Saturday, April 2, 2011

ColonialPalooza: Farkas seeking to bar testimony from Ginnie Mae and Freddie Mac “experts”

image It was a busy news week, so please excuse the tardy nature of this report.  Earlier this week, former CEO of Taylor Bean & Whitaker Lee Farkas sought to bar the government from using executives of Ginnie Mae and Freddie Mac as expert witnesses in his upcoming trial on charges of bank, wire and securities fraud.

Jury selection in the trial is scheduled to begin Monday in Alexandria, VA before US District Judge Leonie Brinkema.

Farkas’s legal team wants to exclude the testimony of several potential government witnesses, among them three senior managers from Freddie Mac and Ginnie Mae. Taylor Bean bundled mortgages into securities and sold them to investors such as Freddie Mac. Many of those mortgages were guaranteed by Ginnie Mae.

William Cummings, Farkas’s defense lawyer, says the government is attempting to “disguise” these expert witnesses as “lay” witnesses in order to circumvent heightened disclosure standards. In criminal trials, expert witnesses have greater latitude to testify to their opinions on subject areas of their expertise.

“In addition, because of this reality, he will be forced to take the stand in his defense thus infringing on his constitutional right against self-incrimination,” Cummings said in court papers.

All things being equal, Cummings said, he’d prefer that Farkas not testify.

“As a criminal defense lawyer, the general rule of the thumb is to keep the client off the stand,” Cummings said in an interview Thursday.

Cummings has repeatedly sought to slow down the pace of the proceedings to little avail. In recent weeks, a number of defendants—Taylor Bean’s former president and treasurer, as well as the former head of Colonial Bank’s mortgage warehouse lending division—have pleaded guilty to criminal charges connected to the scheme. Colonial, an Alabama bank that collapsed in 2009, was Taylor Bean’s main lender and provided the company with $3 billion in mortgage financing.

In the media coverage of the plea agreements, Cummings admitted that the government has approached him with the possibility of a plea agreement, but Cummings says nothing has been formalized and no agreement has been reached. Without such a deal, Farkas faces the prospect of spending the rest of his life in the federal lockup if he’s convicted of the 16 charges against him.

Farkas is a “big fish,” and prosecutors are less willing to make a deal with such a high profile target. That is, unless the “big fish” can help them indict and convict an even bigger fish.

As noted here last month,  there haven’t been a lot of convictions or guilty pleas regarding the billions of dollars worth of alleged fraudulent applications for relief under the US’ Troubled Asset Relief Program (TARP). There have been a few successes and a few disappointments, and  political pressure is growing to get a scalp from someone sitting at the top of the financial institutions that ultimately failed. The problem is that many of the top executives most often mentioned as TARP money miners are Wall Street executives who have poured millions into political campaigns for federal offices over the last several cycles.

Cummings might be making a good decision for his client, but hurting the chances of getting to some of the targets much higher up the food chain. There has been plenty of ink and bandwidth spent on exposing the Government Sponored Enterprises (GSE’s) wheeling and dealings. Getting these people on the stand—even as expert witnesses—might give Cummings the chance to put these people on the spot.

Farkas knows what these people were doing.  Farkas knows what Bobby Lowder was doing, too. The question is not whether the government really wants Farkas’ scalp, but whether they’re willing to “go there” and make a deal with him in order to get Lowder and get the execs at GNMA, FNMA and FHMC. Maybe the former. The latter, maybe not so much.

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