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Farkas Gets 30 Years for $2.9B Fraud Scheme

Allison Tussey —  July 1, 2011 — Leave a comment

Lee Bentley Farkas,  58, Ocala, Florida, the former chairman and owner of Taylor, Bean & Whitaker (TBW), was sentenced to 30 years in prison and ordered to forfeit approximately $38.5 million for his role in a more than $2.9 billion fraud scheme that contributed to the failure of TBW and Colonial Bank. At one time, TBW was one of the largest privately held mortgage lending companies in the United States and Colonial Bank was one of the 25 largest banks in the United States.

Farkas was sentenced by U.S. District Judge Leonie M. Brinkema in the Eastern District of Virginia.

As previously reported by Mortgage Fraud Blog, after a 10-day trial, a federal jury found Farkas guilty of 14 counts, including one count of conspiracy to commit bank, wire and securities fraud; six counts of bank fraud; four counts of wire fraud; and three counts of securities fraud. According to court documents and evidence presented at trial, Farkas and his co-conspirators engaged in a scheme that misappropriated more than $1.4 billion from Colonial Bank‘s Mortgage Warehouse Lending Division, Orlando, Florida, and approximately $1.5 billion from Ocala Funding, a mortgage lending facility controlled by TBW. Farkas and his co-conspirators misappropriated this money to, among other things, cover TBW‘s operating expenses. The fraud scheme contributed to the failures of Colonial Bank and TBW.

The sentence was announced by Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney Neil H. MacBride for the Eastern District of Virginia; Acting Special Inspector General Christy Romero for the Troubled Asset Relief Program (SIGTARP); Assistant Director in Charge James W. McJunkin of the FBI’s Washington Field Office; Michael P. Stephens, Deputy Inspector General of the Department of Housing and Urban Development (HUD-OIG); Jon T. Rymer, Inspector General of the Federal Deposit Insurance Corporation (FDIC-OIG); Steve A. Linick, Inspector General of the Federal Housing Finance Agency (FHFA-OIG); and Victor S. O. Song, Chief of the Internal Revenue Service-Criminal Investigation (IRS-CI).

The case is being prosecuted by Deputy Chief Patrick Stokes and Trial Attorney Robert Zink of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Charles Connolly and Paul Nathanson of the Eastern District of Virginia. This case was investigated by SIGTARP, FBI’s Washington Field Office, FDIC-OIG, HUD-OIG, FHFA-OIG and the IRS-CI. The department recognizes the substantial assistance of the SEC. The department also recognizes the assistance of the Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury.

“During the housing and financial crisis, while many American taxpayers struggled just to keep their heads above water, Farkas lived in the lap of luxury using the more than $38 million that he stole from TBW and Colonial Bank,” said Acting Inspector General Romero of SIGTARP. “Farkas used the stolen money to buy a jet, expensive antique and collector cars including a Rolls Royce, and multiple vacation homes, all while masterminding a fraud of stunning scope. His fraud began to unravel when he tried to obtain TARP funds to fill the billions of dollars of holes at TBW and Colonial Bank. He failed and his fraud was discovered by SIGTARP and its law enforcement partners. Shameless in his duping of investors and regulators, he attempted to deceive taxpayers. The judge’s sentence today makes it clear that Farkas will leave his lavish lifestyle behind and spend his golden years locked up in prison.”

“Through his scheme, Lee Farkas and his co-conspirators victimized innocent people and in the process their actions led to the collapse of two major U.S. financial institutions, no doubt a contributing factor to the nation’s financial downturn,” said Assistant Director McJunkin. “Today’s sentence does not make the victims whole, but it does punish the major architect of these crimes.”

“Lee Farkas was the mastermind behind one of the largest fraud schemes in history involving a mortgage lending company. For more than eight years, Farkas perpetuated his scam to defraud banks, regulators and taxpayers,” said Deputy Inspector General Stephens of the HUD-OIG. “We remain firmly committed to rooting out fraud at all levels of an institution – from the bottom to the very top – and holding those who engage in such destructive activity ultimately accountable to the American people.”

“We are pleased to join our colleagues in announcing the sentencing of Lee Farkas, whose actions contributed to the failure of Colonial Bank, causing a $4.2 billion loss to the FDIC’s Deposit Insurance Fund,” said Inspector General Rymer of the FDIC-OIG. “We appreciate the collaborative relationships with law enforcement partners that led to the successful outcomes of this case, one of the largest bank fraud prosecutions of our time. We also acknowledge the efforts of our FDIC colleagues, who, acting in their receivership capacity, assisted the prosecution in unraveling the complexities of this fraud. The American public needs to know that those who undermine the integrity of the financial services system will be held accountable. We are committed to helping maintain confidence in the financial system, ensure the safety and soundness of FDIC-insured institutions, and protect the viability of the insurance fund.”

“In the midst of the worst housing finance crisis since the great depression, Lee Farkas led a scheme that defrauded Freddie Mac and, in turn, the American taxpayers who have invested over $63 billion in Freddie Mac to cover its losses,” said Inspector General Linick of the FHFA-OIG. “Today’s sentence makes it clear that mortgage-related fraud will not be tolerated.”

