ALEXANDRIA, Va. (CN) – The former chairman and majority owner of what used to be the country’s largest non-depository mortgage lender ran a $1.5 billion lending and securities scam, the SEC said today in a federal complaint. The agency claims Lee B. Farkas sold more than $1.5 billion of “fabricated or impaired mortgage loans and securities to Colonial Bank,” through his company, Taylor, Bean & Whitaker Mortgage Corp.
Farkas falsely reported the loans and securities as high-quality, liquid assets, and also touted a bogus equity investment to Colonial Bank, claiming it satisfied a requirement for TARP (Troubled Asset Relief Program) funds, the SEC said.
When Colonial BancGroup announced it had preliminary approval to get $550 million in TARP funds, its stock price jumped 54 percent in two hours of trading, according to the complaint.
As the mortgage meltdown began, “Farkas arranged the sale of more than $1 billion dollars worth of mortgage loans and securities he knew to be fictitious or impaired,” the SEC’s Deputy Director of Enforcement Lorin Reisner said.
“Farkas also lied about a sham equity investment he engineered to defraud U.S. taxpayers and the U.S. Treasury’s Troubled Asset Relief Program.”
The SEC seeks disgorgement, penalties and an injunction. Farkas is the only defendant in today’s complaint.