Another Mortgage Fraud Conviction

Give it time: prosecutors just might send a serious number of people to prison for the outsized greed and cheating that led to the mortgage meltdown. While these offenders are unlikely to include kingpin figures at the top banks, they aren't mere minnows either.

The latest score for prosecutors was announced yesterday when Sean Ragland pleaded guilty for his role in a $1.5 billion fraud at a major mortgage-lending facility run by Taylor, Bean & Whitaker Mortgage Corp. As the Justice Department describes the case:

According to a statement of facts submitted with his plea agreement, in 2005 TBW established a wholly-owned lending facility called Ocala Funding.  Ocala Funding raised money by selling asset-backed commercial paper to financial institutions, including Deutsche Bank and BNP Paribas , and used the money to purchase TBW mortgages. The facility was managed by TBW and had no employees of its own.

Ragland had tracking and reporting responsibilities with respect to Ocala Funding, and today he admitted that from 2006 through August 2009, he and other co-conspirators engaged in a scheme to mislead investors and auditors as to the financial health of the lending facility.  According to court records, shortly after Ocala Funding was established, Ragland learned there were inadequate assets backing its commercial paper. . . .

Ragland admitted that, at the direction of other co-conspirators, he prepared documents that inaccurately and intentionally inflated figures representing the aggregate value of the loans held in Ocala Funding or under-reported the amount of outstanding commercial paper. He sent this false information to the financial institution investors, other third parties and an outside audit firm.

These lies helped to bring down TBW and also help precipitate the fall of one of the 50 largest U.S. banks, Alabama-based Colonial Bank. Greed is deadly stuff. 

Prosecutors have been working their way through the TBW crowd. The firm's former president, Raymond Bowman, already pleaded guilty as has the former treasurer Desiree Brown. Some executives from Colonial Bank also have pleaded guilty.

One figure who hasn't pleaded guilty is TBW's former chairman Lee Farkas. He's headed for a trial soon, with prosecutors recently denying a request by his attorney, William Cummings, to delay that trial.

Again, Farkas is no Angelo Mozilo. But he was a real player in the boom and one of the shadier ones, too. As the Wall Street Journal reports:

Farkas is a Florida businessman who built Taylor Bean from a small mortgage company into the nation’s largest mortgage lender not owned by a bank. Federal prosecutors claim he engaged in a seven-year, multibillion-dollar fraud by double pledging Taylor Bean’s mortgage loans and improperly transferring loans and securities between the company’s bank accounts. He’s been charged with 16 counts of bank, wire and securities fraud. If convicted, he could spend the rest of his life in prison. He’s pleaded not guilty to the charges. His trial is set to begin April 4.

Needless to say, the three TBW executives who have pleaded guilty so far have all made deals with the prosecution to help nail Lee Farkas. So this guy could end up getting one of the stiffer prison sentences to emerge from the mortgage meltdown.