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From Ocala, a massive banking fraud alleged to bilk taxpayers

This banking deal smelled bad from the get-go.

Why would a troubled Colonial Bank, a top 50 U.S. bank and a big player in Florida, beg to be rescued by a little-known Ocala-based mortgage firm? While outsiders had no clue of the mortgage company's own money shortfalls, Ocala's Taylor, Bean & Whitaker promised to give Alabama-based Colonial $300 million in exchange for control of the much larger bank.

In return, a capital-replenished Colonial could tap the federal government's TARP or Troubled Asset Relief Program, designed to help struggling banks like Colonial through the 2008-2009 economic meltdown.

Ultimately, it was gaining access to those federal funds that Taylor Bean sought for its own purposes. Department of Justice officials call it an unprecedented scheme to bilk U.S. taxpayers of more than $550 million.

None of that took place before the scheme collapsed.

Colonial failed in August despite its last-gasp efforts. Regulators later seized Taylor Bean & Whitaker.

And Tuesday night, ex-Taylor Bean CEO and majority shareholder Lee Bentley Farkas, who for years lived large in Ocala with sports cars and corporate jets, was arrested there.

Farkas, 57, faces a 16-count, 30-page indictment for his alleged role in a $1.9 billion fraud scheme that contributed to the failures of Colonial Bank and Taylor Bean, once one of the largest private mortgage lenders.

Federal charges were announced Wednesday in Virginia by Justice Department officials. Under criticism themselves for poor oversight of the nation's runaway mortgage industry, the feds are anxious to trumpet a real example of a federal crackdown. They see a good story to tell in the Farkas fiasco.

He is charged with one count of conspiracy to commit bank, wire and securities fraud; six counts of bank fraud; six counts of wire fraud; and three counts of securities fraud. The indictment also wants Farkas to forfeit $22 million.

Farkas says he "came here penniless" after growing up in the Caribbean, later building Taylor Bean into a major operation. He faces a maximum sentence of 30 years for the conspiracy charge and for each count of bank fraud.

Farkas and co-conspirators from Taylor Bean and Colonial allegedly tried to misappropriate more than $400 million from Colonial Bank's mortgage warehouse lending division in Orlando. Another $1.5 billion was sought from Ocala Funding, a mortgage business controlled by Taylor Bean.

Why such an elaborate scheme to divert all this money? To hide growing Taylor Bean losses that started as far back as 2002, the federal indictment says. For years, it sold fictitious trades of mortgages worth hundreds of millions to an oblivious Colonial Bank.

This federal case clearly focuses on a long list of charges against Farkas. But it also begs the question: How could a bank as big and presumably as sophisticated as Colonial be so easily snookered by the alleged light-fingered accounting and empty promises of a guy named Farkas in Ocala? As so often is the case, it's about the sheer desperation of trying to survive.

Robert Trigaux can be reached at [email protected]

From Ocala, a massive banking fraud alleged to bilk taxpayers 06/16/10 [Last modified: Thursday, June 17, 2010 7:02am]
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