In 2002, mortgage lender Taylor, Bean & Whitaker executives started skimming some extra cash to hide the company's losses, selling fake mortgages to cover their tracks, and eventually making helpless homeowners pay for it when the whole plan unravelled. It's one of those classic financial crisis narratives that either makes you want to cry or slip into a rage-induced trance that ends with an application to law school so you can convict the evil men behind it all. Prosecutors convicted one of said evil men yesterday on 14 counts for orchestrating a fraudulent mortgage scheme to the tune of $2.9 billion in damage.
Let's recap. Lee Farkas founded Taylor, Bean & Whitaker in 1991 with just $75,000 and hustled through that golden decade growing the business to fund $100 million worth of mortgages by 1999. When profits slipped a bit, the executives covered up their losses by secretly overdrawing the firm's accounts at Colonial Bank and then covering their tracks by selling fake mortgages to other banks and institutions. The federal government guaranteed these loans, Farkas got very very rich. Pocketing an estimated $20 million, Farkas bought dozens of cars, a private jet, a sea plane, a retreat in Maine, a beach house in Florida, and in a roundabout way, a ticket to jail. Farkas' company controlled $2.9 billion worth of mortgages by the time it imploded in 2009.
Prosecutor Lanny Breuer told the New York Times, "There’s no question that it is very momentous and a very significant case" and the paper's Ben Protess points out why:
The 10-day trial was a rare win for federal prosecutors in the aftermath of the financial mess. The Justice Department has yet to bring charges against an executive who ran a major Wall Street firm leading up to the disaster. An earlier case against hedge fund managers at Bear Stearns ended in acquittal. Prosecutors dropped their investigation into Angelo R. Mozilo, the former chief of Countrywide Financial, which nearly collapsed under the weight of souring subprime home loans.
Farkas, who the Washington Post describes as "wearing tailored suits, loooking tanned at his trial, denied any wrong-doing. When he testified, the former executive said, "…I didn’t believe at the time that I’d committed any crime, and I don’t believe now that I’ve committed any crime." Six of his former co-conspirators, however, negotiated plea bargains and several testified against Farkas. After reading all 14 guilty verdicts, the judge told Farkas that he was "not honest when he testified from the stand."
The consequences of Taylor Bean's swindling: the company's bankruptcy, 2,000 workers laid off, Colonial Bank's collapse--the sixth largest bank failure in U.S. history--and $550 million in stolen TARP funds. Oh, and as many as 30 years in jail for mastermind Lee Farkas.
In case you've forgotten some of these very sobering figures around the financial crisis, including the sheer lack of accountability, there's a sober collection of animated graphics during the end credits of a Will Ferrell movie. (I do realize it's an odd place for a little bit of financial regulation activism, but hey, who doesn't like a good animated graphic show?) This should serve as a warning as much as a reminder. According to Standard & Poor's latest assessment of the U.S. financial system, taxpayers are at an even greater risk today than we were in 2008.
This article is from the archive of our partner The Wire.
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