The demise of Taylor, Bean & Whitaker, as well as
Colonial Bank, continues to spawn guilty pleas. This time Raymond Bowman, the
former president of Taylor Bean, pleaded guilty to charges of conspiring to
commit bank, wire and securities fraud and of lying to federal agents about his
role in the fraudulent scheme that caused the demise of both entities. U.S.
v. Bowman (E.D.Va.).
Before its collapse, Taylor Bean was the largest
non-depository mortgage lender in the country. Colonial BancGroup, Inc., with
whom Taylor Bean had a long standing relationship, was one of the fifty largest
banks in the U.S. As part of his plea Mr. Bowman admitted that he participated
in the fraudulent scheme that destroyed both entities.
Mr. Bowman learned in 2002 that Taylor Bean had been
running overdrafts in its master bank account at Colonial according to his
plea. At the time Taylor Bean was suffering from liquidity problems. In the
initial part of the scheme Taylor Bean sought to hide its true financial
condition from Colonial by repeatedly shifting funds among various accounts.
The account sweeps concealed the overdrafts which were funding the operations
of the lender.
In another part of the scheme, called "Plan B" by the
conspirators, Taylor Bean raised cash by selling a package of mortgages to
Colonial. Portions of the package had previously been sold however. Other parts
were fraudulent. Nevertheless, Colonial carried the worthless assets on its
The final facet of the scheme unfolded in 2005 when
Taylor Bean established a special purpose entity known as Ocala Funding LLC.
The company was designed to be a financing vehicle that would furnish Taylor
Bean with additional funding for mortgage loans. The facility obtained funds
for mortgage lending from the sale of asset backed commercial paper. Within a
year Ocala had a significant collateral deficit. By August 2009 that deficit
had increased to about $1.5 billion. Yet Taylor Bean caused Colonial and the
Federal Home Loan Mortgage Corporation to believe that each had an undivided
interest in thousands of loans worth hundreds of millions of dollars. This was
false Mr. Bowman admitted.
Eventually Taylor Bean collapsed. Colonial was seized by
banking regulators. The date for sentencing has not been set.
Previously, Lee Farkas, the former chairman of Taylor
Bean, was named as a defendant in an SEC action and a sixteen count criminal
indictment (here). Mr. Farkas'
criminal trial is scheduled to being in April 2011. The former treasurer of
Taylor Bean, Desiree Brown (here),
and the former senior vice president of Colonial Bank, Catherine Kissick (here), have also been named as
defendants in SEC actions and pleaded guilty to criminal charges in connection
with the scheme.
For more cutting edge commentary on
developing securities issues, visit SEC Actions, a
blog by Thomas Gorman.
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