A man labelled as the mastermind behind one of the biggest ever mortgage lender fraud schemes was jailed for 30 years last week.
The case of Lee B. Farkas, who was the chairman of the Taylor, Bean & Whitaker mortgage firm, represents the largest prosecution so far relating to the financial crisis which began in 2006, says the New York Times.
“You have shown no remorse,” said Judge Leonie Brinkema as he sentenced Mr Farkas last week in a Virginia courtroom. “Your only regret is that you were caught.”
58-year old Mr Farkas appealed to the judge that he had always “strived to do the right thing”, but this plea was rejected by the judge.
In his role as the chairman of Taylor, Bean & Whitaker, Mr Farkas was responsible for a fraudulent scheme that cheated not only investors but also the government to the tune of billions, said prosecutors. The plot also led to the failure of the Colonial Bank.
The successful prosecution of Mr Farkas has been labelled as a defining moment for law officials, but the relatively minor status of the Taylor Bean firm also reflects how much the government has struggled to carry through prosecutions of financial fraud since the crisis began in 2006.
Government prosecutors hoped to make an example of Mr Farkas and send a stark warning to those engaged in malpractice in the financial industry, asking the judge to impose the maximum 385 year sentence. At the very least, they said, Mr Farkas’s crimes warranted that he spent the rest of his life in jail.
However, Mr Farkas’ defence lawyer said that the prosecution’s request was “way over the top”, and asked for a reduced sentence, pointing out that he only did what he did because he was desperate to keep the Taylor Bean firm from going under.
“No matter how you look at it, the sentence of 30 years is still extremely harsh; it’s virtually a life sentence for my client,” said Richard L. Scheff.
The fraud scheme, which was estimated to have netted Mr Farkas more than $2.9 billion, first began back in 2002, said prosecutors. Taylor Bean was facing huge debts at that time, and so in order to hide these they massively overdrew from accounts the company had with the Colonial Bank, without letting the bank actually know. In order to disguise the overdrafts, the lender sold almost $1.5 billion in “non-existent” or “fake” mortgages. In turn, the government agreed to the fake loans to the company.
To further compound the problems, once Colonial began to struggle with their finances, Farkas convinced the bank to apply for taxpayer bailout to the tune of $550 million, a bid which was initially approved but then ultimately rejected by the Treasury Department.
Colonial finally went bankrupt in mid-2009, in what was the sixth-largest banking failure in US history. While all of this was going on, Farkas managed to divert over $40 million from Colonial and the Taylor Bean firm in order to fund his own extravagant lifestyle, said prosecutors. Farkas used the cash to buy expensive vacation homes, go on expensive holidays, build up a collection of vintage cars and even buy a private jet.
“He wanted to live like a king, but now he has to face up to justice.” said assistant attorney general Lenny Breur at the end of the trial.