TBW Taylor Bean Chairman Arrested On Fraud Charges

“The fraud here is truly stunning in its scale and complexity,” said Lanny A. Breuer, assistant attorney general in the criminal division of the Department of Justice. “These charges send a strong message to corporations and corporate executives alike that financial fraud will be found, and it will be prosecuted.”

Once they determined that that approach might be difficult to conceal, they started selling mortgage pools and other assets to Colonial Bank that they knew to be worthless, officials said. Mr. Farkas and his partners relied on this technique to sell more than $1 billion of fraudulent assets over the course of several years, even covering up the fraud by recycling old fake assets for new ones, according to the complaints.

Editor’s Note: TBW has been high on my list of incompetent fraudsters. I always thought it was a stupid risk to “sell” mortgages and “sell” the servicing rights (probably to their own entity), and then take the servicing back. Stupid maybe, but they had no choice. The entire Taylor Bean operation wreaks of fraud and inconsistencies.

Bottom Line: If you have a TBW as the originating “lender” this article indicates, as we have known all along, that they were using OPM (Other People’s Money) and they were NOT the lender even though they said they were. It is highly likely that few, if any, of the loans were actually “securitized” because the loans were either nonexistent as described, never accepted by any pool (even though there might be a pool out there that claims ownership) and that none of the assignments were ever completed.

Thus your claims against TBW (including appraisal fraud, predatory loan practices, deceptive loan practices, fraud etc.) are properly directed, to wit: TBW still owns the paper, although the obligation is subject to an equitable unsecured claim from investors who funded the loan.

June 16, 2010

Executive Charged in TARP Scheme


Federal prosecutors on Wednesday accused the former chairman of Taylor, Bean & Whitaker, once one of the nation’s largest mortgage lenders, of masterminding a fraud scheme that cheated investors and the federal government out of billions of dollars and led to last year’s sudden failure of Colonial Bank.

The executive, Lee B. Farkas, was arrested late Tuesday in Ocala, Fla., after a federal grand jury in Virginia indicted him on 16 counts of conspiracy, bank fraud, wire fraud and securities fraud. Separately, the Securities and Exchange Commission brought civil fraud charges against Mr. Farkas in a lawsuit filed on Wednesday.

Prosecutors said the fraud would be one of the biggest and most complex to come out of the housing collapse and the government’s huge bailout of the banking industry. In essence, they described an elaborate shell game that involved covering up the lender’s losses by creating fake mortgages and passing them along to private investors and government agencies.

Federal officials became suspicious after Colonial BancGroup, the main source of financing for Mr. Farkas’s company, tried to obtain $553 million in bailout money from the Troubled Asset Relief Program. The TARP application, filed in early 2009, was contingent on the bank first raising $300 million from private investors.

According to the S.E.C. complaint, Mr. Farkas and his partners said they would contribute $150 million, two private equity firms would each contribute $50 million, and a “friends and family” investor group would contribute another $50 million. “In truth, neither of the $50 million investors were private equity investors and neither ever agreed to participate,” the complaint said.

Mr. Farkas pocketed at least $20 million from the fraud, which he used to finance a private jet and a lavish lifestyle that included five homes and a collection of vintage cars, prosecutors said.

But the case is likely to expand beyond Mr. Farkas. The complaints cite the involvement of an unnamed Colonial Bank executive and other co-conspirators in the suspected fraud, and prosecutors said they might hold others accountable down the road.

“The fraud here is truly stunning in its scale and complexity,” said Lanny A. Breuer, assistant attorney general in the criminal division of the Department of Justice. “These charges send a strong message to corporations and corporate executives alike that financial fraud will be found, and it will be prosecuted.”

Officials said the many layers of the scheme resulted in more than $1.9 billion of losses to investors; a $3 billion loss to the Department of Housing and Urban Development, which guaranteed many of the loans that Mr. Farkas’s company sold; and a $3.6 billion hit to the Federal Deposit Insurance Corporation, which had to take over Colonial Bank and pay its depositors after many of the bank’s assets were found to be worthless.