“Lee Farkas’ boundless greed ultimately led not to a life of luxury, but to a prison cell,” said Assistant Attorney General Breuer. “Mr. Farkas orchestrated a fraud of staggering proportions, the effects of which are still being felt by the thousands of former employees of TBW and Colonial Bank, and shareholders of Colonial BancGroup. From a $28 million private jet and vacation homes in Maine and Key West, to expensive antique cars and restaurants, Mr. Farkas plundered his company and Colonial Bank to prop up his failing business and to feed his ostentatious lifestyle. When greed and risky behavior lead individuals to break the law, we will do everything in our power to investigate, prosecute and punish those responsible.”

“Today’s sentence ensures that Lee Farkas will spend the rest of his life in prison and is just punishment for a man who pulled off one the largest bank frauds in history,” said U.S. Attorney MacBride. “Between 2007 and August 2009, as the country faced one of the worst financial crises in recent history – largely sparked by fraudulent mortgage-related transactions – Farkas ramped up his scheme to rip off banks through sales of fake mortgage assets and by double-and triple-selling mortgage loans. By causing the failure of Colonial Bank and TBW, two significant players in the mortgage market, Farkas’s scheme affected those at the heart of the financial crisis, including major financial institutions, government agencies, taxpayers, and employees and investors.”

This prosecution was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information about the task force visit: www.StopFraud.gov.

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2 Sentenced for “Dream Home” Investment Scam

Allison Tussey —  June 29, 2011 — Leave a comment

Isaac Jerome Smith, 48, Spotsylvania, Virginia; and Alvita Karen Gunn, 33, Hanover, Maryland, were sentenced by U.S. District Judge Roger W. Titus to 70 months and 60 months in prison, each followed by three years of supervised release, respectively, for a fraud conspiracy, wire fraud and conspiracy to commit money laundering in connection with their participation in a massive mortgage fraud scheme which promised to pay off homeowners’ mortgages on their “Dream Homes,” but left them to fend for themselves. Judge Titus also ordered that the defendants pay restitution in the full amount of the loss, with the exact amount to be determined at a later hearing.

On February 18, 2011, a federal jury convicted Smith and Gunn, along with co-defendant Michael Anthony Hickson, 48, Commack, New York, after a six week trial. Hickson, chief financial officer of Metro Dream Homes (MDH), was also convicted of making a false statement in a federal court proceeding and is scheduled to be sentenced on July 1, 2011.

According to evidence presented at the trial, beginning in 2005, the defendants targeted homeowners and home purchasers to participate in a purported mortgage payment program called the “Dream Homes Program.” In exchange for a minimum $50,000 initial investment and an “administrative fee” of up to $5,000, the conspirators promised to make the homeowners’ future monthly mortgage payments, and pay off the homeowners’ mortgages within five to seven years. Dream Homes Program representatives told investors that the homeowners’ initial investments would be used to fund investments in automated teller machines (ATMs), flat screen televisions that would show paid business advertisements and electronic kiosks that sold goods and services. To give investors the impression that the Dream Homes Program was very successful, Metro Dream Homes spent hundreds of thousands of dollars making presentations at luxury hotels in Washington, D.C., New York, New York and Beverly Hills, California.

The evidence showed that in February 2007, the Dream Homes Program added a second program called “POS Dream Homes” offering similar promises of paying off investor mortgages in five to seven years in exchange for an up-front investment of $50,000 or more. Collectively, these programs had offices in Maryland, the District of Columbia, Virginia, North Carolina, New York, Delaware, Florida, Georgia and California.

According to trial testimony, the defendants failed to advise investors that: the ATMs, TV advertising and kiosks never generated any meaningful revenue; the defendants used the funds from later investors to pay the mortgages of earlier investors; and MDH had never filed any federal income tax returns. The defendants also failed to advise investors that their investments were being used to enrich select MDH employees, including the defendants, to: pay salaries of up to $200,000 a year as well as their mortgages; employ a staff of chauffeurs and maintain a fleet of luxury cars; and attend the 2007 National Basketball Association All-Star game and the 2007 National Football League Super Bowl, staying in luxury accommodations in both instances. Nor were investors told that investor funds were used to: pay off investors in a prior failed ATM investment venture called Bankcard Group; make multiple donations of up to $50,000 to charitable organizations to give MDH the appearance of being financially successful; and transfer millions of dollars in investor funds to third-party businesses for purposes not disclosed to investors.

Trial testimony showed that the defendants arranged for early Dream Homes Program investors, whose mortgage payments had been made by MDH using the funds of later Dream Homes Program investors, to attend recruitment meetings to assure potential investors that the Dream Homes Program was not a fraud. MDH used a third party company to pay investors to advertise the Dream Homes Program to friends and family. MDH encouraged homeowners to refinance existing mortgages on their homes in order to withdraw equity and generate the funds necessary to enroll their homes in the Dream Homes Program.

