The Farkas trial so far: Who misled whom?
The trial is expected to last the rest of the month
By Suevon Lee
Staff writer
ALEXANDRIA, Va. — Lee Farkas took a small mortgage company and near single-handedly built it into a national giant that funded billions of dollars in residential mortgages. But prosecutors say he relied on others — well-positioned officials at his company and its main banking partner — to help implement what the government calls a $1.9 billion scheme that brought down both institutions in 2009.
As the first week of Farkas’ bank, wire and securities fraud trial wound down last week in federal court, the co-dependent relationships between Taylor, Bean & Whitaker Mortgage Corp.’s former chairman and his associates were laid bare for a jury.
At best, these connections could yield generous perks for friends of Farkas: a $200,000 loan, no questions asked; a $300,000 salary advance; a company-funded personal housekeeper.
At worst, the relationships allowed troubling behavior to continue and led to anxiety and mounting pressure.
Raymond Bowman, Taylor Bean’s former president, spoke to the latter dynamic during his testimony on Tuesday. He recalled the day when stress over Taylor Bean’s “Plan B” scheme, in which fake mortgage loan data allegedly was submitted to Colonial Bank, led him to abruptly quit.
But his resolve wasn’t strong enough: He said Farkas paid a visit to his home that evening in late 2008. Bowman told his boss, “I can’t do this anymore. This is driving me crazy.”
Farkas’ response to his lieutenant, a former bond trader at SunTrust Bank in Atlanta, was that Taylor Bean’s dealings with Colonial were not Bowman’s problem; it was “his issue.”
Thus continued Bowman’s employment at Taylor Bean. He was paid $440,000 a year; his ill mother was supplied with a private nurse; and he had part-ownership in a fine-dining restaurant partnership in Ocala, among other perks.
ALEXANDRIA, Va. — Lee Farkas took a small mortgage company and near single-handedly built it into a national giant that funded billions of dollars in residential mortgages. But prosecutors say he relied on others — well-positioned officials at his company and its main banking partner — to help implement what the government calls a $1.9 billion scheme that brought down both institutions in 2009.
As the first week of Farkas’ bank, wire and securities fraud trial wound down last week in federal court, the co-dependent relationships between Taylor, Bean & Whitaker Mortgage Corp.’s former chairman and his associates were laid bare for a jury.
At best, these connections could yield generous perks for friends of Farkas: a $200,000 loan, no questions asked; a $300,000 salary advance; a company-funded personal housekeeper.
At worst, the relationships allowed troubling behavior to continue and led to anxiety and mounting pressure.
Raymond Bowman, Taylor Bean’s former president, spoke to the latter dynamic during his testimony on Tuesday. He recalled the day when stress over Taylor Bean’s “Plan B” scheme, in which fake mortgage loan data allegedly was submitted to Colonial Bank, led him to abruptly quit.
But his resolve wasn’t strong enough: He said Farkas paid a visit to his home that evening in late 2008. Bowman told his boss, “I can’t do this anymore. This is driving me crazy.”
Farkas’ response to his lieutenant, a former bond trader at SunTrust Bank in Atlanta, was that Taylor Bean’s dealings with Colonial were not Bowman’s problem; it was “his issue.”
Thus continued Bowman’s employment at Taylor Bean. He was paid $440,000 a year; his ill mother was supplied with a private nurse; and he had part-ownership in a fine-dining restaurant partnership in Ocala, among other perks.
That Farkas, 58, managed to coax those around him to participate in the alleged scheme is testament to the firm influence he exerted on others.
Then again, the defense has suggested that the unhealthy relationships worked the other way, with Farkas being ill served and ill informed by those around him.
The government says the enterprise led Colonial BancGroup Inc. to report nearly $500 million in worthless assets, stripped $1.5 billion from Taylor Bean financing vehicle Ocala Funding LLC, and put $553 million of federal bailout funds at stake.
Bowman and five other senior-level executives at Taylor Bean and Colonial already have pleaded guilty to various charges ranging from conspiracy to commit bank, wire and securities fraud to lying to federal agents. Their testimony, to continue this week as former Taylor Bean treasurer Desiree Brown and CEO Paul R. Allen take the stand, is in exchange for a possible lesser sentence when they appear back in court in June before U.S. District Judge Leonie M. Brinkema.
Farkas himself is charged in a 14-count indictment for allegedly masterminding a scheme that spanned eight years and, according to prosecutors, began as a way to hide overdrafts in Taylor Bean’s master bank account at Colonial. Taylor Bean grew at a breakneck pace but began experiencing cash flow problems in 2002, as Fannie Mae withdrew its business over suspicious loans.
The Farkas trial so far: Who misled whom?
The trial is expected to last the rest of the month
ALEXANDRIA, Va. — Lee Farkas took a small mortgage company and near single-handedly built it into a national giant that funded billions of dollars in residential mortgages. But prosecutors say he relied on others — well-positioned officials at his company and its main banking partner — to help implement what the government calls a $1.9 billion scheme that brought down both institutions in 2009.
