Taylor, Bean & Whitaker
|Type||Privately owned company|
|Industry||Finance and Mortgage|
|Key people||Lee Farkas, Chairman
Paul R. Allen, CEO
Ray Bowman, President
Stuart Scott, COO
|Website||Taylor, Bean & Whitaker|
On August 14, 2009, following an FBI raid and suspension by the Federal Housing Administration from issuing FHA mortgage loans and Ginnie Mae mortgage-backed securities, it ceased business operations. In April 2011, its majority owner was convicted of 14 counts of securities, bank, and wire fraud and conspiracy to commit fraud, and sentenced to 30 years in federal prison.
Taylor, Bean & Whitaker closed $35 billion in residential mortgage loans in 2007. It employed about 2,000 workers, and was the fifth-largest issuer of GNMA securities. By 2009 it was servicing more than 500,000 mortgages, including $51.2 billion of Freddie Mac loans.
FBI raid, suspension, and closure
On August 3, 2009, FBI special agents raided the company's headquarters in Ocala, Florida, in connection with an investigation related to the company's acquisition of a majority stake in Colonial BancGroup, once one of the 25 biggest depository banks in the U.S. Taylor, Bean & Whitaker had signed a deal on March 31, 2009, to become the majority owner of Colonial BancGroup in a $300 million equity stake. The next day, the Federal Housing Administration suspended the company from issuing FHA mortgage loans and Ginnie Mae mortgage-backed securities.
Ocala Funding; Lawsuit by Deutsche Bank and BNP Paribas
In 2005, Taylor Bean created and then subsequently operated a special-purpose entity subsidiary, Ocala Funding. Ocala was a conduit which purchased its home loans, and bundled them into securities which it then sold to Freddie Mac and other investors. It funded the mortgage loan business by selling $1.75 billion of worthless asset-backed commercial paper short-term notes to Deutsche Bank and the mortgage subsidiary of BNP Paribas. Deutsche Bank bought about $1.2 billion of the notes, and BNP had purchased about $480.7 million in the notes.
Ocala hired Bank of America as both its trustee and collateral agent for the Ocala commercial paper. Prosecutors said that Ocala Funding engaged in what was one of the largest bank frauds in United States history.
Deutsche Bank and BNP Paribas sued Bank of America over the $1.75 billion in losses stemming from the fraud, saying their agreements required that Ocala hold $1.6 billion in cash or mortgage loans as collateral to be deposited with Bank of America, and that Bank of America breached its custodial and trustee obligations and improperly transferred billions of dollars of funds that were serving as collateral at Ocala's request.
The case is being heard by Judge Robert Sweet in the United States District Court for the Southern District of New York. Sweet allowed some of the case to proceed in March 2011, writing that Deutsche Bank and BNP Paribas had stated a "plausible claim" against Bank of America.
In June 2012, Judge Sweet dismissed a counter-suit by Bank of America Corp. against the securities units of BNP Paribas and Deutsche Bank, alleging negligence and breach of fiduciary duty on their behalf for their role in the sale of notes issued by Ocala Funding. Sweet held that the units, acting as brokers in the sale of the Ocala notes, owed “no duty … to investigate or verify representations” made in a private placement.
On April 19, 2011, a federal jury in Alexandria, Virginia, convicted Lee Farkas, the majority owner of the company, of 14 counts of securities fraud, bank fraud, and wire fraud and conspiracy to commit fraud. According to the government case, the multi-billion dollar fraud caused the downfall of Colonial Bank and cheated investors and the government. The fraud began in 2002 when Taylor overdrew its account with Colonial BancGroup by several million dollars. Taylor Bean then promised to cover the amount by the end of the day in a process known as sweeping. When the overdrafts grew to over $100 million, mid-level Taylor Bean executives sold Colonial BancGroup $1 billion in mortgages that it did not own.
During his sentencing hearing on June 30, 2011, Farkas read a statement saying that he "strived to be a good person." However, Federal District Judge Leonie Brinkema replied that she did not observe any genuine remorse, and sentenced the 58-year-old Farkas to 30 years in federal prison--at his age, effectively a life sentence. Farkas is currently serving his sentence in a medium-security facility at the Butner Federal Correctional Complex in Butner, North Carolina, and is scheduled for release in 2037.
