Taylor, Bean & Whitaker

Taylor, Bean & Whitaker Mortgage Corp.

Former type	Private
Industry	Finance and Mortgage
Fate	Bankruptcy
Founded	1982
Defunct	August 5, 2009
Headquarters	Ocala, Florida
Key people	Lee Farkas, Chairman Paul R. Allen, CEO Ray Bowman, President Stuart Scott, COO
Products	Mortgages
Slogan	Perfecting the Art of Mortgage Lending
Website	www.taylorbean.com

Taylor, Bean & Whitaker was a top-10 wholesale mortgage lending firm, the fifth-largest issuer of GNMA securities.

On August 5, 2009, following an FBI raid and suspension by the Federal Housing Administration from issuing FHA mortgage loans and Ginnie Mae mortgage-backed securities, it ceased business operations. In April 2011, its majority owner was convicted of 14 counts of securities, bank, and wire fraud and conspiracy to commit fraud, and sentenced to 30 years in federal prison.

Deutsche Bank and BNP Paribas have sued Bank of America, the trustee and collateral agent of Taylor Bean's Ocala subsidiary, over $1.75 billion in losses stemming from the subsidiary's fraud.

History

Taylor, Bean & Whitaker closed $35 billion in residential mortgage loans in 2007. It employed about 2,000 workers, and was the fifth-largest issuer of GNMA securities.^[1] By 2009 it was servicing more than 500,000 mortgages, including $51.2 billion of Freddie Mac loans.^[2]

FBI raid, suspension, and closure

On August 3, 2009, FBI special agents raided the company's headquarters in Ocala, Florida, in connection with an investigation related to the company's acquisition of a majority stake in Colonial BancGroup, once one of the 25 biggest depository banks in the U.S.^[3] Taylor, Bean & Whitaker had signed a deal on March 31, 2009, to become the majority owner of Colonial BancGroup in a $300 million equity stake. The next day, the Federal Housing Administration suspended the company from issuing FHA mortgage loans and Ginnie Mae mortgage-backed securities.^[4][5]

On August 5, 2009, Taylor, Bean & Whitaker ceased business operations, and terminated all employees at its headquarters.^[6] The company filed for bankruptcy protection on August 24, 2009.^[2]

Ocala Funding; Lawsuit by Deutsche Bank and BNP Paribas

In 2005, Taylor Bean created and then subsequently operated a special-purpose entity subsidiary, Ocala Funding. Ocala was a conduit which purchased its home loans, and bundled them into securities which it then sold to Freddie Mac and other investors.^[7][8] It funded the mortgage loan business by selling $1.75 billion of worthless asset-backed commercial paper short-term notes to Deutsche Bank and the mortgage subsidiary of BNP Paribas.^[7][8][9] Deutsche Bank bought about $1.2 billion of the notes, and BNP had purchased about $480.7 million in the notes.^[10]

Ocala hired Bank of America as both its trustee and collateral agent for the Ocala commercial paper.^[11] Prosecutors said that Ocala Funding engaged in what was one of the largest bank frauds in United States history.^[3]

Deutsche Bank and BNP Paribas sued Bank of America over the $1.75 billion in losses stemming from the fraud, saying their agreements required that Ocala hold $1.6 billion in cash or mortgage loans as collateral to be deposited with Bank of America, and that Bank of America breached its custodial and trustee obligations and improperly transferred billions of dollars of funds that were serving as collateral at Ocala's request.^{[7][8][11][12][13]}

The case is being heard by Judge Robert Sweet in the United States District Court for the Southern District of New York.^[7][8][14] Sweet allowed some of the case to proceed in March 2011, writing that Deutsche Bank and BNP Paribas had stated a "plausible claim" against Bank of America.^[11][12]

In June 2012, Judge Sweet dismissed a counter-suit by Bank of America Corp. against the securities units of BNP Paribas and Deutsche Bank, alleging negligence and breach of fiduciary duty on their behalf for their role in the sale of notes issued by Ocala Funding.^[15][16][10] Sweet held that the units, acting as brokers in the sale of the Ocala notes, owed “no duty … to investigate or verify representations” made in a private placement.^[16][10]

Executive convictions

On April 19, 2011, a federal jury in Alexandria, Virginia, convicted Lee Farkas, the majority owner of the company, of 14 counts of securities fraud, bank fraud, and wire fraud and conspiracy to commit fraud. According to the government case, the multi-billion dollar fraud caused the downfall of Colonial Bank and cheated investors and the government. The fraud began in 2002 when Taylor overdrew its account with Colonial BancGroup by several million dollars. Taylor Bean then promised to cover the amount by the end of the day in a process known as sweeping. When the overdrafts grew to over $100 million, mid-level Taylor Bean executives sold Colonial BancGroup $1 billion in mortgages that it did not own.

During his sentencing hearing on June 30, 2011, Farkas read a statement saying that he "strived to be a good person." However, Federal District Judge Leonie Brinkema replied that she did not observe any genuine remorse, and sentenced the 58-year-old Farkas to 30 years in federal prison--at his age, effectively a life sentence.^[17] Farkas is currently serving his sentence in a medium-security facility at the Butner Federal Correctional Complex in Butner, North Carolina, and is scheduled for release in 2037.^[18]

In 2012 federal appellate court upheld his convictions and sentence.^[19] But in 2013 he said he was innocent and asked a federal judge to set aside his convictions and prison sentence, arguing that his trial and appellate lawyers provided ineffective assistance, and that his trial lawyers should have sought a judgment of acquittal because the evidence against him was insufficient.^[19][20]

The company’s former chief executive and lead manager for Ocala Funding (Paul R. Allen, who admitted to allowing $1.5 billion in collateral to be misappropriated from Ocala and was sentenced in 2011 to 40 months in prison, followed by two years of supervised release) and treasurer (Desiree Brown, who was sentenced to six years in prison) pleaded guilty and cooperated in the case against Farkas, and other executives received sentences ranging from three months (senior financial analyst Sean Ragland) to eight years (Catherine Kissick, senior vice president and head of the Mortgage Warehouse Loan Division).^{[17][21][22][20]}

References

External links

• Company homepage
• Company REO homepage (from wayback machine in December 2008)