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Taylor, Bean & Whitaker

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Taylor, Bean & Whitaker Mortgage Corp.
Company typePrivate
IndustryFinance and Mortgage
Founded1982
DefunctAugust 5, 2009
FateBankruptcy
HeadquartersOcala, Florida
Key people
  • Lee Farkas, Chairman
  • Paul R. Allen, CEO
  • Ray Bowman, President
  • Stuart Scott, COO
ProductsMortgages
WebsiteArchived January 1, 2009, at the Wayback Machine

Taylor, Bean & Whitaker was a top-10 wholesale mortgage lending firm in the United States, the fifth-largest issuer of Government National Mortgage Association (GNMA or Ginnie Mae) securities. Their slogan was "Perfecting the Art of Mortgage Lending".

On August 5, 2009, following a raid by the Special Inspector General of the Troubled Asset Relief Program (SIGTARP) and suspension by the Federal Housing Administration from issuing FHA mortgage loans and Ginnie Mae mortgage-backed securities, it ceased business operations. In April 2011, its majority owner was convicted of 14 counts of securities, bank, and wire fraud and conspiracy to commit fraud, and sentenced to 30 years in federal prison.

Deutsche Bank and BNP Paribas have sued Bank of America, the trustee and collateral agent of Taylor Bean's Ocala subsidiary, for over $1.75 billion in losses stemming from the subsidiary's fraud.

History

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Taylor, Bean & Whitaker closed $35 billion in residential mortgage loans in 2007. It employed about 2,000 workers, and was the fifth-largest issuer of Ginnie Mae securities.[1] By 2009, it was servicing more than 500,000 mortgages, including $51.2 billion of Freddie Mac loans.[2]

SIGTARP raid, suspension, and closure

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On August 3, 2009, SIGTARP special agents raided the company's headquarters in Ocala, Florida, in connection with an investigation related to the company's acquisition of a majority stake in Colonial BancGroup, once one of the 25 biggest depository banks in the U.S.[3] Taylor, Bean & Whitaker had signed a deal on March 31, 2009, to become the majority owner of Colonial BancGroup in a $300 million equity stake. On August 4, 2009, the Federal Housing Administration (FHA) suspended the company from issuing FHA mortgage loans and Ginnie Mae mortgage-backed securities.[4][5]

On August 5, 2009, Taylor, Bean & Whitaker ceased business operations, and terminated all of its approximately 2,000 employees at its headquarters.[6] The company filed for bankruptcy protection on August 24, 2009.[2][7]

This came soon after the Alabama State Banking Department, as Colonial Bank's regulator, seized the bank and appointed the FDIC as a receiver.[7]

Both companies were brought down by a fraud that started in 2002 involving individuals at both Colonial Bank and Taylor, Bean & Whitaker.[8]

Taylor, Bean & Whitaker collapse and bankruptcy

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After the termination of its 2,000 employees, the entire board of directors of Taylor, Bean & Whitaker resigned. In their stead, two newly appointed independent directors, Bill Maloney and Bruce Layman, operated the company with Neil Luria of Navigant Capital Advisors, who was appointed chief restructuring officer of the company. The Office of Thrift Supervision, Taylor, Bean & Whitaker's government regulator, approved the appointments.[9]

Subsequently, Judge Jerry A. Funk of the United States Bankruptcy Court approved Taylor, Bean & Whitaker's liquidation plan, which created a trust for distribution to Taylor, Bean & Whitaker's creditors: The Taylor, Bean & Whitaker Plan Trust. The Trust is run by Neil Luria.[9]

PricewaterhouseCoopers lawsuit

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The bankruptcy trustee for Taylor, Bean & Whitaker Mortgage Corp., once one of the nation's biggest privately held mortgage companies, is suing PricewaterhouseCoopers as the auditor of Colonial Bank, seeking $5.5 billion in damages. The trustee alleged in the 2013 lawsuit that PricewaterhouseCoopers was negligent in not detecting a massive fraud scheme that brought down Taylor, Bean & Whitaker and helped trigger the 2009 collapse of Colonial Bank, a Montgomery, Alabama bank with $25 billion in assets, one of the biggest U.S. bank collapses during the Great Recession.[10]

PricewaterhouseCoopers has maintained in court documents that its responsibility is to follow accounting principles — which might not necessarily detect fraud. But in a pretrial brief issued by the trustee, former PricewaterhouseCoopers chairman Dennis Nally is quoted in a 2007 Wall Street Journal article saying that the "audit profession has always had a responsibility for the detection of fraud".[11]

Ocala Funding; lawsuit by Deutsche Bank and BNP Paribas

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In 2005, Taylor Bean created and then subsequently operated a special-purpose entity subsidiary, Ocala Funding. Ocala was a conduit which purchased its home loans, and bundled them into securities which it then sold to Freddie Mac and other investors.[12][13] It funded the mortgage loan business by selling $1.75 billion of worthless asset-backed commercial paper short-term notes to Deutsche Bank and the mortgage subsidiary of BNP Paribas.[12][13][14] Deutsche Bank bought about $1.2 billion of the notes, and BNP had purchased about $480.7 million in the notes.[15]

