In Taylor Bean & Whitaker Drama, Last of the Cookies Crumbles

by James Welsh on June 22, 2012

In Taylor Bean & Whitaker Drama, Last of the Cookies Crumbles It has been a grim seven days for two perpetrators of the Taylor Bean & Whitaker Mortgage Corp. scandal, which has finally ended. Now, just about everyone responsible for the $3 billion scam – which led to the collapse of both a bank and a major mortgage lending firm, and which federal prosecutors place among the biggest bank frauds in U.S. History – is behind bars, or about to be there.

Last Friday, a federal judge sentenced 41-year-old Delton de Armas, the former CFO of Taylor Bean & Whitaker, to 60 months in prison. And on Wednesday, a federal appeals court in Virginia refused to overturn any of the 14 criminal convictions against Lee Farkas, TB&W’s former chef executive, who is now serving 30 years.

But the sad legacy lingers. Personal fortunes disappeared, other defendants also went to jail, and thousands of innocent people lost their jobs because of the Taylor Bean & Whitaker debacle and the company’s 2009 collapse. Farkas and de Armas continue to insist they are innocent, and Farkas says federal prosecutors made him a scapegoat for the U.S. financial crisis.

It would take volumes to explain the intricacies of the TB&W scam, but the bare-bones story of how the Ocala, Fla. company imploded is basic. As a top-10 wholesale mortgage firm, Taylor Bean & Whitaker  reportedly closed $35 billion in residential mortgage loans in 2007 alone. It also created Ocala Funding, which obtained money for the loans made by TB&W.

That funding came from the sale of asset-backed commercial paper, which was bought by major banks including Deutsche Bank and BNP Paribas. Ocala Funding was managed by Taylor Bean & Whitaker, and had no employees of its own.

The problem came when there stopped being enough assets behind the commercial paper. That dilemma became known among Taylor Bean & Whitaker executives as the “hole.” By the time TB&W collapsed, the hole had exceeded $1.5 billion.

Prosecutors said de Armas admitted in court that he had ordered the books juggled, to increase the amounts of accounts receivable, and helped make false statements in a letter to the U.S. Department of Housing and Urban Development. Among other crimes, Farkas was convicted for triple-selling mortgage loans to Ocala Funding, Alabama-based Colonial Bank, and Freddie Mac. Colonial ultimately collapsed, along with TB&W.

Prosecutors also charged that Farkas personally looted Taylor Bean & Whitaker for $40 million, and schemed to get $533 million in relief funds from the federal Troubled Asset Relief Program. With some of the stolen money, he bought an airplane, luxury cars, and vacation homes.

As for de Armas, Assistant Attorney General Lanny Breuer said the former CFO did a great deal of damage during his nine years at TB&W. “His lies and deception contributed to the devastating losses suffered by major financial institutions,”
Breuer said.

Since the whole scheme fell apart, things have moved swiftly, and at least six successful prosecutions of TB&W conspirators have occurred.

It’s a long way from Manhattan to Ocala, Fla. But for Lee Farkas, the story appears the same as the typical tale of Wall Street greed and corruption that has been told over and over since 2007.

And while no one should diminish his crimes, Lee Farkas does have a point. Billions were lost because of the housing and financial crises, but few top executives went to jail over it. Instead, the guilty parties got bailed out and rewarded.

Read about the sentencing of Delton de Armas.

The Lee Farkas story is here.

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James Welsh is a financial writer specializing in compliance and securities fraud issues. He also authors the “Top 10” column at www.thestreetsweeper.org, and has held staff editing and writing positions at newspapers including The Times-Picayune of New Orleans and the Orange County (Calif.) Register.

Image credit: nationally syndicated political cartoonist and Editorial Cartoonist for the The Columbus Dispatch, Jeff Stahler

One comment

Why aren’t banksters being prosecuted???
Look to TBW bankruptcy Court Jacksonville Fl
Look at all the financial institutions involved and see how they have all filed suites against each other.
Look at Lending Process Services/ docc X
See how Tracey Lawtence Conviently died
The morning she was to testify in court against
LPS !!!!!!

by Sandy Smith on July 15, 2012 at 4:20 am. Reply #

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