In 2012 federal appellate court upheld his convictions and sentence. But in 2013 he said he was innocent and asked a federal judge to set aside his convictions and prison sentence, arguing that his trial and appellate lawyers provided ineffective assistance, and that his trial lawyers should have sought a judgment of acquittal because the evidence against him was insufficient.
The company’s former chief executive and lead manager for Ocala Funding (Paul R. Allen, who admitted to allowing $1.5 billion in collateral to be misappropriated from Ocala and was sentenced in 2011 to 40 months in prison, followed by two years of supervised release) and treasurer (Desiree Brown, who was sentenced to six years in prison) pleaded guilty and cooperated in the case against Farkas, and other executives received sentences ranging from three months (senior financial analyst Sean Ragland) to eight years (Catherine Kissick, senior vice president and head of the Mortgage Warehouse Loan Division).
- "Top GNMA Issuers". US Banker (Source Media, Inc). July 1, 2008. Retrieved May 7, 2009.
- McCarty, Dawn. "Ocala Funding Files for Bankruptcy Protection in Florida". Bloomberg. Retrieved November 23, 2013.
- Schoenberg, Tom (March 20, 2012). Ex-Taylor Bean Finance Chief Admits $3 Billion Fraud Role. Business Week. Retrieved November 23, 2013.
- "Taylor, Bean & Whitaker shuts its doors". Susan Latham Carr (Ocala.com). August 5, 2009. Retrieved August 5, 2009.
- "FHA SUSPENDS TAYLOR, BEAN & WHITAKER MORTGAGE CORP. AND PROPOSES TO SANCTION TWO TOP OFFICIALS". Brian Sullivan (U.S. Housing and Urban Development). August 4, 2009. Retrieved August 5, 2009.
- "Feds raid Colonial Bank office in Florida". Jane Sutton (Thompson Reuters). August 3, 2009. Retrieved August 5, 2009.
- "Taylor Bean Liquidation Plan Is Cleared". Wall Street Journal. July 22, 2011. Retrieved April 2, 2013.
- Amon, Elizabeth (March 28, 2011). "Stanford, BNP, Madoff, HSBC, Glaxo, Galleon in Court News". Bloomberg.com. Retrieved April 2, 2013.
- [dead link]
- "BNP, Deutsche Beat BofA Counterclaims In $1.6B MBS Row". Law360. Retrieved November 16, 2013.
- Fitzgerald, Patrick (March 26, 2011). "Suits Against BofA Over Ocala Losses Can Proceed". Wall Street Journal. Retrieved April 2, 2013.
- "Judge allows suits against BofA to proceed". Reuters. Retrieved April 2, 2013.
- "Fair Game; Lawsuit Reveals the Problems Inside Wall Street’s Mortgage Machine", The New York Times
- "BofA sues FDIC over Taylor Bean mortgage losses". Reuters. Retrieved April 2, 2013.
- "BNP Paribas Mortg. Corp. v. Bank of Am., N.A., 866 F. Supp. 2d 257 (S.D.N.Y. 2012)". Casetext.com. Retrieved November 16, 2013.
- "Judge Tosses Bank of America Suit vs Deutsche Bank, BNP Paribas". Wall Street Journal. June 6, 2012. Retrieved November 16, 2013.
- Protess, Ben (June 30, 2011). "Mortgage Executive Receives 30-Year Sentence". The New York Times.
- "Federal Bureau of Prisons". Bop.gov. Retrieved April 2, 2013.
- Ross, Jim. "Farkas asks judge to set aside conviction, 30-year sentence". Ocala.com. Retrieved November 23, 2013.
- "PriceWaterhouse Sued for $1 Billion". Courthouse News Service. November 1, 2013. Retrieved November 23, 2013.
- Lee, Suevon (June 21, 2011). "Taylor Bean and Whitaker CEO Paul Allen sentenced to prison in fraud case". Ocala.com. Retrieved April 2, 2013.
- Lee, Suevon (June 10, 2011). "Former treasurer of Taylor, Bean & Whitaker Mortgage Corp. sentenced to six years in prison and the former president to 2.5 years behind bars.". Ocala.com. Retrieved April 2, 2013.