The Ocala Star-Banner’s Suevon Lee is in Alexandria, reporting on the trial of Lee Farkas, the man prosecutors say was the chief architect of a nearly $2 billion fraud scheme between his former company, Taylor Bean & Whitaker, and executives at Colonial BancGroup.
As the nation’s financial crisis worsened, both companies failed and toppled Bobby Lowder’s banking empire. Five former executives of the two firms have already pleaded guilty.
The government’s first witness is former Colonial CFO Sarah Moore. Her testimony is expected to be a key part of the prosecution’s case.
CORRECTION: the sentence above has been revised to correct a typographical error in the first version of this post. Ms. Moore has not pled guilty to any crime, nor has she been charged with one. We regret the error and apologize to Ms. Moore.
TARP, the Troubled Asset Relief Program, is a federal program to buy assets and equity from financial institutions to strengthen the financial sector. It was part of the government's measures in 2008 to address the subprime mortgage crisis.
Sarah Moore, the former chief financial officer of Colonial, was the government's first witness. She said an application for TARP funds had been filed with the Federal Deposit Insurance Corp. and other regulators. Along with the application were balance sheets listing supposedly worthless assets.
"If a bank employee and a bank customer are working together, it's very difficult to find errors or omissions [on a financial filing]," Moore said. "A customer is typically a check on a bank and a bank employee is a check on the customer. If these two are working together, it makes it very difficult to find any issues."
The trial is expected to last about three weeks. Moore continues her testimony today.
This is not the ruling on the wiretap admissibility, so let’s get too excited yet.
In early February, Milton McGregor and Tom Coker both filed motions to dismiss some of the charges against them. Coker wanted Count Ten dismissed, while McGregor wanted both Five and Ten dismissed. Attorneys argued that these charges—related to bribery of public officials—were duplicitous in that they lumped one or more charges of wrongdoing into a single count.
The government, in its response, concurred that the counts were duplicitous and that the proper remedy could be applied during jury instruction. The government also argued that dismissal of the charges was not supported by existing case law and urged the Court to deny the motions.
US Magistrate Judge Wallace Capel sided with the prosecution, and recommended to the District Judge that the counts should stand. District Judges rarely go against such recommendations.
McGregor, Coker and eight other defendants are scheduled to stand trial in June on charges of conspiracy, bribery, money laundering and fraud in an attempt to get legislators’ approval of a bill that would put a constitutional amendment on the ballot legalizing some forms of electronic gaming.
The Court is also expected to rule on defendants’ motion to throw out the wiretaps the prosecution is basing its case on. That’s the big one…
Jury selection and opening arguments are expected today, as former Taylor Bean & Whitaker CEO Lee Farkas goes on trial in a $2 billion bank, wire and securities fraud case. When it filed for bankruptcy in summer 2009, it was the largest non-depository mortgage lender in the United States.
The alleged scheme also took down Colonial BancGroup, which was the sixth largest bank failure in US history. At the time, TBW was Colonial’s largest customer. The mortgage company borrowed billions from Colonial and relent the money to both prime and subprime borrowers. TBW then repackaged those loans and sold them to Ginnie Mae, Fannie Mae and Freddie Mac. According to prosecutors and court documents, TBW sold the same loans twice, and on more than one occasion, three times.
In addition, TBW and Colonial execs are alleged to have carried out a seven-year, multibillion dollar check kiting scheme to hide TBW’s liquidity issues. When the banking crisis threatened the two lending giants, prosecutors allege that the two firms concocted a scheme to defraud the United States Troubled Asset Relief Program (TARP) and secure more than a half billion in bailout money for Colonial.
Court filings allege that senior Colonial BancGroup and TBW officials were in near constant communication, right up until the FBI raided offices and state banking regulators seized Colonial’s banking operation.
Five executives—three from TBW and two from Colonial—have pleaded guilty and their testimony in the case is expected to be a key part of the prosecution. Farkas himself has entertained a deal for his testimony in the ongoing fraud case, but no deal was reached and the trial is set to begin today—barring a last minute development.
Exit Question: Where will the Micromanager be, today—In court, watching an alleged co-conspirator go on trial for a scheme he was almost certainly neck deep in, or preparing his own defense against a near certain indictment?
Conservatives who also consider themselves conservationists have always held up organizations like Forever Wild and The Nature Conservancy as good examples of making environmentalists realize the economic reality of their ideological pursuits.
If you want to protect the environment for the enjoyment and benefit of future generations, then you should be prepared to suffer the economic and fiscal consequences of doing so. Buying privately held land and setting it aside forces institutionalized environmental protection programs to acquire the property at market rates. By extension, it also forces government to analyze the cost effectiveness of a contemplated purchase.
