Saturday, April 16, 2011

ColonialPalooza: Lee Farkas’ testimony concludes with no smoking gun

image Lee Farkas spent nearly five hours on the stand Friday, defending himself against federal charges that he directed a $1.9 billion scheme to sell phony loans to Colonial Bank, diverted funds out of short-term financing arm Ocala Funding LLC, and defraud the US TARP program.

To our dismay, he did not deliver any smoking gun, directly linking any of the senior managers or directors of Colonial BancGroup to the massive fraud scheme that toppled both the bank and Taylor Bean & Whitaker, the mortgage giant Farkas grew into the largest non-depository lender in the country.

As noted here yesterday, Farkas did testify that the check kiting scheme was authorized by the Montgomery-based bank.

So far, Farkas has claimed that "Plan B", which prosecutors allege was a way to sell Colonial hundreds of millions of dollars in "fake" loans, was the brainchild of Cathie Kissick, the head of Colonial's Orlando-based Mortgage Warehouse Lending Division, whom he first met in the mid-1990s before Taylor Bean exploded into the mortgage lender it became.

"She was very creative in ways to come up with ways for us to fund more loans," he said.

As for the overnight sweeping, which prosecutors claim was funneling money from Taylor Bean's investor funding account into its master account at Colonial, allegedly to help cover operating expenses at the company, Farkas said this all happened under someone else's direction.

"It was someone at Colonial who had authority to make those transactions at the time," he said, adding he sent an internal team from Taylor Bean to "investigate" these overdrafts but never received an explanation that met his level of satisfaction.

He also clearly believed that federal investigators were examining Colonial’s activities during the failed attempt to secure TARP funding, and the prosecution appeared to stipulate that belief by providing jurors with an August 2009 recording of a conversation:

[Sean] Ragland's testimony followed statements from Desiree Brown, Taylor Bean's former treasurer. The jury heard a tape recorded conversation between Brown and Farkas on Aug. 4, 2009, a day after FBI agents raided Taylor Bean's Ocala headquarters and Colonial Bank's Mortgage Warehouse Lending Division in Orlando.

"The only thing they're looking at is Colonial and nothing else," Farkas tells Brown on the recorded call, in reference to the bank's failed efforts to receive TARP funding.

There are about 732 different lines of speculation as to why the prosecution didn’t delve deeper into this relationship and entangle the highest levels of senior management at Colonial, especially after noting that Farkas was allegedly conspiring with a “Senior BancGroup Officer” until nearly the last day before the raids on offices in Florida.

Here’s one line of speculation: Doing so would have provided the Farkas defense an avenue towards establishing reasonable doubt and risking an acquittal.

As to why the defense didn’t take that path on its own… It’s anybody’s guess as to why, on the stand, Farkas didn’t point to Montgomery, Alabama and exclaim “he did it! I’m innocent!” Why not enter testimony and documentary evidence showing the intense and excrutiatingly detailed control the Micromanager exercised over his empire? It appears to be a missed opportunity, and it may result in Farkas’ conviction. Does that mean Bobby Lowder escapes with his skin intact?


In its bankruptcy filings,  Colonial has acknowledged that it is the subject of Dept of Justice criminal probe into to its mortgage warehouse lending division and alleged accounting irregularities. At the minimum, Colonial executives face jeopardy under the Sarbanes – Oxley Act. Colonial’s assets are set to be liquidated in Chapter 11 proceedings in the following months. When that’s done, a ton of documents and other evidence will emerge from behind the shield of attorney-client privilege and the picture will  become much clearer.

Farkas’ defense team sought to speed that emergence process in pre-trial motions to compel access to those documents, but the motion was denied. Perhaps that’s why the Farkas team opted not to raise the matter during trial. It could be fodder for appeal should Farkas be convicted.

Stay tuned. There is still a long way to go.

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Anonymous said...

I'm guessing the Senior BancGroup Officer they were referring to is Kissick. Just as the prosecution has described the way Farkas demanded that he exclusively control the Colonial relationship at TBW, she fiercely controlled the TBW relationship on the Colonial side. I think that he was not just trying to save TBW as all of this came down, I think he was seeking control of Colonial....his piggy bank and Kissick's reward for all those years of covering for him was that she was going to be president of the bank. It is interesting to hear Farkas told his people that the Feds were only looking at Colonial. Colonial was telling their people that the Feds were only looking at TBW.

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