A former operations supervisor at Colonial Bank admitted taking part in what prosecutors said was a $1.9 billion fraud that targeted the U.S. bank bailout program.
Teresa Kelly, 35, of Orlando, Florida, pleaded guilty today in federal court in Alexandria, Virginia, to one count of conspiracy to commit wire fraud, bank fraud and securities fraud. Kelly, the fourth person to plead guilty in the case, also agreed to cooperate with a probe of Taylor, Bean & Whitaker Mortgage Corp.
Federal prosecutors filed a criminal complaint against Kelly last week before U.S. District Judge Leonie Brinkema, who has presided over cases tied to an alleged scheme that the U.S. said sought to defraud the Troubled Asset Relief Program and contributed to the failure of Montgomery, Alabama-based Colonial Bank.
“The essence of this is that you were aware of Colonial Bank’s financial problem,” Brinkema said to Kelly in court. “How were you aware of it?”
“I was involved,” said Kelly, who according the Securities and Exchange Commission helped prepare the false documentation underlying the scheme.
Kelly, who is set to be sentenced on June 17, faces a maximum prison term of five years, plus a fine of as much as $250,000 and full restitution to victims, Brinkema said.
Four others, including former Taylor Bean Chairman Lee Farkas, were charged previously in the alleged scheme to deceive financial firms and TARP by covering up shortfalls at Ocala, Florida-based Taylor Bean. Taylor Bean was once the largest non- depository mortgage lender in the U.S., according to the SEC. Farkas’s trial on 16 counts is set for April 4.
The SEC filed a civil lawsuit against Kelly today in Alexandria charging her with antifraud, reporting, and books and records violations, according to an e-mailed statement from the agency.
“For nearly seven years, Kelly abused her access to Colonial Bank’s accounting systems, allowing Farkas and TBW to defraud the bank and its investors out of more than $1.5 billion,” said William P. Hicks, associate regional director of the SEC’s Atlanta Regional Office, in the statement.
Kelly’s criminal lawyer, Robert Leventhal of Orlando, Florida, said he hadn’t seen the SEC complaint and couldn’t comment.
Raymond E. Bowman, the former president of Taylor Bean, pleaded guilty to fraud-related charges on March 14 and faces a maximum sentence of 10 years in prison and a $500,000 fine, and must pay full restitution to victims.
Desiree Brown, Taylor Bean’s former treasurer, and Catherine Kissick, a former Colonial Bank executive, earlier pleaded guilty to conspiracy and agreed to cooperate in the government’s prosecution of Farkas. Both also settled securities cases with the SEC.
Brown and Kissick each face 30 years in prison, a $250,000 fine and an order to pay restitution to more than 250 victims.
Kelly admitted today that from 2002 through August 2009, she was part of the conspiracy that included efforts to defraud Colonial Bank, its parent company Colonial BancGroup Inc. (CBCGQ), shareholders of Colonial BancGroup, and other investors.
The conspirators, in a scheme they called “Plan B,” sent mortgage data to Colonial Bank for loans that didn’t exist or that Taylor Bean had already committed or sold to other investors, according to court records.
By the end of 2007, the scheme consisted of approximately $500 million in fake residential mortgage loans and approximately $1 billion in severely impaired residential mortgage loans and securities, the SEC said in a statement.
Taylor, Bean accounted for about 2 percent of the single- family mortgages by volume bought by the government-sponsored mortgage finance firm, Freddie Mac, in 2009, according to a company filing. The firm said it filed a claim in Taylor, Bean’s bankruptcy for $1.8 billion, with $440 million relating to funds deposited with Colonial Bank.
Alabama regulators seized Colonial Bank in 2009 and the Federal Deposit Insurance Corp. was appointed as receiver. Colonial BancGroup filed for bankruptcy in 2009.
The case is U.S. v. Kelly, 11-cr-00119, U.S. District Court, Eastern District of Virginia (Alexandria).
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