It’s not good enough to buy and set aside a tract of land just because ducks like to stop over there. They have to determine—for want of a better analogy—what the right dollars-for-ducks ratio is.
If one tract of land produces 100 ducks for a dollar, does it make sense to purchase an adjacent tract that only produces 50 ducks? How about 25? 10? At what point does the dollars-for-ducks ratio become an irrational bargain, assuming that any value for the ratio is rational?
Most Americans agree that preserving environmentally sensitive land and wetlands is a desirable activity and serves as an example of good government. Indeed, the US Fish & Wildlife’s National Wildlife Refuge program is heralded from all sides as a well conceived, well run program that promotes conservation.
But when forced to deal with the costs of that activity, the public tends to be less generous with its scarce resources. They demand cost effectiveness and tend to agree with setting aside the most productive tracts and letting the marginal to less productive tracts go to another use, such as farming, timber production, perhaps even residential development.
That is the philosophical debate currently dividing the Alabama GOP over the renewal of Alabama’s Forever Wild program. Legislation is currently making its way through the chambers of Goat Hill, but Republicans are divided over renewing the program for another 20 years. Those who are absolutely philosophically opposed to any government intervention are going to be opposed regardless of how many ducks a dollar produces.
But those who see such programs as a legitimate way of making environmentalists address the costs of their actions see Forever Wild as a useful tool to use in dragging the tree huggers back to reality.
Count me among the latter. As an avid fisherman and outdoorsman, I think preservation is a necessary function of government. But as a fiscal and economic conservative, I believe the costs of such activities must be demonstrated and rational decision-making must be a part of the process. It’s got to be transparent, and the dollars-to-ducks ratio has got to be there.
In the wake of the explosive “pay for play” segment of last Wednesday’s Real Sports with Bryant Gumbel show on HBO, gallons of ink and terabytes of bandwidth have been used to discuss the allegations that four former Auburn football players—Stanley McGlover, Troy Reddick, Raven Gray and Chaz Ramsey—were paid thousands of dollars by boosters and at least one coach.
While the stories about book bags and envelopes full of cash and $500 handshakes make for juicy opinion columns and intense debate on teh innerwebs, those allegations are not the most serious allegations aired during the show.
By far, the most toxic of the allegations came from Chaz Ramsey and Troy Reddick, and they have nothing to do with money. Both players made allegations of major academic improprieties during their tenures at the school. Also, unlike the pay-for-play allegations, more than enough documentary evidence will exist regarding academics, including transcripts, class attendance records, changes in student major and records related to any financial aid the students received outside of their athletic grants-in-aid.
I am no expert on the warehouses of information that must be maintained by colleges and universities in order to comply with NCAA, state and federal regulations. But the odds of locating the “smoking guns” to substantiate wrongdoing in academics are way better than finding receipts and financial records to document pay-for-play.
The alleged academic improprieties are of particular interest to the NCAA because such issues go straight to the heart of the principles of the organization. Nothing would enrage the Committee on Infractions more than a documented case of fraudulently manipulating student-athlete grades, forcing changes in majors, pressuring educators to maintain eligibility and failing to maintain academics as a primary focus of amateur athletics.
From the show last Wednesday:
Reddick on why he was unhappy at Auburn - and the remedy for that unhappiness
Kremer voiceover: “Reddick was growing increasingly unhappy because he says the (Auburn) coaches wanted him to change his major. Why? Because his class schedule got in the way of football practice.”
Reddick: “I changed my major, so my classes didn’t interfere no more but I didn’t bother to go because I knew I was only there to play football.”
Kremer: “So what did you do?”
Reddick: “I started complaining and insinuating that I was ready to leave any day. They had to do something about that.”
Troy Reddick played at Auburn from 2002 – 2005. During this period, the Southern Association of Colleges and Schools – SACS – placed Auburn University on academic probation, one step away from removing the school’s accreditation. The announcement was made in December 2003, which would have been at the end of Reddick’s Sophomore year of eligibility. Also during the timeframe of Reddick’s tenure at Auburn, allegations arose regarding academic improprieties in connection with the school’s Sociology Department.
The NCAA investigated, but was unable to uncover evidence that the Athletic Department was involved in the allegations of academic interference. Reddick’s statements to Kremer appear to contradict those findings.
