Lee Bentley Farkas was born in Albuquerque, New Mexico. He dropped out of college to run the family insurance firm after his father died. After it floundered, he drifted for a period, before setting up a construction company in Ocala, Florida, which failed in 1989. In 1991 he bought a small mortgage company called Taylor, Bean & Whitaker (TBW) for $75,000, funded by a loan from the mother of a friend. Over the next 18 years he would transform TBW into one of the largest mortgage brokers in the US. By 2008, it was dealing with $35bn a year in mortgages.
What was the scam?
What happened next?
By early 2009 Colonial Bank was on the verge of going under. Realising this would expose the true extent of his overdraft and by implication his fraud, Farkas joined a consortium of investors that offered to recapitalise the lender in exchange for support from the government’s crisis-era Trouble Asset Relief Program (TARP). Auditors hired by the scheme quickly discovered evidence of fraud and alerted the FBI. Later that year TBW declared bankruptcy. Farkas and Kissick were convicted of fraud and received hefty prison sentences.
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Lessons for investors
Total losses from the fraud are estimated at around $3bn and Farkas’s use of mortgages as collateral for multiple loans caused legal chaos for many unfortunate homeowners. The collapse of Colonial, which lost around $500m with TBW, was the sixth largest bank failure in US history; the Federal Deposit Insurance Corporation lost $2.8bn in the subsequent rescue. Much of this could have been avoided had the lenders followed the example of Fannie Mae, which cut ties with TBW back in 2002 over claims that some of the mortgages it had been sold were fraudulent.
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