FALLS CHURCH, Va. (AP) - A financial executive responsible for one of the largest frauds prosecuted out of the nation’s financial crisis a decade ago is being released from prison on compassionate grounds after serving just nine years of his 30-year sentence.
A judge on Tuesday ordered the release of Lee Farkas, 67, chairman of the now-defunct Florida-based mortgage company Taylor, Bean and Whitaker. Farkas sought release from prison because of concerns he was susceptible to the coronavirus while serving time at the Coleman low-security prison in Wildwood, Florida.
Farkas was majority owner of one of the nation’s largest mortgage companies when it engaged in a $3 billion fraud. His case was considered by many to be the most significant to be prosecuted stemming out of the mortgage, housing and financial scandals linked to the Great Recession.
The fraud led not only to the collapse of his company and the loss of 2,000 jobs, but also to the collapse of Alabama-based Colonial Bank, the sixth-largest bank failure in U.S. history at the time.
U.S. District Judge Leonie Brinkema in Alexandria, Virginia, cited Farkas’ age, health problems and an outbreak of coronavirus cases at the prison in ordering the release.
“Yes it was a large financial crime, but he was not the only person engaged in that type of crime,” she said. She also noted that the biggest victims in the fraud were other financial institutions, including Deutsche Bank.
After Farkas completes a 14-day quarantine, he will be released to live with his sister in Albuquerque, New Mexico. Prosecutors opposed the release and asked the judge to at least impose home confinement rather reducing the sentence to time served, but Brinkema said it’s “unreasonable to expect him to live 21 years in his sister’s house. … I’m not at all concerned about the interests of justice not being served.”
The fraud began in 2002, when Taylor Bean overdrew its main account with Colonial by several million dollars. Mid-level executives at Colonial agreed to transfer money into Taylor Bean’s accounts at the end of each day to avoid generating overdraft notices, a process known as “sweeping.”
As the hole grew to well over $100 million, Taylor Bean and a handful of Colonial executives concocted a scheme in which Taylor Bean sold hundreds of millions in worthless mortgages to Colonial, mortgages that had already been sold to other investors. More than $1 billion in such phony mortgages were eventually sold to Colonial, which listed them on its books as legitimate assets.
More than a half-dozen executives at Colonial and Taylor Bean pleaded guilty to their roles in the scheme, and many testified against Farkas at his 2011 trial.
Prosecutors said Farkas used the money to fund a lavish lifestyle that included a $28 million private jet, vacation homes in Maine and Key West, and expensive antique cars, among other luxury items.
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