The former chief financial officer of Taylor Bean and Whitaker Mortgage Corp. has admitted his role in a fraudulent scheme that brought down the former subprime lender and its bank.
Taylor Bean faced an operating deficit in 2001. So founder and chairman Lee Bentley Farkas devised a scheme to plug the hole by running overdrafts at the company’s bank Colonial Bank, the government alleges. In addition, with the help of some of Colonial’s employees, the Ocala, Fla.-based company eventually began financing mortgages through a warehouse line with Colonial even though the loans didn’t exist or were already encumbered.
Taylor Bean collapsed in 2009, while Colonial was seized that same year by the Alabama State Banking Department and sold to Branch Banking and Trust at a loss to the Federal Deposit Insurance Corp. estimated at around $3 billion.
After being convicted by a jury, Farkas was sentenced to 30 years in prison last June. In addition, six other former executives of Taylor Bean and Colonial have been handed down prison sentences.
On Tuesday, the Federal Bureau of Investigation announced that former Taylor Bean CFO Delton de Armas has pled guilty in the $2.9 billion fraud scheme.
De Armas joined the company in 2000 and learned of a “hole” at Taylor Bean subsidiary Ocala Funding. Ocala was a funding facility that secured funds for mortgage lending from the sale of asset-backed commercial paper. Buyers of the paper included Deutsche Bank and BNP Paribas.
From 2005 until 2009, he allegedly used his position as CFO to cover up the shortfall — which eventually grew to $1.5 billion. He lied to investors about the shortfall and was aware that a subordinate was providing false collateral reports to investors, Freddie Mac and Ginnie Mae.
He also helped Farkas write a fraudulent letter that contained material omissions and was sent to the Department of Housing and Urban Development. The letter indicated that delayed financial statements were the result to a compressed, 11-month fiscal year when in fact they were late due to concerns raised by auditors about the relationship between Taylor Bean and Ocala.
De Armas is scheduled for sentencing on June 15 in U.S. District Court for the Eastern District of Virginia. He faces up to a decade in prison.
