United States v. Paul Allen
Court Docket Number: 1:11-cr-165-LMB
The case is assigned to the Honorable Leonie M. Brinkema, United States District Court Judge for the Eastern District of Virginia, United States Courthouse, 400 Courthouse Square, Alexandria, Virginia 22314.
On June 21, 2011, Paul Allen, the former chief executive officer at Taylor, Bean & Whitaker (TBW), a private mortgage lending company in Ocala, Florida, was sentenced to 40 months in prison and 2 years of supervised release on his April 1, 2011 guilty plea to one count of conspiracy to commit bank and wire fraud (Count 1: 18 U.S.C. § 371) and one count of false statements (Count 2: 18 U.S.C. §1001). Restitution will be determined at a later date.
According to a statement of facts submitted with his plea agreement, Allen joined TBW in 2003 as its CEO and reported directly to its chairman. He admitted in court that from 2005 through August 2009, he and other co-conspirators engaged in a scheme to defraud financial institutions that had invested in a wholly owned lending facility called Ocala Funding. Ocala Funding raised money by selling asset-backed commercial paper to financial institutions, including Deutsche Bank and BNP Paribas, and used the money to purchase TBW mortgages. The facility was managed by TBW and had no employees of its own.
According to court records, shortly after Ocala Funding was established, Allen learned there were inadequate assets backing its commercial paper, a deficiency referred to internally at TBW as a "hole" in Ocala Funding. Allen admitted that in an effort to cover up the "hole" and to mislead investors, he told a co-conspirator to produce reports that concealed the "hole." He also admitted that he knew that these misleading reports were sent to Ocala Funding investors and other third parties. Allen also admitted in court that he kept the chairman of TBW informed of the collateral shortfall, and that in the fall of 2008, Allen was told that the "hole" had been moved from Ocala Funding to Colonial Bank. At the time that TBW ceased operations, the "hole" was approximately $1.5 billion. According to court documents, as a result of the Ocala Funding fraud scheme, Freddie Mac, Colonial Bank and Ocala Funding investors believed they had an undivided ownership interest in thousands of the same mortgage loans.
Court records state that in March 2009, Allen was directed to approach two private equity investors to secure capital to meet a $300 million private capital requirement the U.S. Department of Treasury set for Colonial Bank to receive $553 million from the Troubled Assets Relief Program (TARP). Although Allen failed to secure the funding from the investors, he admitted in court that the TBW chairman and he represented to others that the investors were each $50 million participants and that the chairman diverted $25 million from Ocala Funding to an escrow account in the investors' names. This deception caused Colonial Bank to falsely announce publicly it had met its $300 million capital raise contingency and to send a letter to the FDIC that all investors had met a 10 percent escrow deposit requirement. Colonial Bank never received any TARP funds. In court, Allen also admitted to making false statements in a letter he sent to the U.S. Department of Housing and Urban Development, through Ginnie Mae, regarding TBW's audited financial statements for the fiscal year ending on March 31, 2009. In this letter, Allen omitted that the delay in submitting the financial data was attributed to concerns its independent auditor had raised about the financing relationship between TBW and Colonial Bank. Instead, Allen falsely attributed the delay to a new acquisition and TBW's switch to a compressed 11-month fiscal year.
Related Cases: In a related case,United States v. Lee Bentley Farkas, defendant Farkas, the former owner and TBW chairman, was convicted after a jury trial in April 2011 on 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 trial and is scheduled to be sentenced on June 30, 2011 at 10:30 a.m. in Courtroom 600 before Judge Brinkema. Farkas was arrested in June 2010 and charged in a 16-count indictment for his role in the fraud scheme. In February and March 2011,Raymond Bowman, former TBW president; Desiree Brown, the former TBW treasurer; Catherine Kissick, a former senior vice president of Colonial Bank and head of Colonial Bank's Mortgage Warehouse Lending Division (MWLD); Teresa Kelly, a former operations supervisor at MWLD, and Sean Ragland, a senior financial analyst in TBW's Accounting Department, each pleaded guilty to separate criminal informations charging each with conspiracy for their roles in various phases of a fraudulent scheme to defraud financial institutions through the misappropriation of funds. On June 10, 2011, defendant Bowman and defendant Brown were sentenced 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 was sentenced to 3 months in prison and 2 years of supervised release, including 9 months of home confinement.
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Government's Filing with Respect to Restitution
Criminal Information and Statement of Facts