ALEXANDRIA, Va. (CN) – The former chief executive of Taylor, Bean & Whitaker sold out the firm’s chairman in the plea agreement he signed on Friday.
Paul Allen, 55, of Oakton, Va., faces a maximum 10-year sentence after pleading guilty to a two-count criminal information: making false statements and conspiring to commit bank and wire fraud. He admitted that the $1.5-billion fraud that he engineered contributed to Taylor Bean’s downfall.
Two years after joining Taylor Bean in 2003 as its CEO, Allen says 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 says 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.
Allen is scheduled for sentencing on June 21. He is one of six individuals who have pleaded guilty for their roles in this and related fraud schemes. Farkas’ trial is set to start this month.