As the first week of Farkas’ bank, wire and securities fraud trial wound down last week in federal court, the co-dependent relationships between Taylor, Bean & Whitaker Mortgage Corp.’s former chairman and his associates were laid bare for a jury.
At best, these connections could yield generous perks for friends of Farkas: a $200,000 loan, no questions asked; a $300,000 salary advance; a company-funded personal housekeeper.
At worst, the relationships allowed troubling behavior to continue and led to anxiety and mounting pressure.
Raymond Bowman, Taylor Bean’s former president, spoke to the latter dynamic during his testimony on Tuesday. He recalled the day when stress over Taylor Bean’s “Plan B” scheme, in which fake mortgage loan data allegedly was submitted to Colonial Bank, led him to abruptly quit.
But his resolve wasn’t strong enough: He said Farkas paid a visit to his home that evening in late 2008. Bowman told his boss, “I can’t do this anymore. This is driving me crazy.”
Farkas’ response to his lieutenant, a former bond trader at SunTrust Bank in Atlanta, was that Taylor Bean’s dealings with Colonial were not Bowman’s problem; it was “his issue.”
Thus continued Bowman’s employment at Taylor Bean. He was paid $440,000 a year; his ill mother was supplied with a private nurse; and he had part-ownership in a fine-dining restaurant partnership in Ocala, among other perks.
That Farkas, 58, managed to coax those around him to participate in the alleged scheme is testament to the firm influence he exerted on others.
Then again, the defense has suggested that the unhealthy relationships worked the other way, with Farkas being ill served and ill informed by those around him.
■ ■ ■
The government says the enterprise led Colonial BancGroup Inc. to report nearly $500 million in worthless assets, stripped $1.5 billion from Taylor Bean financing vehicle Ocala Funding LLC, and put $553 million of federal bailout funds at stake.
Bowman and five other senior-level executives at Taylor Bean and Colonial already have pleaded guilty to various charges ranging from conspiracy to commit bank, wire and securities fraud to lying to federal agents. Their testimony, to continue this week as former Taylor Bean treasurer Desiree Brown and CEO Paul R. Allen take the stand, is in exchange for a possible lesser sentence when they appear back in court in June before U.S. District Judge Leonie M. Brinkema.
Farkas himself is charged in a 14-count indictment for allegedly masterminding a scheme that spanned eight years and, according to prosecutors, began as a way to hide overdrafts in Taylor Bean’s master bank account at Colonial. Taylor Bean grew at a breakneck pace but began experiencing cash flow problems in 2002, as Fannie Mae withdrew its business over suspicious loans.
Cathie Kissick, a former senior vice president at Colonial who was head of its Orlando-based Mortgage Warehouse Lending Division, testified Thursday that she was “in too deep” by the time the alleged scheme reached its staggering proportions and led to the sixth-largest bank collapse in U.S. history.
In late 2003, her role of “sweeping” in funds overnight from one account to another evolved into what is known as Plan B. Kissick and her deputy, Teresa Kelly, enabled Taylor Bean to sell false mortgage loans to Colonial that were worthless because they had already been sold to other investors.
“It would start with a phone call (from Farkas),” Kelly, 35, testified Tuesday. “Me and Cathie would normally resist and see if Taylor Bean could cover its shortages elsewhere.”
By that time, Bowman had testified, it was already too late for Kissick: Plan B was the alternative to Taylor Bean shutting its operations, laying off all its staff, and Kissick going to jail for helping sweep overnight funds into Taylor Bean’s master account and hiding it from superiors.
As prosecutor Patrick Stokes put it in his opening statement, “They (Kissick and Kelly) thought he’d be able to turn the tide and turn his business around.”
At the outset of Plan B, Bowman said he told his boss the arrangement was “not acceptable,” as much as Farkas assured him he could reverse the deficit and pay it all back. By the time 2004 rolled around, and the hole was quickly approaching $300 million, he wrote in an email to Farkas, “When is it going to stop? This is incredibly serious, Lee.”
Farkas, said Bowman, replied with the following words: “If you owe someone $100, you have a problem. If you owe them $1 million, they have a problem.”
ALEXANDRIA, Va. — Lee Farkas took a small mortgage company and near single-handedly built it into a national giant that funded billions of dollars in residential mortgages. But prosecutors say he relied on others — well-positioned officials at his company and its main banking partner — to help implement what the government calls a $1.9 billion scheme that brought down both institutions in 2009.
As the first week of Farkas’ bank, wire and securities fraud trial wound down last week in federal court, the co-dependent relationships between Taylor, Bean & Whitaker Mortgage Corp.’s former chairman and his associates were laid bare for a jury.
At best, these connections could yield generous perks for friends of Farkas: a $200,000 loan, no questions asked; a $300,000 salary advance; a company-funded personal housekeeper.
At worst, the relationships allowed troubling behavior to continue and led to anxiety and mounting pressure.
Raymond Bowman, Taylor Bean’s former president, spoke to the latter dynamic during his testimony on Tuesday. He recalled the day when stress over Taylor Bean’s “Plan B” scheme, in which fake mortgage loan data allegedly was submitted to Colonial Bank, led him to abruptly quit.
