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Ex-Colonial Bank Official Admits Role in Lender’s Fraud

A former Colonial Bank executive admitted to conspiring with officials at Taylor, Bean & Whitaker Mortgage Corp. to defraud investors and the government of about $970 million.

Catherine Kissick, 50, pleaded guilty to one count of conspiracy to commit wire, securities and bank fraud today in federal court in Alexandria, Virginia. She agreed to cooperate with prosecutors bringing Lee Farkas, Taylor Bean’s former chairman, to trial on April 4 in what the Justice Department says was a $1.9 billion fraud scheme.

Kissick, a former Colonial Bank senior vice president, admitted that from 2002 through August 2009 she conspired with Farkas and other Taylor Bean and Colonial Bank officials to transfer more than $400 million between the bank and the mortgage lender to hide Taylor Bean overdrafts.

“I think there will be other related cases we’ll be sentencing as well,” U.S. District Judge Leonie Brinkema said, predicting more guilty pleas.

Kissick is the second person to plead guilty in what the Justice Department said was a scheme that targeted the government’s Troubled Asset Relief Program and contributed to the Montgomery, Alabama-based bank’s failure.

SEC Suit

The U.S. Securities and Exchange Commission, using a figure of $1.5 billion to describe the size of the scheme, filed a related securities suit today against Kissick, along with a proposed settlement of the case. Kissick didn’t admit or deny the SEC’s allegations.

Taylor Bean’s, former treasurer, Desiree Brown, pleaded guilty Feb. 24 to the same conspiracy charge and agreed to cooperate with prosecutors. Brown, 45, also settled an SEC suit.

Kissick, of Orlando, Florida, faces a maximum sentence of 30 years in prison, a $250,000 fine and an order to pay restitution to more than 250 victims. She is scheduled for sentencing June 17.

Farkas, 58, was the only person until last week to be charged in the alleged scheme to deceive financial firms and TARP by covering up shortfalls at Ocala, Florida-based Taylor Bean, according to an SEC statement. Taylor Bean was once the largest non-depository mortgage lender in the U.S., the SEC said.

Farkas was indicted on 16 counts in June and faces the possibility of spending the rest of his life in prison, according to a Justice Department statement.

‘No Value’

Kissick admitted in writing that she caused “Colonial Bank to purchase assets from TBW of substantially more than $400 million that in fact had no value.”

Kissick said she helped Farkas and other co-conspirators in November 2003 transfer Taylor Bean’s deficit to Colonial Bank’s mortgage loan purchasing facility. The facility was used to provide mortgage originators such as Taylor Bean with funds for new loans while they worked to sell existing ones to investors.

The conspirators in a scheme 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 third-party investors, according to court records.

For about four years, the conspirators sold fictitious and improperly valued mortgage pools to Colonial Bank.

Deleted Records

Kissick admitted to deleting records on her personal BlackBerry and instructing staff members to do the same “‘to evade subpoenas for documents” from TARP’s special inspector general.

She also admitted filing false financial statements with Colonial BancGroup, which were then incorporated into the bank’s SEC filings.

Kissick said in her statement that she “did not personally receive funds paid out by Colonial Bank and Colonial BancGroup to TBS.”

In 2008, as Taylor Bean’s operating losses mounted, Farkas, Kissick and other conspirators allegedly tried through Colonial BancGroup, Colonial Bank’s parent, to obtain about $570 million through TARP, prosecutors said.

The application for funding included false information, and investigators detected irregularities before any TARP money was released, according to the Justice Department.

Alabama regulators seized Colonial Bank in 2009 and the Federal Deposit Insurance Corp. was appointed as receiver. Colonial BancGroup and Taylor Bean, once the 12th largest U.S. mortgage lender, filed for bankruptcy in 2009.

The case is U.S. v. Kissick, 11-cr-00088, U.S. District Court, Eastern District of Virginia (Alexandria).

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