Ocala hired Bank of America as both its trustee and collateral agent for the Ocala commercial paper.[16] Prosecutors said that Ocala Funding engaged in what they stated was one of the largest bank frauds in United States history.[3]

In litigation unrelated to the Taylor, Bean & Whitaker Plan Trust, Deutsche Bank and BNP Paribas sued Bank of America over the $1.75 billion in losses stemming from the fraud, saying their agreements required that Ocala hold $1.6 billion in cash or mortgage loans as collateral to be deposited with Bank of America, and that Bank of America breached its custodial and trustee obligations and improperly transferred billions of dollars of funds that were serving as collateral at Ocala's request.[12][13][16][17][18]

The case is being heard by Judge Robert Sweet in the United States District Court for the Southern District of New York.[12][13][19] Sweet allowed some of the case to proceed in March 2011, writing that Deutsche Bank and BNP Paribas had stated a "plausible claim" against Bank of America.[16][17]

In June 2012, Judge Sweet dismissed a counter-suit by Bank of America Corp. against the securities units of BNP Paribas and Deutsche Bank, alleging negligence and breach of fiduciary duty on their behalf for their role in the sale of notes issued by Ocala Funding.[15][20][21] Sweet held that the units, acting as brokers in the sale of the Ocala notes, owed "no duty ... to investigate or verify representations" made in a private placement.[15][21] This lawsuit was settled in April 2015.[22]

Executive convictions

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Six individuals have pled guilty for their roles in the fraudulent scheme.[8]

On April 19, 2011, a federal jury in Alexandria, Virginia, convicted Lee Farkas, the majority owner of the company, of 14 counts of securities fraud, bank fraud, and wire fraud and conspiracy to commit fraud. According to the government case, the multibillion-dollar fraud caused the downfall of Colonial Bank and cheated investors and the government. The fraud began in 2002 when Taylor overdrew its account with Colonial BancGroup by several million dollars. Taylor Bean then promised to cover the amount by the end of the day in a process known as sweeping. When the overdrafts grew to over $100 million, mid-level Taylor Bean executives sold Colonial BancGroup $1 billion in mortgages that it did not own. Farkas and his co-conspirators caused Colonial BancGroup to file materially false financial data with the SEC regarding its assets in annual reports contained in Forms 10-K and quarterly filings contained Forms 10-Q.[8] Colonial BancGroup's materially false financial data included overstated assets for mortgage loans that had little to no value.[8]

During his sentencing hearing on June 30, 2011, Farkas read a statement saying that he "strived to be a good person." However, Federal District Judge Leonie Brinkema replied that she did not observe any genuine remorse, and sentenced the 58-year-old Farkas to 30 years in federal prison—at his age, effectively a life sentence.[23] In 2012, federal appellate court upheld his convictions and sentence.[24] But in 2013 he said he was innocent and asked a federal judge to set aside his convictions and prison sentence, arguing that his trial and appellate lawyers provided ineffective assistance, and that his trial lawyers should have sought a judgment of acquittal because the evidence against him was insufficient.[24][25] In a 2014 prison interview, Farkas stated he gets "depressed a lot of days", has lost 43 pounds and most of his friends. No other senior Wall Street executives have been prosecuted for crisis-related conduct.[26] Farkas was serving his sentence at low-security FCI Coleman, Federal Bureau of Prisons inmate #43560-018, and was scheduled for release in 2037, however Judge Brinkema turned around and released him on 29 September 2020 after serving only 9 years of his 30-year sentence. She did this because she said that Farkas could catch the COVID-19 virus is prison. When met with opposition from the prosecution, Brinkema stated in her decision that she wasn't "at all concerned about the interests of justice not being served."[27] Desiree E. Brown and Raymond Bowman, former treasurer and president of TBW, respectively, pled guilty and were sentenced to 72 months and 30 months.[28]

The company's former chief executive and lead manager for Ocala Funding (Paul R. Allen, who admitted to allowing $1.5 billion in collateral to be misappropriated from Ocala and was sentenced in 2011 to 40 months in prison, followed by two years of supervised release) and treasurer (Desiree Brown, who was sentenced to six years in prison) pleaded guilty and cooperated in the case against Farkas, and other executives received sentences ranging from three months (senior financial analyst Sean Ragland) to eight years (Catherine Kissick, senior vice president and head of the Mortgage Warehouse Loan Division at Colonial Bank, Federal Bureau of Prisons inmate #77945-083, released on 30 August 2018).[23][25][29][30]