On Aug. 15, 2007, the Maryland Securities Commissioner issued a cease-and-desist order to MDH and other related companies directing them to immediately cease the offering and sale of unregistered securities in connection with their promotion of the Dream Homes Program. The defendants subsequently called meetings in which investors were told that MDH was earning up to $10 million per month and that the company’s legal difficulties were the result of either misunderstandings or racial animus against company leaders. On Sept. 4, 2007, the defendants filed a legal challenge to the cease-and-desist order in federal court in Maryland. Trial testimony established that at a hearing on Sept. 12, 2007, Hickson testified that the financial success of the Dream Homes Program did not rely upon new investor funds, when in fact Hickson knew that the sole source of meaningful revenue for MDH was new investor funds.

As a result of the scheme, more than 1,000 investors in the Dream Homes Program invested approximately $78 million. When the defendants stopped making the mortgage payments, the homeowners were left to attempt to make the mortgage payments MDH had promised to make in full.

Carole Nelson, 52, Washington, D.C., the chief financial officer of POS Dream Homes, previously pleaded guilty to money laundering, and Charlotte Melissa Josephine Hardmon, 39, Bowie, Maryland, pleaded guilty to conspiracy to commit wire fraud in connection with their participation in this scheme. Both are awaiting sentencing.

This prosecution is being brought jointly by the Maryland and Washington, D.C. Mortgage Fraud Task Forces, which are comprised of federal, state and local law enforcement agencies in Maryland, Washington, D.C. and Northern Virginia. The Task Forces were formed to promote the early detection, identification, prevention and prosecution of various kinds of mortgage fraud schemes. This case, as well as other cases brought by members of the Task Forces, demonstrates the commitment of law enforcement agencies to protect consumers from fraud and help to ensure the integrity of the mortgage market and other credit markets. Information about mortgage fraud prosecutions is available on the internet at http://www.usdoj.gov/usao/md/Mortgage-Fraud/index.html.

The sentences were announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation; Acting Special Agent in Charge Jeannine A. Hammett of the Internal Revenue Service – Criminal Investigation, Washington, D.C. Field Office; Maryland Attorney General Douglas F. Gansler; and Inspector General Jon T. Rymer of the Federal Deposit Insurance Corporation.

“Mortgage fraud ruins lives, destroys families and devastates whole communities. This case demonstrates the FBI’s commitment to attacking the problem from every possible direction,” said FBI Special Agent in Charge Richard A. McFeely. “We will not rest until those who prey on vulnerable American homeowners are brought to justice.”

United States Attorney Rod J. Rosenstein praised the FBI, the IRS – Criminal Investigation, the Maryland Attorney General’s Office – Securities Division and the Federal Deposit Insurance Corporation – Office of Inspector General for their investigative work. Mr. Rosenstein thanked Assistant U.S. Attorneys Jonathan C. Su and Bryan E. Foreman, who prosecuted the case.

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Former Bank Lawyer and 2 Others Indicted for Bank Fraud

Allison Tussey —  June 29, 2011 — Leave a comment

Robert E. Maloney, Jr., 47, McDonough, Georgia, was arraigned on federal charges before United States Magistrate Judge Janet F. King. A superseding indictment charges Maloney and two former top officers of “FirstCity Bank,” Stockbridge, Georgia: Mark A. Conner, 45, formerly of Canton, Georgia, and Tallahassee, Florida, and Clayton A. Coe, 44, McDonough, Georgia, with conspiracy to commit bank fraud, bank fraud, conspiracy to commit money laundering, and related crimes in connection with misconduct at FirstCity Bank in the years before the bank’s seizure by state and federal authorities on March 20, 2009.

A federal grand jury in Atlanta, Georgia, returned the superseding indictment against Conner, Coe, and Maloney on June 22, 2011. The grand jury previously returned an indictment against Conner and Coe on March 16, 2011. Federal agents arrested Conner and Coe on March 20 and March 27, 2011, respectively, upon their return to the United States from the Turks and Caicos Islands in the British West Indies. U.S. District Judge Steve C. Jones has ordered Conner to remain in the custody of the U.S. Marshals Service pending trial, based on a risk of flight. Coe was released to home detention and electronic monitoring. Arraignments for Conner and Coe on the superseding indictment have been scheduled for July 1, 2011 before United States Magistrate Judge Janet F. King.

According to the charges and other information presented in court: Conner served in a variety of top positions at FirstCity Bank between 2004 and 2009, including as Vice Chairman of the Board of Directors, as a member of the banks’ loan committee, as President, and later as acting Chairman and Chief Executive Officer. Coe served as a Vice President and as FirstCity Bank‘s Senior Commercial Loan Officer. Maloney served as FirstCity Bank‘s in-house counsel, or corporate counsel, between 2006 and 2009. While serving in these positions, Conner, Coe, Maloney, and their co-conspirators allegedly conspired to defraud FirstCity Bank‘s loan committee and Board of Directors into approving multiple multi-million dollar commercial loans to borrowers who, unbeknownst to FirstCity Bank, were actually purchasing property owned by Conner or Coe personally.

