ALEXANDRIA, Va. (CN) – A federal judge served up two more prison sentences on Tuesday in the fallout from the $2.9 billion fraud scheme that led to the failures of Colonial Bank and Taylor, Bean & Whitaker.
Former Taylor Bean CEO Paul Allen, 55, will serve nearly 3 1/2 years in prison in connection to his April plea in which he admitted to making false statements and conspiring to commit bank and wire fraud.
Former Taylor Bean senior financial analyst Sean Ragland, 37, will serve three months. He pleaded guilty in March 2011 to one count of conspiracy to commit bank and wire fraud.
Allen admitted that two years after signing on as Taylor Bean CEO in 2003, he and other co-conspirators began defrauding financial institutions that had invested in the firm’s lending facility called Ocala Funding, which had no employees of its own.
Ocala bought Taylor Bean mortgages with money raised from the sale of asset-backed commercial paper Deutsche Bank, BNP Paribas and other banks.
When Allen discovered Ocala had an asset shortfall shortly after the company’s startup, he and other co-conspirators concealed the hole with sham reports.
Allen said he told his boss, Taylor Bean chairman Lee Farkas, about the hole, and learned later that the deficit had been moved to Colonial Bank’s assets in fall 2008.
When Taylor Bean went under in August 2009, the shortfall accounted for $1.5 billion in debts. As a result of the fraud, Freddie Mac, Colonial Bank and Ocala Funding were holding worthless ownership interest in thousands of mortgage loans.
A few months before Taylor Bean the bankruptcy, Allen had tried to find an investor so that Colonial Bank could receive $553 million from the Troubled Assets Relief Program. The investment never panned out, but Allen says he and Farkas lied that they got a pledge of $50 million. He added that Farkas diverted $5 million from Ocala Funding to an escrow account in the investor’s name.
On that basis, Colonial Bank gave false information to the Federal Deposit Insurance Corp. to get TARP funds.
The other count to which Allen pleaded is connected to lies about Taylor Bean’s audited financial statements that the former CEO made to the U.S. Department of Housing and Urban Development, through Ginnie Mae.
Farkas is still awaiting sentencing after a jury convicted him in April on 14 counts of fraud for his role in masterminding the scheme. He also faces a civil action filed by the Securities and Exchange Commission.
Four other Taylor Bean or Colonial Bank executives who have pleaded guilty were sentenced earlier this month. Catherine Kissick, 50, was sentenced to eight years in prison. Teresa Kelly, 35, was sentenced to three months. Desiree Brown was sentenced to six years. Raymond Bowman was sentenced to 2 1/2 years.