The complaints also list BNP Paribas and Deutsche Bank, which provided financing to Mr. Farkas’s company, as victims of the suspected fraud. Together, they lost $1.5 billion.

According to the complaints, the fraud started as early as 2002 with an effort to conceal rising operating losses at Taylor, Bean & Whitaker, a mortgage lender founded by Mr. Farkas. The first stage involved an attempt to hide overdrafts on a credit line the company had with Colonial Bank. As those overdrafts grew, prosecutors contend, Mr. Farkas and his associates started selling fake mortgage assets to Colonial Bank in exchange for tens of millions of dollars.

Once they determined that that approach might be difficult to conceal, they started selling mortgage pools and other assets to Colonial Bank that they knew to be worthless, officials said. Mr. Farkas and his partners relied on this technique to sell more than $1 billion of fraudulent assets over the course of several years, even covering up the fraud by recycling old fake assets for new ones, according to the complaints.

The transactions were “designed to give the false appearance that the loans were being sold into the secondary mortgage market,” Mr. Breuer said. “In fact, they were not.”

By 2008, prosecutors contend, the scheme had entangled the federal government. Investigators in the Office of the Special Inspector General for TARP took notice of the size of Colonial Bank’s bailout application and became suspicious of the accuracy of the bank’s statements.

That led investigators to alert other federal officials and draw a connection between Colonial Bank and Taylor, Bean & Whitaker, whose offices were raided by federal agents in August 2009. Both companies would soon stop operating.

“We knew it was a longstanding and close relationship between Colonial and T.B.W., and we decided that we needed to take a much closer look,” Neil M. Barofsky, the TARP special inspector general, said at a news conference on Wednesday. Investigators also discussed the situation with Treasury officials to “make sure the money would not go out the door.”

Federal officials have conducted nearly 80 criminal and civil investigations into companies that accepted TARP money, but so far they have filed charges in only one other case. In March, the head of Park Avenue Bank in Manhattan was accused of trying to defraud the government bailout program.

July, 2007: Livinglies describes and predicts the meltdown

History shows that the descriptions and predictions in this piece I wrote 1 1/2 years ago were unfortunately on target. What I didn’t realize at the time, was that many if not most of the money was at that time going for “refi’s” that homeowners did not solicit or want. There was a knock on the door in some reverse red lined neighborhood, and some nice looking person introduced themselves as a Representative of First National Bank on the Corner.

As a new bank in the neighborhood (created by some investment banker on Wall Street, but of course that wasn’t disclosed) they had a brand new program just for that neighborhood. The house was paid for and had been in the house for generations. Six months later these victims found that the papers they signed, the assurances they received of another refi that would remove the reverse amortization, adjustable features, were all fraudulent and now they were facing foreclosure and eviction. These scenarios played out millions of times over and have created the New American Tragedy. 


7-13-07 Amazing. Where is the outrage? Here is how this works. In effect a tacit conspiracy between builders of new construction housing in tract developments, mortgage brokers, and investment bankers are turning ordinary people into sub prime borrowers, canceling out a lifetime of gains and rewards that normal people have worked for according to the rules.

The syndicate lures people first into trusting them and then into making purchase and investment decisions that are nothing short of catastrophic and the syndicate knows it will be catastrophic — but not for members of the syndicate. A buyer/borrower is lured into a home too much for their finances — only they don’t get to find that out until long after the the purchase/investment decision is made. The appearance is that these people had all the time in the world to figure all this out and get the right advice, and so it is their own fault if they get into a financial mess.

The reality is far different than the appearance, but political views, policies and perceptions are based upon the appearance rather than the reality.

The pitch is “no problem” — we will give it to you for less money per month than you pay now. Of course when they get to closing they find out that the TOTAL carrying costs on the new house are higher than what they were paying but they are too excited to give that much thought.

Of course the homes are all new homes that give the buyer fewer “amenities” than ever before thus requiring the new buyer to spend more money than he/she ever spent before on furnishings for their house, some of which, like window treatments, are mandated by the rules of the association that the developer wrote.

