The US Department of Justice (DOJ) [official website] announced on Friday that the former CEO of mortgage company Taylor, Bean & Whitaker (TBW) [corporate website] pleaded guilty [press release] on charges of fraud related to the Troubled Asset Relief Program (TARP) [materials; JURIST news archive]. Paul Allen pleaded guilty to making false statements and conspiring to commit bank and wire fraud for his role in a USD $1.5 billion fraud scheme that contributed to the failure of the mortgage company. Allen admitted that from 2005 through August 2009 he and other co-conspirators engaged in a scheme to defraud financial institutions that had invested in a lending facility called Ocala Funding. In an effort to cover up inadequate assets backing its commercial paper, Allen told a co-conspirator to produce fraudulent reports and knew that these reports were sent to Ocala Funding investors and other third parties. The cover-up led investors in Freddie Mac, Colonial Bank [corporate websites] and Ocala Funding to believe they had an undivided ownership interest in thousands of the same mortgage loans. Allen also admitted to making false statements in a letter to the US Department of Housing and Urban Development [official website], omitting concerns raised by an independent auditor. Five other individuals have pleaded guilty for their roles in related fraud schemes. Allen will be sentenced in June, when he faces a maximum penalty of five years in prison for each count.
A grand jury indicted [press release; JURIST report] the former chairman of TBW, Lee Farkas, in June, alleging that he and his co-conspirators engaged in a USD $1.9 billion complex fraud scheme that contributed to the failure of Colonial Bank in order to cover financial losses suffered by TBW. The federal government continues to investigate possible cases of fraud that may have played a role in the recent financial crisis [JURIST news archive]. In April 2010, the DOJ announced a criminal investigation [JURIST report] of Goldman, Sachs & Co. [corporate website] for possible securities fraud in mortgage trading. Also in April, the Securities and Exchange Commission (SEC) [official website] filed a civil suit [JURIST report] against Goldman alleging securities fraud. In November 2009, two former Bear Stearns hedge fund managers were acquitted [JURIST report] of securities-related charges. The June 2008 SEC complaint [text, PDF] alleged that the managers had taken leveraged positions in financial derivatives based on subprime mortgage-based assets and then taken steps to conceal ensuing losses from investors.