Great frauds in history... Lee B. Farkas’s dodgy mortgages
Lee Bentley Farkas transformed TBW into one of the largest mortgage brokers in the US – his fraud is reckoned to have cost around €3bn.

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?
TBW originated the mortgages, then quickly resold them to various investors, relying on Colonial Bank, one of the largest banks in the region, to provide short-term funding. Consistent losses meant that TBW’s overdraft with Colonial grew and grew. Farkas persuaded Catherine Kissick, an executive with Colonial, to hide the overdraft from her superiors. Meanwhile, he started including fictitious mortgages in the bundles that he resold to investors. With debts continuing to mount, Farkas borrowed even more money from large financial institutions through a subsidiary, using mortgages that were either fraudulent or pledged for multiple loans as collateral.
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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
-
How much gold is in the world?
Have you ever wondered how much gold is in the world and who holds it? We take a look at the top countries with the most gold reserves.
-
UK interest rate cut “seems like a certainty” this week
Markets and economists are confident that the Bank of England will cut interest rates by at least 25 basis points tomorrow, as growth fears ramp up
-
Trapped in a time of zombie government
It’s not just companies that are eking out an existence, says Max King. The state is in the twilight zone too.
-
America is in deep denial over debt
The downgrade in America’s credit rating was much criticised by the US government, says Alex Rankine. But was it a long time coming?
-
Bank of England raises interest rates to 5.25%
The Bank has hiked rates from 5% to 5.25%, marking the 14th increase in a row. We explain what it means for savers and homeowners - and whether more rate rises are on the horizon
-
UK inflation remains at 8.7% ‒ what it means for your money
Inflation was unmoved at 8.7% in the 12 months to May. What does this ‘sticky’ rate of inflation mean for your money?
-
VICE bankruptcy: how did it happen?
Was the VICE bankruptcy inevitable? We look into how the once multibillion-dollar came crashing down.
-
Would a food price cap actually work?
Analysis The government is discussing plans to cap the prices of essentials. But could this intervention do more harm than good?
-
UK inflation slides to 8.7% - what does it mean for your money?
News Inflation has dropped below 10% for the first time in months, but with food prices at a 45-year high, is this good news and what does it mean for your money?
-
Why the UK equity market is shrinking
Analysis The crisis has been building for 25 years, says Max King, and it will take decades to reverse the trend.