The US Department of Justice (DOJ) [official website] on Wednesday announced that a grand jury has indicted [press release] the former CEO of mortgage company Taylor, Bean & Whitaker (TWB) [corporate website] on charges of fraud related to the Troubled Asset Relief Program (TARP) [materials]. The indictment alleges that Lee Farkas and his co-conspirators engaged in a USD $1.9 billion complex fraud scheme that contributed to the failure of Colonial Bank [corporate website] in order to cover financial losses suffered by TWB. The scheme involved sweeping money between accounts in order to hide existing debt. The indictment also alleges that Farkas was involved in a phony equity investment in Colonial Bank, which led the company to misrepresent its assets when applying for TARP funds. Farkas has been charged with conspiracy, bank fraud, wire fraud and securities fraud. The Securities and Exchange Commission (SEC) [official website] also filed civil charges [press release] against Farkas alleging that he sold more than $1.5 billion worth of fabricated or impaired mortgage loans and securities to Colonial Bank, which misled the public as to the quality of the bank's assets. Assistant Attorney General Lanny Breuer [official website] noted the importance of the indictment stating, "This alleged fraud scheme is an example of the damaging and destabilizing impact financial crimes can have on our nation's financial institutions. Individuals and companies that violate the law in a reckless pursuit of profits must be held accountable for their crimes." In additional to facing a potentially lengthy prison sentence, the government is also seeking to recover USD $20 million that was allegedly personally misappropriated by Farkas.
The federal government continues to investigate possible cases of fraud that may have played a role in the recent financial crisis [JURIST news archive]. In April, the DOJ announced a criminal investigation [JURIST report] of Goldman, Sachs & Co. [corporate website] for possible securities fraud in mortgage trading. Also in April, the SEC filed a civil suit [JURIST report] against Goldman alleging securities fraud. Last year, two former Bear Stearns hedge fund managers were acquitted [JURIST report] of securities-related charges. The June 2008 SEC complaint [text, PDF] alleged that the managers had taken leveraged positions in financial derivatives based on subprime mortgage-based assets and then taken steps to conceal ensuing losses from investors.