So after the buyer is totally broke and already behind the 8 ball, suddenly the thing he and the little woman had pushed under the rug, raises its ugly head —- the partially reversible, adjustable, no “fee” mortgage loan payments just went through the roof far beyond any ability they have to pay it, and now even beyond the ability to take it out of savings, that are now completely gone. In fact, these buyers are now maxxed out on their credit cards as well and falling behind on those payments.

Thus people deplete everything they have, run their credit rating into the ground, and are now red meat for the predators who started all this — the tacit syndicate composed of developers, mortgage “brokers”, and investment bankers. They never lose money. The people who lose money are the little people (the bread of the sandwich). On one end is the borrower/buyer and on the other is quite possibly the same person who has purchased the mortgaged -backed securities his broker touted to him. The appearance of wealth is what propels the buyer/borrowers and investors who buy the securities.

The lack of risk and accountability is what propels the syndicate. The government does nothing because under the Peter principale if you can get one of these cycles going, you will be long gone and in some other elective office when the shit hits the fan. In fact, a clever politician will tell you that when he was in power, the economy was much better — and when his opponent came in, everything went to hell in a hand basket.

So now the poor schlep is out of money, and can’t keep his home. No problem.

The mortgagee will refinance and make things easier on you, but there is the matter of certain fees, an even deeper reverse amortization that effectively transfers ownership of your home to the lender, and oh yes, your credit rating dropped by 200 points so your interest rate instead of “adjusting 2% is now up 5%. Before long, the second round starts, and the buyer/borrower has to sell the home with most of the furnishings etc he/she bought at a price that is a fraction of what they paid, to people, who have real money — because these perks on not so available on resales as they are on new construction.

Of course it is has been a while since the original buyer/borrower has called that broker who touted and pressed him into selling some conservative investment and buying these mortgage backed securities — but that broker has since quit the business and now works for his uncle selling aluminum siding or has moved onto another city and another brokerage house. They finally determine that the securities they bought and that were so good have been “down-graded” from a “BUY” to a “SELL” at any price — because the mortgages that backed those securities were comprised mostly of mortgages just like the one that got you into trouble in the first place.

All the exits are now closed and the the good hard-working people who played by the rules and were deceived by their trust in people who were out to take them down now find themselves near the poverty line when before this they were up and coming. It is the American Tragedy of the early 21st century. It will continue until as a society we insist on the REAL facts, and people in whom we repose our confidence are accountable for their actions.

When those people act in their own interests and contrary to the public interest they should lose their license to work, just like any doctor, lawyer, accountant, engineer or other licensed profession. Instead, there is a wink and and and the game goes on. It isn’t market forces that are driving this pattern, it is raw political power and greed disproportionately distributed, maintained and enforced by the government that was formed to protect people from exactly this sort of thing.

Foreclosure Defense and Offense: Procurations

OK, I admit it, I didn’t know what it was either. But someone of higher linguistic ability than me referred to it as though I knew what it was. So I looked it up and sure enough it not only was appropriately used by him, it is the BEST word to describe the relationship between the various people and entities that created this mess (Now it is part of the glossary):


The act by which one person gives power to another to act in his place, as he could do himself. A letter of attorney. 2. Procurations are either express or implied; an express procuration is one made by the express consent of the parties; the implied or tacit takes place when an individual sees another managing his affairs, and does not interfere to prevent it.  [The significance of this in the mortgage meltdown is the tacit agreement between the title company/trustee, the mortgage broker, appraiser, “lender”, mortgage originator, mortgage aggregator, CDO Manager, SPV and Investment bank in committing fraud, violating TILA, violating usury laws, etc.]

  • Procurations are also divided into those which contain absolute power, or a general authority, and those which give only a limited power. The procurations are ended in three ways first, by the revocation of the authority; secondly, by the death of one of the parties; thirdly, by the renunciation of the mandatory, when it is made in proper time and place, and it can be done without injury to the person who gave it. [In the mortgage meltdown environment, no party has ever rescinded or denounced the behavior of any of the other parties because they have sought to vainly to claim plausible deniability. If they renounce or claim an end to the procurations, they are admitting to the existence of the tacit agreements which gave rise to the fraud on borrowers and fraud on investors.]

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