The indictment charges that Conner, Coe, Maloney, and their co-conspirators misrepresented the essential nature, terms, and underlying purpose of the loans and falsified documents and information presented to the loan committee and the Board of Directors. Conner, Coe, and their co-conspirators then allegedly caused at least 10 other federally-insured banks to invest in, or “participate in” the fraudulent loans based on these and other fraudulent misrepresentations, shifting all or part of the risk of default to the other banks. Coe‘s bonus compensation was tied to the origination of FirstCity Bank loans, including the fraudulent loans with which he and Conner allegedly assisted each other. Maloney is alleged to have taken extra payments in the form of “legal fees” from the fraudulent transactions, even though as corporate counsel he was actually a salaried employee of FirstCity Bank. He also allegedly helped launder and distribute funds to or for the benefit of Conner, Coe, other co-conspirators, or to himself through an attorney trust account maintained at the bank.

In the process of defrauding FirstCity Bank and the “participating” banks, Conner, Coe, Maloney, and their co-conspirators allegedly routinely misled federal and state bank regulators and examiners to conceal their unlawful scheme. They also unsuccessfully sought federal government assistance through the U.S. Treasury Department’s Troubled Asset Relief Program (“TARP”) and engaged in other misconduct in an attempt to avoid seizure by regulators and prevent the discovery of their fraud.

The superseding indictment charges Conner, Coe, and Maloney with conspiracy to commit bank fraud, bank fraud, making false entries in the records of an FDIC-insured financial institution, and conspiracy to commit money laundering. It also charges Conner alone with conducting a continuing financial crimes enterprise at the bank between February 2006 and February 2008, during which Conner‘s and his co-conspirators’ crimes allegedly generated over $5 million in unlawful gross proceeds, and it charges Coe alone with making a false federal credit application.

The charges for bank fraud conspiracy, bank fraud, false entries, and making a false credit application carry a maximum sentence of 30 years in prison and a potential fine of up to $1 million on each count. The charge against Conner for conducting a continuing financial crimes enterprise carries a mandatory minimum sentence of 10 years in federal prison, a maximum sentence of life in prison, and a potential fine of up to $10 million. The money laundering conspiracy charge against Conner, Coe, and Maloney carries a maximum sentence of 10 years in prison and a potential fine of up to twice the value of criminally-derived funds. In determining the actual sentences for each defendant, the Court will consider the United States Sentencing Guidelines, which are not binding but provide appropriate sentencing ranges for most offenders.

United States Attorney Yates announced the indictments.

Members of the public are reminded that the indictment only contains charges. The defendant is presumed innocent of the charges and it will be the government’s burden to prove the defendant’s guilt beyond a reasonable doubt at trial.

FDIC Inspector General Jon Rymer said, “The Federal Deposit Insurance Corporation (FDIC) Office of Inspector General (OIG) is pleased to join our law enforcement colleagues in announcing the indictment of Mr. Maloney for his alleged role in this multi-million dollar bank fraud and associated money laundering activities. It is especially important to investigate and prosecute cases where trusted professionals, such as attorneys who owe a fiduciary duty to the bank, violate that duty and abuse their positions to undermine the integrity of the financial services industry. The FDIC OIG is particularly concerned when fraudulent schemes mislead the FDIC’s examiners and contribute to bank failures that cause losses to the Deposit Insurance Fund. We are committed to preventing such threats to the safety and soundness of FDIC-insured banks throughout the country.”

Christy L. Romero, Acting Special Inspector General for the Troubled Asset Relief Program said, “Today’s indictment involves another unfortunate example of allegedly brazen criminal conduct by senior bank officials who tried to conceal their fraud from regulators and improperly access TARP funds. As the bank’s top legal officer, Maloney maintained a position of trust within the bank and had a special duty to prevent and detect misconduct. The indictment alleges that Maloney violated his important gatekeeper responsibilities and conspired with Conner and Coe in a criminal scheme that victimized unwitting federally-insured banks who invested millions of dollars into fraudulent loans. Fortunately, their attempts to victimize Treasury and the American taxpayers by obtaining TARP funds were unsuccessful. SIGTARP will continue to work with our law enforcement partners to bring to justice those who sought to cover their fraud with taxpayer dollars through TARP.”

IRS-Criminal Investigation Special Agent in Charge Reginael McDaniel said, “IRS Criminal Investigation is committed to protecting the integrity of our financial institutions and we will use all the legal tools available to assist in the investigation and prosecution of those who attempt to damage that integrity.”

President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

This case is being investigated by Special Agents of the FDIC, Office of Inspector General; the Office of the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”), the Federal Bureau of Investigation, and Internal Revenue Service-Criminal Investigation.

Assistant United States Attorneys Douglas W. Gilfillan and David M. Chaiken are prosecuting the case.

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Title Company Owner Sentenced for Mortgage Fraud

Allison Tussey —  June 21, 2011 — 1 Comment

Daniel E. Fink Jr., 44, Baltimore, Maryland, who operated Homemaxx Title & Escrow LLC (Homemaxx), a title company that conducted residential real estate closings with offices in Middle River and Parkville, Maryland, was sentenced by U.S. District Judge J. Frederick Motz to four years in prison, followed by three years of supervised release, for wire fraud in connection with a scheme to defraud lenders and homeowners of more than $2.2 million. Judge Motz also ordered Fink to forfeit $2.2 million and to pay restitution in the full amount of the victims’ losses. The total loss amount has not yet been determined, but is estimated to be at least $2.2 million.

