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Colonial BancGroup target of federal criminal investigation

Colonial BancGroup, a struggling Alabama bank with a major presence in Florida, disclosed Friday that it is the target of a federal criminal investigation into alleged accounting irregularities at its mortgage warehouse lending unit.

The bank said it was told the alleged accounting irregularities relate to more than one year's audited financial statements and regulatory financial reporting. It pledged full cooperation with the investigation.

The disclosure follows a Monday raid by federal agents at a Colonial branch in Orlando and the raid and subsequent closure of a mortgage lender with close ties to the bank: Ocala-based Taylor, Bean & Whitaker.

Colonial, which has nearly 200 branches in Florida, was counting on Taylor Bean for a $300 million infusion in capital, a deal that fell apart last week. Taylor Bean, which tapped into Colonial's mortgage warehouse unit to finance loans, lost its license to sell FHA-insured mortgages amid a federal investigation into alleged fraud and "irresponsible lending practices." Taylor Bean closed Wednesday, putting 1,000 employees in Ocala out of work.

Colonial also is the subject of a Securities and Exchange Commission investigation related to its participation in the federal Troubled Asset Relief Program and its accounting for loan loss reserves.

The bank also said it received notice that it's the subject of a meeting of the Alabama State Banking Board next Wednesday. Colonial will be asked for its consent to letting the state appoint the FDIC as receiver or conservator of the bank if deemed necessary.

Colonial shares closed Friday at 49 cents, down 30 percent.

Colonial BancGroup target of federal criminal investigation 08/07/09 [Last modified: Tuesday, September 22, 2009 11:45am]
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