With the Justice Department under scrutiny for not prosecuting many prominent players in the 2008 financial industry collapse, Criminal Division chief Lanny Breuer is trumpeting a major win against a former mortgage lending executive found guilty in a $2.9 billion fraud.
Moments after a federal jury in Alexandria, Va., on Tuesday returned a guilty verdict against Lee Farkas, the former chairman of Taylor, Bean & Whitaker Mortgage Corp., Breuer was on a conference call with reporters.
“There’s no question that it is very momentous and a very significant case,” the assistant attorney general said on the call. He characterized Taylor Bean as a “major, major player in this industry” and called Farkas ”one of the masterminds in one of the largest bank frauds in history.”
Farkas’s “shockingly brazen scheme poured fuel on the fire of the financial crisis,” Breuer added. First Assistant Dana Boente of the U.S. Attorney’s office for the Eastern District of Virginia was also on the call.
“Finally, a big fish,” read a headline in an American Bar Association publication after the verdict. “It is one of the few successful prosecutions to come out of the financial crisis,” intoned the New York Times in its report.
Breuer had made a clear how important the case was to the department: He showed up in court to watch proceedings in the 6th day of the 10-day trial. He “remained as a spectator” for most of key testimony by Taylor Bean’s former chief executive, Paul Allen, who said Farkas took funds from a unit to hide shortfalls at the lender, according to Bloomberg.
The decade-long fraud scheme led to Taylor Bean’s demise and the collapse of a top-50 U.S. bank, Colonial BancGroup Inc’s Colonial Bank, Bloomberg reported. Farkas was also accused of getting Colonial to apply for $570 million in federal funds through the Troubled Asset Relief Program, but the bailout program ultimately didn’t give the bank the money.
Prosecutors alleged that Farkas used $20 million in illicit funds from the scheme to buy a private jet, several homes and a vintage cars. Patrick Stokes, a deputy chief in the Justice Department’s Criminal Fraud Section, gave the government’s rebuttal argument, and EDVA Assistant U.S. Attorney Charles Connolly handled closing.
U.S. District Judge Leonie Brinkema ordered Farkas into federal custody immediately after the verdict, in which he was found guilty on 14 counts of conspiracy and bank, wire and securities fraud. The Associated Press called the ordering of Farkas into custody ”a relatively unusual step” before sentencing, scheduled for July 1. Farkas faces life in prison.
The jury deliberated part of Monday and Tuesday before returning its verdict.
Allen, 55, the former Taylor Bean CEO, pleaded guilty April 1 to one count of conspiracy to commit bank and wire fraud and one count of making false statements. Allen faces up to 10 years in prison. His sentencing is slated for June 21.
In all, the department won seven convictions in the case, including of Farkas.