PENDING CRIMINAL DIVISION CASES

United States v. Lee Bentley Farkas
Court Docket Number: 1:10-cr-200

This case is assigned to the Honorable Leonie M. Brinkema, United States District Court Judge for the Eastern District of Virginia, Albert V. Bryan United States Courthouse, 401 Courthouse Square, Alexandria, Virginia. Farkas was arraigned on July 2, 2010 by Judge Brinkema, and was released on bond. On April 19, 2011, after a 10-day trial, a federal jury in the Eastern District of Virginia found Farkas guilty of one count of conspiracy to commit bank, wire and securities fraud; six counts of bank fraud; four counts of wire fraud; and three counts of securities fraud. Farkas was remanded into custody after the verdict and subsequently sentenced on June 28, 2011 to 30 years in prison, followed by three years of supervised release, and ordered to forfeit $38,541,209.69.  On September 27, 2011, following a  restitution hearing, Judge Brinkema entered a series of judgments and orders directing Farkas and his six co-conspirators to pay, jointly and severally, a total of approximately $3.5 billion in restitution.

According to court documents and evidence presented at trial, Farkas and his co-conspirators engaged in a scheme that misappropriated more than $1.4 billion from Colonial Bank's Mortgage Warehouse Lending Division (MWLD) in Orlando, Florida, and approximately $1.5 billion from Ocala Funding, a mortgage lending facility controlled by TBW. Farkas and his co-conspirators misappropriated this money to, among other things, cover TBW's operating expenses. According to court documents and evidence presented at trial, the fraud scheme began in 2002, when Farkas and his co-conspirators ran overdrafts in TBW bank accounts at Colonial Bank in order to cover TBW's cash shortfalls. Farkas and his co-conspirators at TBW and Colonial Bank transferred money between accounts at Colonial Bank to hide the overdrafts. Evidence presented at trial showed that after the overdrafts grew to more than $100 million, Farkas and his co-conspirators covered up the overdrafts and operating losses by causing Colonial Bank to purchase from TBW over time more than $1.5 billion in what amounted to worthless mortgage loan assets, including loans that TBW had already sold to other investors and fake pools of loans purportedly being formed into mortgage-backed securities. Farkas and his co-conspirators caused Colonial Bank to report these assets on its books at face value when, in fact, the mortgage loan assets were worthless. By August 2009, approximately $500 million in fake pools of loans remained on Colonial Bank's books.

According to court documents and evidence presented at trial, Farkas and his co-conspirators at TBW also misappropriated more than $1.5 billion from Ocala Funding. Ocala Funding sold asset-backed commercial paper to financial institution investors, including Deutsche Bank and BNP Paribas Bank. Ocala Funding, in turn, was required to maintain collateral in the form of cash and/or mortgage loans at least equal to the value of outstanding commercial paper. Evidence presented at trial established that Farkas and his co-conspirators diverted cash from Ocala Funding to TBW to cover its operating losses, and as a result, created significant deficits in the amount of collateral Ocala Funding possessed to back the outstanding commercial paper. To cover up the diversions, the conspirators sent false information to Deutsche Bank, BNP Paribas Bank and other financial institution investors and led them to falsely believe that they had sufficient collateral backing the commercial paper they had purchased. When TBW failed in August 2009, the banks were unable to redeem their commercial paper for full value. Farkas and his co-conspirators also caused approximately $900 million in loans to be held on Colonial Bank's books when, in fact, the loans had already been sold to Freddie Mac and other investors.

Evidence at trial also established that 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 in Forms 10-Q. Colonial BancGroup's materially false financial data included overstated assets for mortgage loans that had little to no value that Farkas and his co-conspirators caused Colonial Bank to purchase. Farkas and his co-conspirators also caused TBW to submit materially false financial data to the Government National Mortgage Association (Ginnie Mae) in order to extend TBW's authority to issue Ginnie Mae mortgage-backed securities.

According to court documents and evidence presented at trial, Farkas also personally misappropriated more than $38.5 million from TBW and Colonial Bank to finance his lifestyle, including purchasing multiple homes, scores of cars, a jet and a sea plane, and restaurants and bars.

In August 2009, the Alabama State Banking Department, Colonial Bank's regulator, seized the bank and appointed the FDIC as receiver. Colonial BancGroup also filed for bankruptcy in August 2009.

Related cases: Six individuals have pleaded guilty for their roles in the fraud scheme, including Raymond Bowman, former president of TBW; Desiree Brown, former treasurer of TBW; Catherine Kissick, former senior vice president of Colonial Bank and head of its Mortgage Warehouse Lending Division (MWLD); Teresa Kelly, former operations supervisor for Colonial Bank's MWLD; and Sean Ragland, a former senior financial analyst at TBW; and Paul Allen, former chief executive officer of TBW. On June 10, 2011, defendant Bowman and defendant Brown were sentenced by Judge Brinkema to 30 months in prison and 72 months in prison, respectively. On June 17, 2011, defendant Kissick and defendant Kelly were sentenced to eight years in prison followed by three years of supervised release and three months in prison followed by three years of supervised release, including nine months of home confinement, respectively. On June 21, 2011, defendant Ragland and defendant Allen were sentenced to 3 months in prison and 2 years of supervised release, including 9 months of home confinement, and 40 months in prison and 2 years of supervised release, respectively.

Notice of August 9th Hearing

Government's Filing with Respect to Restitution

Preliminary Order of Forfeiture dated June 30, 2011

Victim Impact Statement Form

La Declaration del Agravio a La Victima en Español

Order Rescheduling the Trial Date

Order of Release

Indictment

Updated June 15, 2015