According to Fink‘s plea agreement, from February 2003 to July 2004, Fink defrauded lenders, a title insurance company, and homeowners to obtain more than $2.2 million. Fink made arrangements for Homemaxx to act as the title company for real estate settlements and refinancing transactions. Lenders deposited funds in Homemaxx escrow accounts that Fink controlled. As part of the scheme, Fink caused title insurance to be issued to individuals purchasing or refinancing real estate, but concealed facts that negatively affected the buyers’ title in the real estate transactions. Fink also made misrepresentations to lenders in connection with transactions in which Fink purportedly was buying or selling the property and handling the settlement on behalf of Homemaxx. For example, in a number of transactions, Fink represented to lenders that he was purchasing property and obtained a loan for that purpose. In fact, Fink purchased only the ground rent connected to that address and used the remainder of the loan for his personal benefit.

In addition, despite Fink‘s representations to lenders that escrow funds were properly distributed after settlement, Homemaxx to failed to pay outstanding first mortgages on real estate transactions or to properly record deeds. Fink also improperly transferred substantial amounts of money from a Homemaxx escrow account into other accounts, and used the money intended to be disbursed pursuant to real estate closing documents for personal expenditures unrelated to the intended real estate transactions.

Among other personal expenditures, Fink used the money to buy personal gifts for women, including over $200,000 of escrow money to purchase a property in Florida for a female acquaintance, and $59,728 to purchase a new 2004 Mercedes CLK 500 for a woman Fink knew from the Gentlemen’s Gold Club. Fink also used $61,965 to buy a 2003 Hummer H2, repeatedly spent the proceeds of his scheme at the Gentlemen’s Gold Club, on gambling, and on trips to Paradise Island, Bahamas.

In April 2004, Fink was confronted by representatives of the title insurance company about substantial amounts of money missing from the Homemaxx escrow account. Fink later fled the Baltimore area and used aliases to engage in real estate transactions in Florida. On March 26, 2009, a federal grand jury in Baltimore returned an indictment charging Fink with wire fraud and money laundering in connection with the scheme. Fink was arrested in Florida on February 15, 2010 by the Palm Beach Police Department.

The sentence was announced by United States Attorney for the District of Maryland Rod J. Rosenstein and Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation.

The Maryland Mortgage Fraud Task Force was established to unify the agencies that regulate and investigate mortgage fraud and promote the early detection, identification, prevention and prosecution of mortgage fraud schemes. This case, as well as other cases brought by members of the Task Force, demonstrates the commitment of law enforcement agencies to protect consumers from fraud and promote the integrity of the credit markets. Information about mortgage fraud prosecutions is available at http://www.usdoj.gov/usao/md/Mortgage- Fraud/index.html.

United States Attorney Rod J. Rosenstein commended the FBI, the Palm Beach, Florida Police Department and the United States Attorney’s Office, Southern District of Florida for their assistance in the investigation and prosecution, and thanked Assistant United States Attorney Harry M. Gruber, who prosecuted the case.

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Bank Senior VP Sentenced for Fraud

Allison Tussey —  June 20, 2011 — 9 Comments

Catherine Kissick, 50, Orlando, Florida, a former senior vice president and head of Colonial Bank‘s Mortgage Warehouse Lending Division was sentenced to eight years in prison for her role in a more than $2.9 billion fraud scheme that contributed to the failures of Colonial Bank and Taylor, Bean & Whitaker (TBW). Colonial Bank was one of the 25 largest banks in the United States and TBW was one of the largest privately-held mortgage lending companies in the United States in 2009.

As previously reported by Mortgage Fraud Blog, Kissick pleaded guilty in March 2011 to one count of conspiracy to commit bank, wire and securities fraud. Co-conspirator Teresa Kelly, 35, Ocoee, Florida, a former operations supervisor at Colonial Bank who reported to Kissick, was also sentenced by Judge Brinkema to three months in prison. Kelly pleaded guilty in March 2011 to one count of conspiracy to commit bank, wire and securities fraud. Kissick and Kelly both admitted to conspiring with Lee Bentley 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.

Kissick was sentenced by U.S. District Judge Leonie M. Brinkema in the Eastern District of Virginia.

The sentence was announced by Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney Neil H. MacBride for the Eastern District of Virginia; Acting Special Inspector General Christy Romero for the Troubled Asset Relief Program (SIGTARP); Assistant Director in Charge James W. McJunkin of the FBI’s Washington Field Office; Michael P. Stephens, Deputy Inspector General of the Department of Housing and Urban Development (HUD-OIG); Jon T. Rymer, Inspector General of the Federal Deposit Insurance Corporation (FDIC-OIG); Steve A. Linick, Inspector General of the Federal Housing Finance Agency (FHFA-OIG); and Victor S. O. Song, Chief of the Internal Revenue Service-Criminal Investigation (IRS-CI).

