Lee Farkas, mortgage lender, charged with TARP fraud

Thursday, June 17th, 2010 By


The Securities and Exchange Commission is charging Lee Farkas with fraud. Image from Flickr.

When the U.S. federal government created the Troubled Asset Relief Program, it was intended to help bail out lenders in trouble. The cost of the TARP program has been significantly less than expected. However, the Securities and Exchange Commission is prosecuting some mortgage lenders for fraud that amounts to $1.9 billion. Lee Farkas, chairman of a mortgage lender, has been charged in federal court for defrauding the TARP program.

Taylor, Bean, & Whitaker Mortgage lenders

The majority owner and chairman of mortgage lender Taylor, Bean & Whitaker, Lee Farkas, was in charge of investments that mortgage lender sold. During the administration of TARP funds, TBW sold more than $1.5 billion in “fabricated or impaired loans” to Colonial Bank. These loans helped Colonial qualify for bailout funds from the federal government. While Taylor, Bean & Whitaker under Lee Farkas used to be one of the largest non-bank mortgage lenders in the U.S., it filed for bankruptcy in August of 2009.

The alleged crimes of Lee Farkas

While he was the head of the mortgage lender, Lee Farkas allegedly defrauded the SEC of more than $1 billion. The Securities and Exchange commission alleges that Farkas sold $1 billion in “damaged” mortgage loans and $500 million in fake loans. Lee Farkas also allegedly headed up a “bogus equity investment” that helped Colonial Bank qualify for TARP funds. These actions, along with other alleged crimes, resulted in losses of more than $1.9 billion of TARP funds.

Federal Reserve improving oversight

The Chairman of the Fed, Ben Bernanke, is working on two fronts to improve the oversight the Fed has of the financial industry. In general, the Fed has come out in support of the financial reform bill working its way through Congress. Separate from the financial reform bill, the Fed and SEC are also working together to beef up oversight and prosecution of financially dangerous or fraudulent practices.

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