WASHINGTON — A grand jury has indicted the former chief executive of what was once among the nation's largest independent home-loan providers on 16 counts of fraud.
In documents filed in federal district court in Virginia, prosecutors said Lee Bentley Farkas, the one-time chief executive of Taylor, Bean & Whitaker Mortgage Corp. caused more than $1.9 billion in losses through a scam that started as early as 2002.
Prosecutors said Taylor, Bean Whitaker and Colonial BancGroup Inc. engaged in a complex scheme to move money between accounts to disguise shortfalls. "The day after sweeping funds, the conspirators would cause the money to be returned to the other account, only to have to sweep funds back into the master account later that day to hide the deficit again," a court filing said.
Prosecutors also said Farkas and several unnamed co-conspirators sold more than $400 million in fake mortgage assets and hid hundreds of millions in troubled loans from regulators, creating the appearance of sales that never took place.
Further, the court filing said Farkas and his co-conspirators tried to access government bailout funds by acquiring a major stake in Colonial BancGroup to get at $500 million in taxpayer money.
"The fraud alleged here was truly stunning in its scale and complexity," Assistant Attorney General Lanny Breuer, who oversees the Justice Department's criminal division, said Wednesday.
Neil Barofsky, a special inspector general overseeing the government's Troubled Asset Relief Program, added that "the scheme described is unprecedented in scope."
The Securities and Exchange Commission on Wednesday filed separate civil charges against Farkas, alleging he sold more than $1.5 billion in fabricated or impaired mortgage loans and securities to Colonial Bank.
"Farkas also was responsible for a bogus equity investment that caused Colonial Bank to misrepresent that it had satisfied a prerequisite necessary to qualify for TARP funds," the SEC said in a statement, referring to an acronym for the government's bailout.
Colonial BancGroup ultimately never received funding from that program.
Taylor, Bean & Whitaker was forced to stop making loans in 2009 after an independent audit raised fraud concerns. The company filed for Chapter 11 bankruptcy in 2009.
Taylor Bean, which made loans through thousands of mortgage brokers and bought others from small local banks across the country, was one of the last major U.S. mortgage lenders not owned by a major commercial bank.