“As a senior bank official of Colonial Bank, Catherine Kissick had a fiduciary duty to speak up and report fraud but instead played an active role in perpetrating and concealing this large-scale fraud, including attempting to deceive the federal government and steal over $550 million from TARP,” said Acting Special Inspector General for the TARP Romero. “SIGTARP and its partners in the Financial Fraud Enforcement Task Force skillfully discovered the fraud and prevented the loss of significant taxpayer funds. SIGTARP will continue to vigorously investigate and prosecute persons who commit fraud or attempt to do so in connection with any program implemented under TARP, regardless of whether such person receives TARP funds.”

“This was a complex investigation that required careful efforts of investigators, forensic accountants and analysts poring through thousands of pages of complicated mortgage and lending documents,” said Assistant Director in Charge McJunkin. “Today’s result is a testament to the hard work and close cooperation of our law enforcement partners. Together we are committed to ensuring the integrity of our banking and mortgage systems.”

“We will continue to work side-by-side with our partners to protect the American dream and the American taxpayers and ensure that criminals who try to enrich themselves through fraud schemes are brought to justice,” said Deputy Inspector General Stephens of HUD.

“The FDIC Office of Inspector General is pleased to join our law enforcement colleagues in defending the integrity of the financial services industry,” said FDIC Inspector General Rymer. “We are particularly concerned in cases like this one where fraudulent activities involving employees of Colonial Bank and officials of Taylor Bean and Whitaker contributed to the failure of Colonial Bank, resulting in a $3.8 billion loss to the Deposit Insurance Fund. We are committed to continuing our investigations of such criminal misconduct to help maintain the safety and soundness of the nation’s financial institutions and the viability of the fund.”

“This sentence sends a strong message to individuals who would try to defraud Freddie Mac and American taxpayers, who have invested $64.2 billion in Freddie Mac to date,” said Inspector General Linick of the FHFA-OIG. “FHFA-OIG looks forward to future cooperative efforts with law enforcement partners to combat fraud against FHFA, Freddie Mac, Fannie Mae, and the Federal Home Loan Banks.”

“As a senior executive at Colonial Bank, Catherine Kissick helped execute one of the largest bank frauds in history,” said Assistant Attorney General Breuer. “For years, she used her position within the bank to buy hundreds of millions of dollars in worthless assets from TBW, deceiving shareholders, investors and regulators. If she had refused to participate in the fraud, Lee Farkas’ scheme could have been stopped dead in its tracks. Ms. Kissick ultimately cooperated with the government, and that assistance is reflected in today’s sentence. But she, like her co-conspirators, will pay for her crimes with substantial time in prison.”

“Lee Farkas pulled off one of history’s largest bank frauds because he had people inside Colonial Bank with the power to do it and hide it,” said U.S. Attorney MacBride. “Without help from Catherine Kissick-a high-level executive at one of the nation’s top regional banks-the fraud scheme might have been discovered in its infancy. Her conviction and sentence should be a cautionary tale to other financial executives who may be tempted to bend the rules for favored clients.”

The case is being prosecuted by Deputy Chief Patrick Stokes and Trial Attorney Robert Zink of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Charles Connolly and Paul NThe case is being prosecuted by Deputy Chief Patrick Stokes and Trial Attorney Robert Zink of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Charles Connolly and Paul Nathanson of the Eastern District of Virginia. This case was investigated by SIGTARP, FBI’s Washington Field Office, FDIC-OIG, HUD-OIG, FHFA-OIG and the IRS-CI. The department recognizes the substantial assistance of the SEC. The department also recognizes the assistance of the Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury.

This prosecution was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information about the task force visit: www.stopfraud.gov.

 

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Woman Admits Mortgage Fraud / ID Theft Charges

Allison Tussey —  June 20, 2011 — Leave a comment

Annita Hawes, a/a “KME,” Los Angeles, California, plead guilty to an Indictment charging her with conspiracy to commit bank fraud, bank fraud, and identity theft.

Hawes admitted her involvement in a multi-jurisdictional mortgage fraud scheme with ties to Florida, Georgia, and California. Hawes‘ entered into a contract to purchase a residence in Santa Rosa Beach for just over $1.2 million. To purchase the home, Hawes obtained a first mortgage for $990,000 and a second mortgage line of credit for $123,750 from U.S. Bank N.A. In the loan applications, Hawes used a false name, a fraudulent date of birth, and a fraudulent social security number. After the closing of the loans and following a series of financial transactions, approximately $172,400 was deposited into a business bank account that Hawes opened using an alias. Hawes faces a maximum of thirty years in prison for the conspiracy and bank fraud charges and a maximum of five years in prison for the identity theft charge.

As to Count One (conspiracy to commit bank fraud), the defendant faces up to thirty (30) years imprisonment, a maximum possible fine of up to $1,000,000, a five (5) year term of supervised release, and a $100 special monetary assessment.

As to Count Two (bank fraud), the defendant faces up to thirty years imprisonment, a maximum possible fine of up to $1,000,000, a five (5) year term of supervised release, and a $100 special monetary assessment.

As to Count Three (identity theft, a lesser included offense of aggravated identity theft), the defendant faces up to five years imprisonment, a maximum possible fine of up to $250,000, a two (2) year term of supervised release, and a $100 special monetary assessment.

