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Posted at 2:00 PM ET, 02/24/2011

Guilty plea in financial fraud scheme

By Dana Hedgpeth

Desiree Brown, the former treasurer for one of the country's largest mortgage firms, pleaded guilty Thursday in U.S. District Court in Alexandria to charges of being involved in a $1.9 billion fraud scheme.

Brown, 45, of Hernando, Fla., made her plea before U.S. District Judge Leonie M. Brinkema. She faces a maximum penalty of 30 years in prison. She is expected to have a sentencing hearing June 10.

Brown worked for Lee Bentley Farkas, who was the former CEO and chairman of Taylor, Bean & Whitaker, an Ocala, Fla.-based company that was once one of the nation's largest privately held mortgage companies. Farkas also is charged in the scheme.

According to court documents, Brown admitted that from late 2003 through August 2009, she, Farkas and co-conspirators engaged in a scheme to defraud various entities and individuals.

In June, the Justice Department accused Farkas of committing a $1.9 billion fraud scheme against investors and the federal government that led to the demise of his firm and Colonial Bank in Alabama, one of the nation's largest regional banks.

Farkas allegedly ran the fraud scheme starting in 2002 until 2009 as chairman of Taylor Bean, an Ocala, Fla.-based company that was once one of the nation's largest privately held mortgage companies.

Prosecutors say that Taylor Bean acted as a middleman between lenders and investors. The firm borrowed money from Colonial Bank to buy FHA-insured home loans, the government alleged. Taylor Bean would pool the loans into securities and sell them to investors. Ginnie Mae would then guarantee those securities.

But when Taylor Bean began having significant cash flow problems, the government says, Farkas and co-conspirators allegedly covered the shortfalls with money from Colonial Bank.

They misappropriated more than $1 billion to cover Taylor Bean's operating losses, authorities said.

According to prosecutors, Brown and her co-conspirators referred to one aspect of the fraud as "Plan B" where they generated money for Taylor Bean through fictitious sales of mortgage loans to Colonial Bank. They sent mortgage data to Colonial Bank for loans that didn't exist or that they'd already committed or sold to third-party investors. That left Colonial Bank to pay Taylor Bean for assets that were worthless.

Brown also admitted that she and her co-conspirators sold fictitious trades to Colonial Bank. The trades were put on Colonial Bank's books, but in reality the trades had no value and could not be sold. Court documents say the conspiracy scheme caused Colonial Bank to pay Taylor Bean more than $400 million for assets that in fact had no value.

Farkas is also charged with leading a scheme of trying to defraud the Treasury Department of $570 million by using funds in an emergency bailout program for the banking system, falsifying documents, and shuffling hundreds of millions of dollars among firms in an attempt to make Colonial Bank look healthier than it was.

The scam was detected before the government paid out any money, officials said.

The government also accuses Farkas of trying to destroy evidence to cover up the scheme and it says he used about $20 million in Taylor Bean funds for personal expenses such as payments on a private jet and three Florida properties
.
The case was brought in Alexandria because some investors live in Northern Virginia and because Freddie Mac is based in McLean.

Farkas was arrested in June in Ocala, Fla., where he lived. He was indicted by a federal grand jury in Alexandria on 16 counts of bank, wire and securities fraud and other charges. His trial is expected to begin in early April.

By Dana Hedgpeth  | February 24, 2011; 2:00 PM ET
Categories:  Around the Nation, Dana Hedgpeth, From the Courthouse  
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