Biggest Fraud Conviction Ever?

Jury convicts exec in $3B mortgage fraud case

Apr 19 2011 06:03PM CST

MATTHEW BARAKAT - AP Business Writer
AP Photo/Marion County Sheriff)

This photo provided by the Marion County, Fla. Sheriff's Office shows Lee Bentley Farkas. A jury on Tuesday, April 19, 2011 convicted Farkas, the majority owner of what had been one of the nation's largest mortgage companies, on all 14 counts in a $3 billion fraud trial that officials have said is one of the most significant prosecutions to arise from the nation's financial crisis.

ALEXANDRIA, Va. — A jury on Tuesday convicted the majority owner of what had been one of the nation's largest mortgage companies on all 14 counts in a $2.9 billion fraud trial that officials have said is one of the most significant prosecutions to arise from the nation's financial crisis.

Prosecutors said Lee Farkas led a fraud scheme of staggering proportions for roughly eight years as chairman of Florida-based Taylor Bean & Whitaker. The fraud not only caused the company's 2009 collapse and put its 2,000 employees out of work, but also contributed to the collapse of Alabama-based Colonial Bank, the sixth-largest bank failure in U.S. history.

The jury returned its verdict late Tuesday after more than a full day of deliberations.

Colonial and two other major banks _ Deutsche Bank and BNP Paribas _ were collectively cheated out of nearly $3 billion, prosecutors estimated. Farkas and his cohorts _ six of whom entered guilty pleas to related charges and testified against him at the two-week trial in U.S. District Court _ also tried to fraudulently obtain more than $500 million in taxpayer-funded relief from the government's bank bailout program, the Troubled Asset Relief Program (TARP).

While TARP at one point gave conditional approval to a payment of roughly $550 million, ultimately neither Taylor Bean nor Colonial received any TARP money, and investigators from that office, along with the FBI and other agencies, helped uncover the fraud.

Neil Barofsky, who recently resigned as TARP's special inspector general, has called the Farkas case "the most significant criminal prosecution to date rising out of the financial crisis."

In a conference call Tuesday evening with reporters, the Justice Department's criminal division chief, Lanny Breuer, said Farkas was "one of the masterminds in one of the largest bank frauds in history" and that his misconduct "poured fuel on the fire of the financial crisis."

"TBW was a major, major player in this industry," perhaps the second largest in the country depending on how it is measured, Breuer said.

Farkas testified in his own defense at the trial and claimed he did nothing wrong. He claimed he was unfamiliar with details or knowledge of many aspects of the various fraud schemes, testimony prosecutors derided as incredible in their closing arguments.

Farkas' lawyer, Bruce Rogow, said the six executives at Colonial and Taylor Bean who struck plea deals skewed their testimony to bolster the government's case in the hope of receiving lighter prison sentences for their cooperation. Rogow said Farkas and everyone else at Taylor Bean was working honestly and ethically to get control of its finances and perhaps could have done the job if the government hadn't essentially shut the company down when it raided company headquarters in 2009.