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Woman Charged and Pleads Guilty to Mortgage Fraud

Allison Tussey —  June 17, 2011 — Leave a comment

Dorothy Rodriguez, Tampa, Florida, was charged via criminal Information for falsifying her income, employment and occupancy in purchasing a property in Navarre, Florida. 

According to her guilty plea, Rodriguez entered into a contract to purchase the residence located at 7274 Jacobs Trail, Navarre, Florida. The contract price for the residence was $630,000.00. For the purchase, Rodriguez borrowed $500,000.00 on a first mortgage and $66,500.00 on a second mortgage from GMAC to fund the 7274 Jacobs Trail purchase. In the loan applications to fund the loans, Rodriguez falsely claimed she was a portfolio manager/bank analyst for Bank of America with a monthly salary of $12,833.33. In truth and fact, Rodriguez had a monthly salary of less than $2,500.00, and she was not employed as a portfolio manager/bank analyst.

According to the loan applications, Rodriguez was going to use the Jacobs Trail property as a primary residence. In truth and fact, it was Rodriguez‘s intent to use the Jacobs Trail property as rental property. To that end, Rodriguez deducted purported losses from the rental of this property on her federal income tax return.

On or about August 6, 2006, Rodriguez received a $10,000.00 kickback from the proceeds of the closing of the purchase of the Jacobs Trail property. The $10,000.00 originated from a payment at the loan closing from the loan proceeds to General Consultants Corporation in the amount of $33,912.79. General Consultants Corporation had nothing to do with the sale of the property, and the payment to General Consultants Corporation was a mechanism to siphon funds from the closing.

Between on or about January 1,2007, and May 24,2011, in the Northern District of Florida and elsewhere, for the purpose of executing and in order to effect the scheme and artifice to obtain money, Rodriguez did cause to be sent, delivered, and moved by the United States Postal Service, or by any private and commercial interstate carrier, GMAC mortgage documents reflecting the obligation of Rodriguez to repay the loan used to purchase the 7274 Jacobs Trail residence, i.e. the mortgage documents were recorded with the Clerk of the Court for Santa Rosa County, Florida, and mailed to GMAC.

 

 

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Taylor Bean & Whitaker Treasurer and President Sentenced for Fraud

Allison Tussey —  June 13, 2011 — 1 Comment

Desiree Brown, 45, Hernando, Florida, the former treasurer and the former president of Taylor, Bean & Whitaker (TBW) were sentenced today to 72 months in prison and 30 months in prison, respectively, for their roles in a more than $2.9 billion fraud scheme that contributed to the failures of TBW and Colonial Bank. TBW was one of the largest privately-held mortgage lending companies in the United States in 2009.

Brown and Raymond Bowman, the former president of TBW, were each sentenced by U.S. District Judge Leonie M. Brinkema in the Eastern District of Virginia.

Brown pleaded guilty in February 2011 to one count of conspiracy to commit bank, wire and securities fraud. Bowman, 45, Braselton, Georgia, 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 Bentley 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.

Farkas was convicted on April 19, 2011, 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 and 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.

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 Federal Home Loan Mortgage Corporation (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.

The sentences were announced by Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney Neil H. MacBride for the Eastern District of Virginia; Acting Special Inspector General Christy Romero for the Troubled Asset Relief Program (SIGTARP); Assistant Director in Charge James W. McJunkin of the FBI’s Washington Field Office; Michael P. Stephens, Acting Inspector General of the Department of Housing and Urban Development (HUD-OIG); Jon T. Rymer, Inspector General of the Federal Deposit Insurance Corporation (FDIC-OIG); Steve A. Linick, Inspector General of the Federal Housing Finance Agency (FHFA-OIG); and Victor S. O. Song, Chief of the Internal Revenue Service-Criminal Investigation (IRS-CI).

“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. The 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.”

“These TBW executives helped pull off one of the largest, longest-running bank fraud schemes in history that led to the collapse of Colonial Bank and TBW,” said U.S. Attorney MacBride. “They knew that without their fraud scheme, TBW would fail. They helped Lee Farkas do what they knew was wrong, and now they will pay for their crimes. At the same time, these defendants agreed to cooperate with the government and that cooperation was clearly taken into account in the sentences imposed today.”

The case is being prosecuted by Deputy Chief Patrick Stokes and Trial Attorney Robert Zink of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Charles Connolly and Paul Nathanson of the Eastern District of Virginia. This case was investigated by SIGTARP, FBI’s Washington Field Office, FDIC-OIG, HUD-OIG, FHFA-OIG and the IRS-CI. The department recognizes the substantial assistance of the SEC. The department also recognizes the assistance of the Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury.

This prosecution was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information about the task force visit: www.stopfraud.gov.

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Fugitive Sought in Loan Mod, Refinance Scam

Allison Tussey —  June 7, 2011 — 1 Comment

James Toufic Assali, 36, Irvine, California, the owner of a Costa Mesa, California-based mortgage refinance company and escrow business, is charged in a large fraudulent rate-lock loan modification scheme targeting mostly out-of-state and some elderly victims.  Assali is currently sought by law enforcement officers.  To date, known victims are residents of California, Maryland, Minnesota, Florida, and Washington.

