United States v. Desiree Brown
Court Docket Number: 1:11-cr-84-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 10, 2011, Desiree Brown, the former treasurer of Taylor, Bean, & Whitaker (TBW), was sentenced to 72 months in prison on her February 24, 2011 guilty plea to one count of conspiracy to commit bank, wire and securities fraud (Count 1: 18 U.S.C. § 1349) for her role in a more than $2.9 billion fraud scheme that contributed to the failures of Colonial Bank and TBW. In a related action, on February 24, 2011, the U.S. Securities and Exchange Commission (SEC) filed an enforcement action against Brown in the Eastern District of Virginia.
In pleading, Brown admitted that from late 2003 through August 2009, she and her co-conspirators, including former TBW chairman Lee Bentley Farkas, engaged in a scheme to defraud various entities and individuals, including Colonial Bank, a federally insured bank; Colonial BancGroup Inc.; shareholders of Colonial BancGroup; investors in Ocala Funding LLC, including Deutsche Bank and BNP Paribas; the Troubled Asset Relief Program (TARP); and the investing public. The fraud scheme caused Colonial Bank and Colonial BancGroup to purchase tens of millions of dollars of worthless assets, caused Colonial BancGroup to report false information in its financial statements, and artificially inflated the value of TBW’s mortgage servicing rights.
According to court documents and information presented at the trial of defendant Farkas, TBW began running overdrafts in its master bank account at Colonial Bank because of TBW’s inability to meet its operating expenses, which included payroll, servicing obligations owed to third-party purchasers of loans and/or mortgage-backed securities and other obligations. In or about 2002, Farkas and other co-conspirators engaged in a series of fraudulent actions to cover up the overdrafts, first by sweeping overnight money from one TBW account with excess funds into another, and later through the fictitious “sales” of mortgage loans to Colonial Bank, a fraud scheme the conspirators dubbed “Plan B.” Brown joined the conspiracy in late 2003 shortly after Plan B commenced. The conspirators accomplished Plan B by selling Colonial Bank mortgage loans that did not exist or that TBW had already committed or sold to other third-party investors.
As Plan B evolved, co-conspirators at TBW also caused TBW to engage in sham sales of groups of mortgage loans, known as “pools,” to Colonial Bank that other entities already owned. As a result, false information was entered on Colonial Bank’s books and records, giving the appearance that the bank owned interests in legitimate pools or mortgage loans, when, in fact, the pools had no value and could not be securitized or sold. Additionally, Brown and the conspirators caused TBW to misappropriate more than $1.5 billion in collateral from Ocala Funding LLC, a mortgage lending facility owned by TBW. The misappropriation caused Colonial Bank and the Federal Home Loan Mortgage Corporation (Freddie Mac) to falsely believe that they each had an undivided ownership interest in thousands of the same loans worth hundreds of millions of dollars. According to court documents, the fraud scheme also included an effort by certain conspirators in the fall of 2008 to obtain $570 million in taxpayer funding through the Capital Purchase Program, a sub-program of the U.S. Treasury Department’s TARP. In connection with the application, Colonial BancGroup submitted financial data and filings that included materially false information related to mortgage loan and securities assets held by Colonial Bank as a result of the fraudulent scheme admitted to by Brown. Colonial BancGroup never received the TARP funding.
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: In a related case, United States v. Lee Bentley Farkas, defendant Farkas 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 another related, United States v. Catherine Kissick (Criminal No. 1:11-cr-88-LMB), defendant Kissick, a former senior vice president of Colonial Bank and head of Colonial Bank’s Mortgage Warehouse Lending Division, pleaded guilty on March 2, 2011, to a criminal information charging her with one count of conspiracy to commit bank, wire and securities fraud (Count 1: 18 U.S.C. § 1349) in connection with her role in a fraud scheme that contributed to the failures of Colonial Bank and Taylor, Bean & Whitaker (TBW). On June 17, 2011, defendant Kissick was sentenced to eight years in prison followed by three years of supervised release on her March 2011 guilty plea.
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Criminal Information and Statement of Facts