United States v. Catherine Kissick
Court Docket Number: 1:11-cr-88-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 17, 2011, Catherine Kissick, a former senior vice president of Colonial Bank and head of Colonial Bank's Mortgage Warehouse Lending Division, was sentenced to eight years in prison followed by three years of supervised release on her March 2, 2011 guilty plea to one count of conspiracy to commit bank, wire and securities fraud (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 Taylor, Bean & Whitaker (TBW). Restitution will be determined at a later date.
In pleading, Kissick admitted that from 2002 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.; the Troubled Asset Relief Program (TARP); and the investing public. Kissick admitted that she knowingly and intentionally placed Colonial Bank and Colonial BancGroup at significant risk by causing them to purchase and hold on their books at more than $400 million assets that had no value. 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 payments owed to third-party purchasers of loans and/or mortgage-backed securities and other obligations. In or about 2002, Kissick, Farkas and 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." 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. Kissick admitted that she knew and understood she and her co-conspirators had caused Colonial Bank to pay TBW for assets that were worthless to the bank.
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 of mortgage loans, when, in fact, the pools had no value and could not be securitized or sold. According to court documents, Kissick played a leadership role in the sweeping and Plan B portions of the fraud scheme.
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 activity at TBW. Colonial BancGroup never received the TARP funding. According to court documents, Kissick knew that Colonial BancGroup's TARP application relied upon false bank financial data.
In August 2009, the Alabama State Banking Department, Colonial Bank's regulator, seized the bank and appointed the FDIC as receiver. Colonial BancGroup 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. Also, in two other related cases, United States v. Desiree Brown (Court Docket No. 1:11-cr-84-LMB), and United States v. Teresa Kelly (Court Docket No. 1:11-cr-119-LMB), Desiree Brown, the former TBW treasurer, and Teresa Kelly, a former operations supervisor at Colonial Bank's Mortgage Warehouse Lending Division (MWLD), each pleaded guilty to separate criminal informations charging them with one count of conspiracy to commit bank, wire and securities fraud for their roles in the fraud scheme that contributed to the failure of Colonial Bank and TBW. On June 10, 2011, defendant Brown was sentenced to 72 months in prison on her February 2011 guilty plea and on June 17, 2011, defendant Kelly was sentenced to three months in prison followed by three years of supervised release, including nine months of home confinement, on her March 2011 guilty plea.
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