Assali is charged with 18 felony counts of grand theft, three felony counts of grand theft of an adult over 65, four felony counts of money laundering, and two felony counts of filing a false tax return with sentencing enhancements for money laundering exceeding $50,000. If convicted, he faces a maximum sentence of 23 years in state prison. An arrest warrant was issued May 26, 2011, for Assali, who is believed to be either in California or Vermont.

Assali is accused of owning and being responsible for the daily operations of Meredian Financial Corporation (Meredian) and an escrow business, Fortis Title Solutions. The two businesses operated out of an office in Costa Mesa, despite having a Florida billing address. He is accused of targeting out-of-state victims, some elderly, by calling and soliciting Meredian‘s home loan rate-lock and modification services for a fee ranging from $750 up to $10,000. Assali is accused of collecting a fee from victims and claiming this would lock-in a lower interest rate to refinance their home, modifying their home loan, and promising that fee would be refunded at the close of escrow. The defendant is accused of failing to complete a majority of home loan modifications or refinancing services retained by victims and refusing to issue refunds promised of the initial fees collected.

Assali is accused of opening and having sole access to separate accounts at Union Bank for his business and personal finances. The defendant is accused of electronically transferring funds incrementally from his business bank account to his personal account totaling over $100,000 annually in both 2008 and 2009. He is accused of filing false tax returns in 2008 and 2009, failing to report his actual income by underreporting his compensation by over $200,000. As a direct result, Assali is also accused of owing over $18,000 in unpaid taxes for filing false returns in 2008 and 2009.

The case was jointly investigated by the Orange County District Attorney’s Office (OCDA) and California Franchise Tax Board (CFTB). In 2010, the OCDA began investigating the case after receiving numerous customer and employee complaints about the Costa Mesa-based business operations. The California Franchise Tax Board assisted in the investigation into the filing of false tax returns.

If you have seen or know the whereabouts of this fugitive and/or believe you have been a victim or have any additional information pertaining to this case please contact Supervising District Attorney Investigator Eric Ackerlind at (714) 347-8691.

Senior Deputy District Attorney Pete Pierce of the Real Estate Fraud Unit is prosecuting this case.

 

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Man Admits Participating in Mortgage Fraud Conspiracy

Allison Tussey —  April 25, 2011 — Leave a comment

Steven J. Kottage, 45, Weston, Connecticut, pleaded guilty before United States District Judge Mark R. Kravitz in New Haven, Connecticut, to two counts of conspiracy stemming from mortgage fraud schemes in which Kottage participated. As previously reported by Mortgage Fraud Blog, Kottage was indicted in July 2010.

According to court documents and statements made in court, Kottage conspired with others to commit wire fraud by making materially false statements to H&R Block Home Mortgage, Inc., including a false loan application, W-2, employment verification, and pay stub in connection with a mortgage on a home on Fire Island, New York. In addition, Kottage admitted that he conspired with others to commit bank fraud by submitting a materially false loan application to Washington Mutual to refinance a condominium in Hillsboro Beach, Florida. A co-defendant, Mary Ellen Durso, served as the straw owner for the condo in order to obtain the fraudulent loan proceeds for the benefit of Kottage and another co-conspirator. Through both schemes, Kottage and others defrauded Wells Fargo and Freddie Mac of more than $600,000.

Judge Kravitz has scheduled sentencing for July 11, 2011, at which time Kottage faces a maximum term of imprisonment of 30 years on each count. He also will be ordered to pay restitution in the amount of at least $616,547.93.

Kottage is currently detained.

On December 14, 2010, Durso pleaded guilty to one count of conspiracy and five counts of filing false tax returns. On March 9, 2011, she was sentenced to three years of probation, the first six months of which she must serve in home confinement.

This case is being investigated by the Federal Bureau of Investigation and the Internal Revenue Service – Criminal Investigation. The case is being prosecuted by Assistant United States Attorney David T. Huang and Senior Litigation Counsel Richard J. Schechter.

In July 2009, the U.S. Attorney’s Office and the Federal Bureau of Investigation announced the formation of the Connecticut Mortgage Fraud Task Force to investigate and prosecute mortgage fraud cases and related financial crimes occurring in Connecticut. Citizens are encouraged to report any suspected mortgage fraud activity by calling 203-333-3512 and requesting the Connecticut Mortgage Fraud Task Force, or by sending an email to ctmortgagefraud@ic.fbi.gov.

The Connecticut Mortgage Fraud Task Force includes representatives from the U.S. Attorney’s Office; Federal Bureau of Investigation; Internal Revenue Service – Criminal Investigation; U.S. Postal Inspection Service; U.S. Department of Housing and Urban Development, Office of Inspector General; Federal Deposit Insurance Corporation, Office of Inspector General, and State of Connecticut Department of Banking.

To report financial fraud crimes, and to learn more about the President’s Financial Fraud Enforcement Task Force, please visit www.stopfraud.gov.

David B. Fein, United States Attorney for the District of Connecticut, announced the guilty plea.

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