So what, you ask? Read your handy dandy NCAA rulebook:
10.1 UNETHICAL CONDUCT Unethical conduct by a prospective or enrolled student-athlete or a current or former institutional staff member (e.g., coach, professor, tutor, teaching assistant, student manager, student trainer) may include, but is not limited to, the following: (Revised: 1/10/90, 1/9/96, 2/22/01) (a) Refusal to furnish information relevant to an investigation of a possible violation of an NCAA regulation when requested to do so by the NCAA or the individual’s institution; (b) Knowing involvement in arranging for fraudulent academic credit or false transcripts for a prospective or an enrolled student-athlete; (c) Knowing involvement in offering or providing a prospective or an enrolled student-athlete an improper inducement or extra benefit or improper financial aid; (Revised: 1/9/96) (d) Knowingly furnishing the NCAA or the individual’s institution false or misleading information concerning the individual’s involvement in or knowledge of matters relevant to a possible violation of an NCAA regulation; (e) Receipt of benefits by an institutional staff member for facilitating or arranging a meeting between a student athlete and an agent, financial advisor or a representative of an agent or advisor (e.g., “runner”); (Adopted: 1/9/96, Revised: 8/4/05) (f) Knowing involvement in providing a banned substance or impermissible supplement to student-athletes, or knowingly providing medications to student-athletes contrary to medical licensure, commonly accepted standards of care in sports medicine practice, or state and federal law. This provision shall not apply to banned substances for which the student-athlete has received a medical exception per Bylaw 31.2.3.5; however, the substance must be provided in accordance with medical licensure, commonly accepted standards of care and state or federal law; (Adopted: 8/4/05, Revised: 5/6/08) (g) Failure to provide complete and accurate information to the NCAA, the NCAA Eligibility Center or an institution’s admissions office regarding an individual’s academic record (e.g., schools attended, completion of coursework, grades and test scores); (Adopted: 4/27/06, Revised: 10/23/07) (h) Fraudulence or misconduct in connection with entrance or placement examinations; (Adopted: 4/27/06) (i) Engaging in any athletics competition under an assumed name or with intent to otherwise deceive; or (Adopted: 4/27/06) (j) Failure to provide complete and accurate information to the NCAA, the NCAA Eligibility Center or the institution’s athletics department regarding an individual’s amateur status. (Adopted: 1/8/07, Revised: 5/9/07)
The improprieties, if proven, consist of information that the school "knew or should have known" about during that investigation, and should have been given to the NCAA during the 2006 NCAA investigation into the academic improprieties discovered in the independent study scandal. That's a violation of the same "lying to or misleading investigators" bylaw that got Tennessee’s Bruce Pearl canned and will almost certainly get the scalp of Ohio State’s Tressel, too.
Of the 81 cases before the NCAA regarding violation of bylaw 10.1 since 1989, 78 of the coaches or administrators involved lost their jobs. In all 81 cases, the Committee on Infractions handed down harsh penalties and wrote absolutely scathing final reports.
While the dollar signs associated with the pay-for-play allegations are eye-popping and make for really juicy headlines, it’s the academic violations alleged by Ramsey and Reddick that will get the most NCAA scrutiny. Those are much easier to prove, they are violations that break some of the NCAA’s most fundamental principles, and they are alleged to have occurred during a timeframe when the school was expected to be honest and forthcoming with information.
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.
On March 13, 2011, this site was the first to report that Auburn University faced a lockout and a work stoppage over their failure to reach a new collective bargaining agreement, and that the work stoppage could lead to a postponement of spring practice.
A temporary agreement had been in place that allowed only the highest paid players to work out in spring drills while representatives of the two sides attempted to work out details of a plan.
The sides met last night and after an early morning breakthrough, IBCR has learned that the two sides have agreed in principle on the terms of a new deal and the full spring practice will go on.
With the early departure of QB Cam Newton and DL Nick Fairley to the NFL Draft, the players had thought enough room had been made in the team’s salary cap for a broader, more equitable sharing of department revenues among the team. However, the athletic department has cited skyrocketing legal expenses, increased lobbying fees and an expanded street agent reimbursement fund as reasons for demanding an across-the-board decrease in player compensation, sources said.
Things changed when five other players were dismissed from the squad for assault and armed robbery. The removal of these additional players eased some of the salary pressure on the administration and made negotiations somewhat easier.
Highlights of the issues at dispute were:
Player demands for higher bounty payments paid for chop blocks, facemasks, late hits and unsportsmanlike conduct calls.
Player demands for greater access to the univeristy’s crack legal team at Lightfoot Franklin & White.
The AD’s proposal to reduce the cap on incoming recruit compensation to no more than $150,000; down from last year’s top payment of $180,000.
Another AD proposal to limit the number of trips to casinos to six per semester, down from ten the previous year.
The compliance staff’s proposal to cap the player iPad, smart phone, lap top and car expenses to $1,000 per month. The players had demanded an increase to $1,750.
Specific terms of the new agreement were not available at press time. However, sources close to the negotiations confirmed that agreements on each of the five major sticking points had been reached.
Calls to the Athletic Department were met with “NO COMMENT,” even after an IBCR read a list of the issues under dispute. We did not ask to speak to Coach Gene Chizik.
