Wednesday, February 23, 2011

ICYMI: Mortgage executive with ties to Colonial Bank failure will plead guilty

In Case You Missed It® yesterday, news hit the afternoon wires that former Taylor Bean & Whitaker executive Desiree Brown will plead guilty in a special hearing set for 9:30 am Thursday, February 23. Brown was once the Treasurer of the failed Florida mortgage banking giant that went under in August 2009 and took the mighty Colonial BancGroup with it.

(ed. note) In response to numerous emails PM’s and Tweets: Yes, this is a huge development. While it wasn’t unexpected, the timing is interesting as Farkas is scheduled to stand trial in six weeks on charges of bank and wire fraud. But most importantly As Taylor Bean’s Treasurer, Ms. Brown had to account for every nickel of the company’s transactions with Colonial, and as discussed below, those transactions led to billions of losses and ultimately led to a colossal bank failure.

From the Reuters story that first broke the news:

* Filings say ex-treasurer received over $1.5 million

* Brown due in court Thursday for plea agreement hearing

By Jeremy Pelofsky

WASHINGTON, Feb 22 (Reuters) - The former treasurer of the now-defunct Taylor, Bean & Whitaker Mortgage Corp, Desiree Brown, is set to enter a plea agreement to federal criminal charges on Thursday, according to court records released on Tuesday.

No details of the criminal charges were available but U.S. Judge Leonie Brinkema has scheduled a hearing for 9:15 a.m. (1415 GMT) on Thursday in the U.S. District Court for the Eastern District of Virginia. Such hearings are typically held when a defendant is expected to plead guilty.

Taylor, Bean & Whitaker filed for bankruptcy in August 2009 and federal prosecutors have accused the former chairman of the mortgage firm, Lee Farkas, of orchestrating a scheme that led to billions of dollars in losses that are still being tallied.

It’s worth noting that Court authorization for the Title III wiretaps—the recordings that are now the central body of evidence in the BingoGate case—also came from the U.S. District Court for the Eastern District of Virginia. But I digress…

Taylor Bean was the largest non-depository mortgage lender in the country when it went belly up nearly two years ago. The company was also Colonial BancGroup’s largest “mortgage warehouse” customer. Mortgage warehousing was a common practice in the period just before the credit market meltdown, wherein depository banks such as Colonial made short term loans to mortgage originators.

The originators then lent to homebuyers and refinancing homeowners, including huge numbers of subprime borrowers. The loans were then packaged and sold to Fannie Mae, Freddie Mac and Ginnie Mae. The warehouse borrower then repaid the loans (with interest and certain transactions fees) and the cycle began again.

In its indictment of Taylor Bean’s CEO Lee Farkas, and in accompanying court documents filed by the Securities and Exchange Commission, federal authorities allege that Taylor Bean executives conspired with as yet unnamed “senior Colonial BancGroup executives” to run a check kiting scheme that was so large it would make EF Hutton blush. But the feds also allege that Taylor Bean executives conspired with—or at least acted with the knowledge of—those same executives to defraud the US’ Troubled Asset Relief Program to the tune of hundreds of millions of taxpayer dollars.

Regulators discovered the sham TARP operation and Colonial never received a bailout. In August 2009, federal authorities raided Taylor Bean’s offices and collected scores of boxes of documents.  The company filed for bankruptcy shortly thereafter, and Colonial BancGroup followed suit days later, setting up the worst bank failure in 2009 and the sixth largest in US history.

Colonial BancGroup officials have publicly acknowledged that they are the target of a federal criminal probe into possible bank and wire fraud. Indictments are widely expected, but there is no timetable for when those might come down.

Exit question: Micromanagers who make personal phone calls on $50,000 loans that are 15 days past due usually know when hundreds of millions are being moved around in elaborate shell games, don’t they?

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