U.S. Department of Justice

June 16, 2010

Assistant Attorney General Lanny A. Breuer Speaks at Press Conference to Announce Charges Against Lee Farkas

Good morning. My name is Lanny Breuer, and I am the Assistant Attorney General for the Criminal Division here at the Department of Justice. I am joined today by my friends and colleagues from the President’s Financial Fraud Enforcement Task Force: Neil MacBride, U.S. Attorney for the Eastern District of Virginia; Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program; Shawn Henry, Assistant Director in Charge of the FBI’s Washington Field Office; Lorin Reisner, Deputy Director of the Enforcement Division of the Securities and Exchange Commission; Kenneth Donohue, Inspector General for the Department of Housing and Urban Development; and John Davidovich, Counsel to the Inspector General of the Federal Deposit Insurance Corporation.

Last night, federal agents arrested Lee Bentley Farkas, the former chairman of Taylor, Bean & Whitaker Mortgage Corporation. He has been charged in a 16-count indictment in the Eastern District of Virginia. Court documents allege that Mr. Farkas and others carried out a massive fraud that resulted in losses of more than $1.9 billion and contributed to the failure of TBW, along with Colonial Bank, one of the 50 largest banks in the United States in 2009.

The fraud alleged here is truly stunning in its scale and complexity. In 2009, TBW was one of the largest privately held mortgage lending companies in the United States. According to the indictment, the fraud began as early as 2002 in an effort to conceal significant TBW operating losses. It then evolved over the course of seven years as Mr. Farkas and his co-conspirators sought to misappropriate hundreds of millions of dollars from Colonial Bank and Ocala Funding, a mortgage lending facility that was controlled by TBW and financed by large banks.

According to the indictment, Mr. Farkas and his co-conspirators sold Colonial Bank more than $400 million in what amounted to fake mortgage assets. They also allegedly hid hundreds of millions of dollars worth of mortgage loans that were losing value or had no value from regulators, auditors, and others in fraudulent transactions designed to give the false appearance that the loans were being sold into the secondary mortgage market when, in fact, they were not. The indictment also alleges that Mr. Farkas and his TBW co-conspirators diverted approximately $1.5 billion from Ocala Funding in order to cover TBW’s mounting losses.

In late 2008, as TBW’s operating losses continued to grow, Mr. Farkas and his co-conspirators, through Colonial BancGroup, allegedly attempted to secure additional funding through the TARP program. That application included materially false information, and no TARP funds were released.

Mr. Farkas and his co-conspirators allegedly went to great lengths to conceal their fraudulent activity and create the appearance that TBW was operating as a legitimate business. In reality, Mr. Farkas and his co-conspirators were allegedly stealing massive amounts of money to keep TBW afloat.

This arrest and these charges send a strong message to corporations and corporate executives alike that financial fraud will be found, and it will be prosecuted. And it will be pursued using every investigative tool at our disposal. Indeed, this investigation benefited from the use of covert techniques – a tactic that has been seen in other recent white collar criminal prosecutions and one that will continue to be employed wherever feasible and appropriate. Through the Financial Fraud Enforcement Task Force, the federal government is as coordinated in the fight against financial fraud as it has ever been. The Department of Justice and our law enforcement partners will continue to act vigilantly, quickly, and aggressively in order to ensure that boardroom and back office fraudsters alike are brought to justice.

I would like to thank the dedicated attorneys in the Criminal Division’s Fraud Section and the U.S. Attorney’s Office in the Eastern District of Virginia, SIGTARP, the FBI, the HUD Office of Inspector General, the FDIC Office of Inspector General and the IRS for their incredible work on this case. I would also like to thank the SEC, which has conducted a parallel civil investigation and is also a trusted partner on the Financial Fraud Enforcement Task Force.

I will now turn it over to U.S. Attorney Neil MacBride for the Eastern District of Virginia.

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GENERAL INFORMATION
Financial Fraud Enforcement Task Force

 Leadership
Eric Holder, Attorney General, Chair
 
 Contact
(202) 514-2000
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What is Financial Fraud?
What is Financial Fraud?

Financial Fraud encompasses a wide range of illegal behavior - from mortgage scams to Ponzi schemes, credit card theft to tax fraud. Everyone is affected by financial fraud.