SEC slaps $1.5-bn fraud charges on ex-TBW chairman

The markets regulator SEC has slapped a $1.5-billion fraud charges on Lee Bentley Farkas, the former chairman and majority owner of the failed mortgage lender Taylor, Bean & Whitaker (TBW) Mortgage Corp.

"The Securities and Exchange Commission (SEC) alleges that Farkas through his company TBW sold over $1.5 billion worth of fabricated or impaired mortgage loans and securities to Colonial Bank. Those loans and securities were falsely reported to the investing public as high-quality, liquid assets," it said in a statement.

The SEC said the scheme include $1 billion in impaired residential loans and securities and $500 million in fake residential loans.

Farkas also was responsible for a bogus equity investment into Colonial Bank to misrepresent that it had satisfied a prerequisite necessary to qualify for the $700 billion bailout fund called the troubled asset relief programme (TARP) according to the SEC.

In addition, from February 2009, Farkas represented directly to Colonial BancGroup and to the investing public through a series of false press releases that TBW had secured a $300 million equity investment in Colonial BancGroup that would allow Colonial to qualify for about $550 million in TARP funds.

When Colonial Bank's parent the Colonial BancGroup said it got preliminary approval to receive $550 million in TARP funds, its stock jumped 54 per cent in the remaining two hours of trading, representing its largest one-day price increase since 1983.

"As the country's mortgage markets began to falter, Farkas arranged the sale of over $1 billion worth of mortgage loans and securities he knew to be fictitious or impaired, SEC deputy director for enforcement Lorin Reisner, said, adding "Farkas also lied about a sham equity investment he engineered to defraud US taxpayers and the TARP programme.

TBW was the largest non-depository mortgage lenders in the US but it failed to survive during the housing crisis and filed for bankruptcy in 2009.