Conspiracy Between Mortgage Lender Chairman, Treasurer Busted
The Securities and Exchange Commission has today filed a lawsuit against a mortgage lender treasurer in an ongoing investigation over the securities fraud that involves Bean & Whitaker Mortgage Corp. (TBW).
The initial charges were filed in June 2010 against former TBW chairman and majority owner Lee Farkas for violating the anti-fraud, reporting, books and records and internal controls provisions of the federal securities laws.
The SEC’s investigation has led to an injunctive relief, disgorgement of ill-gotten profits with prejudgment interest, and financial penalties against Farkas, with an order prohibiting him from serving in a senior management or control position at any financial institution.
Now the SEC has brought up related charges against Desiree Brown who served as treasurer of TBW, considered as the largest non-depository mortgage lender in USA.
The issue involved a $1.5 billion securities fraud scheme perpetrated by Farkas and abetted by Brown beginning March 2002 to August 2009.
The two mortgage lender officers allegedly sold “fictitious and impaired mortgage loans and securities” to Colonial Bank that resulted in a false representation to investors.
When Farkas and Brown committed the fraud, Colonial Bank was taken over by regulators while Colonial BancGroup and TBW filed for insolvency, during which the mortgage lender took advantage of Colonial Bank’s Warehouse Lending Division (MWLD) by drawing $15 million a day to finance its mortgage loan agreements.
The SEC alleged that the mortgage lender officers conspired with another officer from Colonial Bank to hide the overdraws by not entering certain debits until credits due for the following day have been entered.
Brown, Farkas and the Colonial Bank officer then submitted false loan information to Colonial Bank and made fake securities drawn from the sham loans which were represented as “high-quality assets on Colonial BancGroup’s financial statements.”
At the end of 2007, the fictitious residential loans reached $500 million while impaired residential mortgage loans and securities closed at $1 billion, the SEC said.
Additionally, Brown allegedly aided Farkas in making believe to the public that Colonial BancGroup had $300 million capital infusion committed by ghost investors to meet TARP funding requirements.
The truth was the two never had met with investors committing such infusions and that BancGroup’s stock fell 20 percent upon the announcement of the termination of its stock purchase agreement with the mortgage lender.