The Securities and Exchange Commission Wednesday accused the former owner of Taylor Bean & Whitaker with orchestrating a massive equity and MBS fraud tied to his firm's warehouse borrowings from Colonial Bank, a depository it tried to take control of last summer using Troubled Asset Relief Program (TARP) money.
In a civil complaint, the SEC says TBW owner and CEO Lee Farkas created $1.5 billion worth of "fictitious" whole loans and impaired MBS which were pledged to the bank's balance sheet and served as collateral for warehouse lines of credit.
The government says the nonbank ran into "liquidity problems" and began over-withdrawing on its warehouse lines, which led to the equivalent of a check-kiting scheme at the bank. The agency says the scam pre-dated TBW's attempted takeover of Colonial, a troubled bank, by about 18 months.
In the spring of 2009, TBW tried to buy a controlling stake in the Alabama-based warehouse lender, using $200 million of its own money, most of it borrowed using servicing rights as collateral, and $100 million from private investors including several nonbanks that also were warehouse clients of Colonial. The bank, which failed last summer was, at one point, the nation's largest warehouse provider.
Using TBW's $300 million investment, Colonial had applied for $550 million of TARP funds to stabilize its capital position. Farkas could not be reached for comment at his Ocala, Fla., home. TBW filed for bankruptcy protection last fall.