WASHINGTON – A federal grand jury has indicted the head of a now-bankrupt mortgage lending company for allegedly scheming to steal more than half-a-billion dollars from the federal financial bailout.

The indictment in Virginia says Lee Bentley Farkas and co-conspirators carried out the alleged plot at their company, Taylor, Bean & Whitaker Corp. of Ocala, Fla., where Farkas was chief executive.

Farkas was arrested Tuesday night while working out in a gym that he owns in Ocala, Fla., said Shawn Henry, head of the FBI’s Washington, D.C., field office. Besides conspiracy, Farkas is charged with bank fraud, wire fraud and securities fraud.

Neil Barofsky, special inspector general for the bailout fund, said his office’s investigators uncovered the alleged conspiracy before the theft could occur.

Once his office started examining the company, “it quickly became evident we were seeing something that went beyond the central fraud” related to bailout money, Barofsky said in an interview. He said his office told Treasury not to release the $553 million it planned to send to a bank affiliated with TBW.

The attempt to get bailout money was just one part of a scheme that was “truly stunning in its scale and complexity,” Lanny Breuer, the Justice Department’s assistant attorney general for the criminal division, told a news conference Wednesday.

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In separate civil charges, the Securities and Exchange Commission said Farkas sold Colonial Bank of Alabama more than $1.5 billion in fabricated or bad mortgage loans and securities.

Colonial Bank’s failure was the biggest of 2009, and the sixth-largest in U.S. history. It is expected to cost the government-backed fund that insures bank deposits $3.8 billion.Regarding the attempt to access bailout funds, the indictment alleges that Farkas and co-conspirators caused ColonialBancGroup to submit false information to the Federal Deposit Insurance Corp. and to the SEC when applying for Treasury funds.

Farkas was responsible for a bogus equity investment that caused Colonial Bank to misrepresent that it had satisfied a requirement to qualify for bailout money, the SEC said.

When the bank announced it had received preliminary approval for bailout funds, its stock price jumped 54 percent in two hours of trading, according to the SEC.

Barofsky said his office is investigating “scores” of cases involving attempts to defraud the bailout fund. Some are of a scale comparable to the TBW case, he said.

Mortgage finance company Freddie Mac said last year that it could lose $500 million or more as a result of the TBW bankruptcy. In an SEC filing, government-backed Freddie Mac said TBW processed Freddie Mac borrowers’ funds through Colonial Bank.

Freddie filed a proof of claim for about $595 million against Colonial Bank on Nov. 18.

 


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