But his resolve wasn’t strong enough: He said Farkas paid a visit to his home that evening in late 2008. Bowman told his boss, “I can’t do this anymore. This is driving me crazy.”
Farkas’ response to his lieutenant, a former bond trader at SunTrust Bank in Atlanta, was that Taylor Bean’s dealings with Colonial were not Bowman’s problem; it was “his issue.”
Thus continued Bowman’s employment at Taylor Bean. He was paid $440,000 a year; his ill mother was supplied with a private nurse; and he had part-ownership in a fine-dining restaurant partnership in Ocala, among other perks.
That Farkas, 58, managed to coax those around him to participate in the alleged scheme is testament to the firm influence he exerted on others.
Then again, the defense has suggested that the unhealthy relationships worked the other way, with Farkas being ill served and ill informed by those around him.
■ ■ ■
The government says the enterprise led Colonial BancGroup Inc. to report nearly $500 million in worthless assets, stripped $1.5 billion from Taylor Bean financing vehicle Ocala Funding LLC, and put $553 million of federal bailout funds at stake.
Bowman and five other senior-level executives at Taylor Bean and Colonial already have pleaded guilty to various charges ranging from conspiracy to commit bank, wire and securities fraud to lying to federal agents. Their testimony, to continue this week as former Taylor Bean treasurer Desiree Brown and CEO Paul R. Allen take the stand, is in exchange for a possible lesser sentence when they appear back in court in June before U.S. District Judge Leonie M. Brinkema.
Farkas himself is charged in a 14-count indictment for allegedly masterminding a scheme that spanned eight years and, according to prosecutors, began as a way to hide overdrafts in Taylor Bean’s master bank account at Colonial. Taylor Bean grew at a breakneck pace but began experiencing cash flow problems in 2002, as Fannie Mae withdrew its business over suspicious loans.
Cathie Kissick, a former senior vice president at Colonial who was head of its Orlando-based Mortgage Warehouse Lending Division, testified Thursday that she was “in too deep” by the time the alleged scheme reached its staggering proportions and led to the sixth-largest bank collapse in U.S. history.
In late 2003, her role of “sweeping” in funds overnight from one account to another evolved into what is known as Plan B. Kissick and her deputy, Teresa Kelly, enabled Taylor Bean to sell false mortgage loans to Colonial that were worthless because they had already been sold to other investors.
“It would start with a phone call (from Farkas),” Kelly, 35, testified Tuesday. “Me and Cathie would normally resist and see if Taylor Bean could cover its shortages elsewhere.”
By that time, Bowman had testified, it was already too late for Kissick: Plan B was the alternative to Taylor Bean shutting its operations, laying off all its staff, and Kissick going to jail for helping sweep overnight funds into Taylor Bean’s master account and hiding it from superiors.
As prosecutor Patrick Stokes put it in his opening statement, “They (Kissick and Kelly) thought he’d be able to turn the tide and turn his business around.”
At the outset of Plan B, Bowman said he told his boss the arrangement was “not acceptable,” as much as Farkas assured him he could reverse the deficit and pay it all back. By the time 2004 rolled around, and the hole was quickly approaching $300 million, he wrote in an email to Farkas, “When is it going to stop? This is incredibly serious, Lee.”
Farkas, said Bowman, replied with the following words: “If you owe someone $100, you have a problem. If you owe them $1 million, they have a problem.”
It was this kind of rationale that peppered the flavor of a long string of emails exchanged between Farkas and other executives at Taylor Bean and Colonial throughout an eight-year period. The jury read many of them last week.
Kelly, an operations supervisor at Colonial’s Mortgage Warehouse Lending Division, testified that in June 2004, she sent Farkas an email inquiring about four suspicions loans that were missing mortgages — loans that were later dubbed as “Friend of Lee loans.”
Farkas wrote back in an email, “Those are mine, too. Darn, I will find the stuff you need.”
This promise of digging out of a hole, however small or large, became a familiar refrain to people like Bowman. He told the jury about the day federal agents came to raid Taylor Bean’s $21 million Ocala headquarters. Bowman, who was on the phone, was told to hang up and was escorted into the boardroom, where his boss was already waiting.
Taylor Bean’s former president said he quickly proposed to Farkas they provide, right then and there, a full explanation to the FBI.
“That’s not gonna happen,” he said Farkas told him. “We’re gonna work (our way) out of this.” The date was Aug. 3, 2009, more than seven years after prosecutors allege Taylor Bean first began trying to claw its way out of a cash flow hole. It was also three weeks before Taylor Bean would declare bankruptcy.
■ ■ ■
Farkas’ defense lawyers say the notion of Farkas misleading his associates is all wrong. To the contrary: They say he relied on the counsel of those around him and was misled into thinking his company was healthy.
Then, in August 2009, federal regulators swooped in and put the Ocala mortgage company, as one of the lawyers put it, “in a death spiral.”
“Mr. Farkas was not involved personally in any of these transactions,” defense attorney Craig Kuglar told the jury in his opening statement last week.
With more than half of the government’s witnesses left to testify and the defense still to present its side, that remains to be seen. Farkas’ trial is expected to last the rest of the month
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