References

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  1. ^ "Top GNMA Issuers". US Banker. Source Media, Inc. July 1, 2008. Retrieved May 7, 2009.
  2. ^ a b McCarty, Dawn. "Ocala Funding Files for Bankruptcy Protection in Florida". Bloomberg. Retrieved November 23, 2013.
  3. ^ a b Schoenberg, Tom (March 20, 2012). "Ex-Taylor Bean Finance Chief Admits $3 Billion Fraud Role". Business Week. Archived from the original on March 23, 2012. Retrieved November 23, 2013.
  4. ^ "Taylor, Bean & Whitaker shuts its doors". Susan Latham Carr. Ocala.com. August 5, 2009. Retrieved August 5, 2009.
  5. ^ "FHA SUSPENDS TAYLOR, BEAN & WHITAKER MORTGAGE CORP. AND PROPOSES TO SANCTION TWO TOP OFFICIALS". Brian Sullivan. U.S. Housing and Urban Development. August 4, 2009. Archived from the original on August 7, 2009. Retrieved August 5, 2009.
  6. ^ "Feds raid Colonial Bank office in Florida". Jane Sutton. August 3, 2009. Retrieved August 5, 2009.
  7. ^ a b Kingsbury, Kevin. "Taylor Bean Files for Bankruptcy". WSJ.com. The Wall Street Journal. Retrieved August 25, 2009.
  8. ^ a b c d "United States v. Lee Bentley Farkas Court Docket Number: 1:10-cr-200". Justice.gov. The United States Department of Justice. Retrieved June 15, 2015. Public Domain This article incorporates text from this source, which is in the public domain.
  9. ^ a b Latham Carr, Susan. "Taylor Bean has filed for Chapter 11 bankruptcy". Ocala.com. Retrieved August 25, 2009.
  10. ^ Rapoport, Michael. "Crisis-Era Lawsuits Winding Down? Not for PricewaterhouseCoopers". WSJ.com. The Wall Street Journal. Retrieved July 29, 2016.
  11. ^ Chabeli, Herrera. "Largest lawsuit against an auditor goes to court for $5.5 billion". MiamiHerald.com. The Miami Herald. Retrieved July 29, 2016.
  12. ^ a b c d "Taylor Bean Liquidation Plan Is Cleared". The Wall Street Journal. July 22, 2011. Retrieved April 2, 2013.
  13. ^ a b c d Amon, Elizabeth (March 28, 2011). "Stanford, BNP, Madoff, HSBC, Glaxo, Galleon in Court News". Bloomberg L.P. Retrieved April 2, 2013.
  14. ^ [1] Archived April 24, 2011, at the Wayback Machine
  15. ^ a b c "BNP, Deutsche Beat BofA Counterclaims In $1.6B MBS Row". Law360. Retrieved November 16, 2013.
  16. ^ a b c Fitzgerald, Patrick (March 26, 2011). "Suits Against BofA Over Ocala Losses Can Proceed". The Wall Street Journal. Retrieved April 2, 2013.
  17. ^ a b "Judge allows suits against BofA to proceed". Reuters. Archived from the original on January 21, 2016. Retrieved April 2, 2013.
  18. ^ "Fair Game; Lawsuit Reveals the Problems Inside Wall Street’s Mortgage Machine", The New York Times
  19. ^ "BofA sues FDIC over Taylor Bean mortgage losses". Reuters. October 20, 2010. Archived from the original on April 4, 2013. Retrieved April 2, 2013.
  20. ^ "BNP Paribas Mortg. Corp. v. Bank of Am., N.A., 866 F. Supp. 2d 257 (S.D.N.Y. 2012)". Casetext.com. Retrieved November 16, 2013.
  21. ^ a b "Judge Tosses Bank of America Suit vs Deutsche Bank, BNP Paribas". The Wall Street Journal. June 6, 2012. Retrieved November 16, 2013.
  22. ^ Conarck, Ben. "BNP Paribas, Bank Of America Settle 2009 MBS Suit". Law 360. Retrieved April 2, 2015.
  23. ^ a b Protess, Ben (June 30, 2011). "Mortgage Executive Receives 30-Year Sentence". The New York Times.
  24. ^ a b Ross, Jim. "Farkas asks judge to set aside conviction, 30-year sentence". Ocala.com. Retrieved November 23, 2013.
  25. ^ a b "PriceWaterhouse Sued for $1 Billion". Courthouse News Service. November 1, 2013. Retrieved November 23, 2013.
  26. ^ Eaglesham, Jean (March 18, 2014). "A Prison Life: Ex-Banker Struggles". The Wall Street Journal.
  27. ^ "Mortgage fraudster Lee Farkas out of prison after serving 9 years". September 18, 2020.
  28. ^ "Office of Public Affairs | Former Treasurer and President of Taylor, Bean & Whitaker Each Sentenced to Prison for Fraud Scheme | United States Department of Justice". June 10, 2011.
  29. ^ Lee, Suevon (June 21, 2011). "Taylor Bean and Whitaker CEO Paul Allen sentenced to prison in fraud case". Ocala.com. Retrieved April 2, 2013.
  30. ^ Lee, Suevon (June 10, 2011). "Former treasurer of Taylor, Bean & Whitaker Mortgage Corp. sentenced to six years in prison and the former president to 2.5 years behind bars". Ocala.com. Retrieved April 2, 2013.
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