Via WSFA TV in Montgomery, the Department of Justice made it official just before a hearing began this morning before US Magistrate Judge Wallace Capel. Justin Shur—one of the department’s top criminal prosecutors—is taking over the lead role in the government’s case against Milton McGregor, Ronald Gilley, lobbyist and legislators in the bingo corruption scandal. Shur replaces Peter Ainsworth, another one of DOJ’s best.
The defense is still clamoring for the wiretaps—the central body of evidence in this case—to be suppressed because the government failed to follow its own rules, broke the law and violated their clients’ constitutional rights. They claim that because some of the phone conversations overheard should not have been recorded at all, all of them should be thrown out.
At the last hearing on the matter, Judge Capel asked defense counsel if there were any precedent for doing so, and the answer was negative.
It should be noted that Capel was again quite abrupt with the government, calling their behavior “ridiculous” despite having an elite team from DC, and again threatening sanctions. At the conclusion of the hearing, he gave the government two days to show him cause why he should not dismiss the case.
The moment of peril has not passed.
Capel gave no time frame on his ruling regarding the wiretaps, but most legal analysts I’ve spoken with believe that he’ll rake the government over the coals in his opinion and let the evidence be heard by the jury. But hey… I’m not really very good at the prediction thing, so there’s that.
Exit question: Does Ainsworth take the toxic, walking dumpster fire (aka, Brenda Morris) with him?
In April 2004, Auburn University’s Men’s Basketball program was placed on a two-year probation and hit with scholarship reductions, after the NCAA Committee on Infractions found that two basketball players—Chadd Moore and Jackie Butler—had received improper benefits from a representative of the school, including cash and a car.
Though the program was cleared of the most serious charges, the program was nonetheless placed on probation and, according to the NCAA’ public report:
As required by NCAA legislation for any institution involved in a major infractions case, Auburn University is subject to the provisions of NCAA Bylaw 19.5.2.3, concerning repeat violators for a five-year period beginning on the effective date of the penalties in this case, April 27, 2004.
If the Committee on Infractions determines that a major violation has occurred within five years of the starting date of this window, the institution guilty of such conduct “shall be deemed a repeat violator and may be subject to increased penalties.”
Troy Reddick played at Auburn from 2002 through 2004. Stanley McClover played there from 2003 through 2005. Chaz Ramsey played in 2007 and 2008, with his career ended by a severe back injury. Raven Gray entered the program in 2008 but never saw playing time.
If any of these former players received improper benefits as defined by NCAA bylaws after the April 27, 2004 date cited above, then they would have done so during the period that the NCAA defines as the “repeat violator window,” and any sanctions the league imposes could be increased as a result.
While the statute of limitations has run on the McClover and Riddick allegations, the normal four year statute window includes the allegations made by Ramsey and Gray. However, here is the NCAA rule on the much-talked about statue of limitations:
32.6.3 statute of Limitations. Allegations included in a notice of allegations shall be limited to possible violations occurring not earlier than four years before the date the notice of inquiry is forwarded to the institution or the date the institution notifies (or, if earlier, should have notified) the enforcement staff of its inquiries into the matter. However, the following shall not be subject to the four-year limitation: (Revised: 10/12/94, 4/24/03)
(a) Allegations involving violations affecting the eligibility of a current student-athlete; (b) Allegations in a case in which information is developed to indicate a pattern of willful violations on the part of the institution or individual involved, which began before but continued into the four-year period; and (c) Allegations that indicate a blatant disregard for the Association’s fundamental recruiting, extra-benefit, academic or ethical-conduct regulations or that involve an effort to conceal the occurrence of the violation. In such cases, the enforcement staff shall have a one-year period after the date information concerning the matter becomes available to the NCAA to investigate and submit to the institution a notice of allegations concerning the matter.
As noted in this blog post, the academic improprieties alleged by Troy Reddick also occurred during a time in which AU was on academic probation by SACS, and which the school either “knew or should have known” about and should have provided during the NCAA’s investigation into the Sociology Dept Scandal in 2006.
This is not the ruling on the wiretap admissibility, so let’s get too excited yet. 
Conservatives who also consider themselves conservationists have always held up organizations like Forever Wild and The Nature Conservancy as good examples of making environmentalists realize the economic reality of their ideological pursuits.
In the wake of the explosive “pay for play” segment of last Wednesday’s Real Sports with Bryant Gumbel show on HBO, gallons of ink and terabytes of bandwidth have been used to discuss the allegations that four former Auburn football players—Stanley McGlover, Troy Reddick, Raven Gray and Chaz Ramsey—were paid thousands of dollars by boosters and at least one coach.
On March 13, 2011, 
In April 2004, 