial, Bowman and Brown participated in the scheme from 2003 through August 2009. The fraud scheme caused Colonial Bank and Colonial BancGroup to purchase tens of millions of dollars of worthless assets, caused Colonial BancGroup to report false information in its financial statements, and artificially inflated the value of TBW’s mortgage servicing rights. According to court documents and information presented at trial, TBW began running overdrafts in its master bank account at Colonial Bank because of TBW’s inability to meet its operating expenses, which included payroll, servicing payments owed to third-party purchasers of loans and/or mortgage-backed securities and other obligations.
In or about 2002, Farkas, Bowman and other co-conspirators, engaged in a series of fraudulent actions to cover up the overdrafts, first by sweeping overnight money from one TBW account with excess funds into another, and later through the fictitious “sales” of mortgage loans to Colonial Bank, a fraud scheme the conspirators dubbed “Plan B.” Brown joined the conspiracy in late 2003 shortly after Plan B commenced. The conspirators accomplished Plan B by selling Colonial Bank mortgage loans that did not exist or that TBW had already committed or sold to other third-party investors.
As Plan B evolved, co-conspirators at TBW also caused TBW to engage in sham sales of groups of mortgage loans, known as “pools,” to Colonial Bank that other entities already owned. As a result, false information was entered on Colonial Bank’s books and records, giving the appearance that the bank owned interests in legitimate pools of mortgage loans, when in fact the pools had no value and could not be securitized or sold. Additionally, the conspirators, including Brown, caused TBW to misappropriate more than $1.5 billion in collateral from Ocala Funding LLC, a mortgage lending facility owned by TBW. The misappropriation caused Colonial Bank and the Freddie Mac to falsely believe that they each had an undivided ownership interest in thousands of the same loans worth hundreds of millions of dollars.
According to court documents, the fraud scheme also included an effort by certain conspirators in the fall of 2008 to obtain $570 million in taxpayer funding through the Capital Purchase Program (CPP), a sub-program of the U.S. Treasury Department’s TARP. In connection with the application, Colonial BancGroup submitted financial data and filings that included materially false information related to mortgage loan and securities assets held by Colonial Bank as a result of the fraudulent activity at TBW. Colonial BancGroup never received the TARP funding. In August 2009, the Alabama State Banking Department, Colonial Bank’s regulator, seized the bank and appointed the FDIC as receiver. Colonial BancGroup also filed for bankruptcy in August 2009.