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Taylor, Bean & Whitaker Mortgage Corp.'s former finance chief admitted to helping his boss, Lee Farkas, commit what prosecutors say was one of the largest bank frauds in U.S. history.
March 20 -
A federal judge has vacated a bankruptcy-court ruling that allowed Colonial BancGroup Inc. to access millions of dollars held in a disputed account, a win for the Federal Deposit Insurance Corp., the receiver for the holding company's former subsidiary, Colonial Bank.
January 6 -
Bank of America's legal woes deepened Tuesday, as U.S. Bank filed suit over soured home-loan bonds and a flurry of investors said they might object to a high-profile mortgage-bond settlement.
August 30
Bank of America Corp. (BAC) is seeking to consolidate multiple lawsuits involving Taylor Bean & Whitaker and Colonial Bank in New York federal court, the latest fallout from a multibillion-dollar fraud that resulted in the collapse of both firms and left a number of mortgage executives in prison.
Bank of America, which is suing the Federal Deposit Insurance Corp., as the receiver of Alabama's defunct Colonial Bank, for $1.75 billion in federal court in Washington, D.C., wants the case moved to New York, where another judge is overseeing lawsuits filed by Deutsche Bank AG and a unit of BNP Paribas SA against Bank of America.
When Taylor Bean's mortgage assembly line collapsed in the summer of 2009, those involved — the banks, investors and the receiver — "pointed fingers at one another, each claiming to have been injured by conduct of others," Bank of America said in a federal court filing earlier this month.
At the center of this legal morass is Ocala Funding LLC conduit, a mortgage-financing vehicle that Taylor Bean created the 2005 to purchase its home loans, which were then bundled into securities and sold to investors such as Freddie Mac (FMCC). It funded its business by issuing short-term notes that it sold to investors.
The Ocala note investors — Deutsche Bank and the mortgage subsidiary of BNP Paribas — sued Bank of America in 2009 for breach of contract over the bank's alleged failure to secure $1.75 billion in cash and mortgage loans on their behalf. Bank of America, which served as the trustee for the notes issued by Ocala, has denied any wrongdoing.
Looking to turn the tables, Bank of America then sued the firms that arranged the sales of the notes, which happen to be BNP Paribas Securities Corp. and Deutsche Bank Securities Inc. The litigation between the bank and the investors is pending.
Meanwhile, in the Washington D.C. case, Bank of America says that the Federal Deposit Insurance Corp., as Colonial's receiver, is on the hook for the $1.75 billion in losses investors suffered when Taylor Bean and Colonial collapsed. It sued the FDIC in the fall of 2010.
The FDIC, which argued the bank didn't have the authority to sue it over losses incurred by the Taylor Bean subsidiary, countersued claiming Bank of America's actions constituted breach of contract, malfeasance, bad faith, gross negligence and willful misconduct with respect to Colonial. Further, the FDIC says Bank of America as the middleman between the Ocala unit and investors owes Colonial, and thus the FDIC, $900 million.
Given the multiple suits and the often contradictory claims involved, lawyers for Bank of America say the consolidation of the cases was warranted due to the "many overlapping legal and factual issues and the significant risk of inconsistent legal rulings." The bank wants Judge Robert W. Sweet of the U.S. District Court in Manhattan to coordinate all the pending federal court lawsuits.
Judge Barbara Jacobs Rothstein of the U.S. District Court in Washington D.C. last week put the case on hold pending a decision on Bank of America's transfer bid by judicial panel on multidistrict litigation. Representatives for the FDIC and the banks weren't immediately available for comment.
The Ocala conduit was a key element in a seven-year, multibillion-dollar fraud orchestrated by Taylor Bean founder Lee Farkas.
The scheme involved Colonial "purchasing" mortgage loans from Taylor Bean that had already been sold to other investors. In this way, Taylor Bean masked its financial problems and maintained its licenses as mortgage lender, seller and, importantly, issuer of mortgage-backed securities. Colonial, which was Taylor Bean's main lender and "co-conspirator," according to Bank of America's lawyers, provided the lender with $3 billion in mortgage financing, much of which went through Ocala.
Farkas, a Florida businessman who built Taylor Bean from a small mortgage company into the U.S.'s largest mortgage lender not owned by a bank, is serving a 30-year prison sentence for his role in the scheme. A handful of other executives from Colonial and Taylor Bean have also been sentenced to prison for their roles in the fraud.
Taylor Bean collapsed after federal regulators uncovered evidence of fraud and suspended its authority to make loans insured by the government agencies.
Colonial Bank, which had $25 billion in assets and $20 billion in deposits, was the biggest bank failure of 2009. The FDIC estimates Colonial's collapse will cost its insurance fund $3.8 billion, making it one of the most expensive bank failures in U.S. history.
The FDIC was named receiver of Colonial Bank after regulators seized the Montgomery, Ala., bank on Aug. 14, 2009, and sold its assets to BB&T Corp. (BBT). Taylor Bean filed for Chapter 11 bankruptcy protection 10 days later.
