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Government's sentencing memo in U.S. v. Farkas

Government's sentencing memo in U.S. v. Farkas

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Categories:Business/Law
Published by: DealBook on Jun 27, 2011
Copyright:Attribution Non-commercial

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11/05/2012

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 IN THE UNITED STATES DISTRICT COURT FOR THEEASTERN DISTRICT OF VIRGINIAAlexandria Division)UNITED STATES OF AMERICA )) Case No. 1:10CR200v. )) Honorable Leonie M. BrinkemaLEE BENTLEY FARKAS, )) Sentencing Date: June 30, 2011Defendant. )
POSITION OF THE UNITED STATESWITH RESPECT TO SENTENCING
The United States of America, through its attorneys, Denis J. McInerney, Chief, FraudSection of the Criminal Division of the United States Department of Justice, Patrick F. Stokes,Deputy Chief, and Robert A. Zink, Trial Attorney, and Neil H. MacBride, United States Attorneyfor the Eastern District of Virginia, Charles F. Connolly and Paul J. Nathanson, Assistant UnitedStates Attorneys, in accord with 18 U.S.C. § 3553(a) and the United States SentencingCommission, Guidelines Manual (“Guidelines” or “U.S.S.G.”) § 6A1.2 (Nov. 2010), files thisPosition of the United States With Respect to Sentencing of the defendant, Lee Bentley Farkas.
 Introduction
From 2002 to August 2009 Farkas orchestrated a fraud of staggering proportions – one of the largest bank fraud schemes in this country’s history – through his company, Taylor, Bean &Whitaker Mortgage Corp. (“TBW”). Farkas spearheaded the sale of more than $1.5 billion infake mortgage assets to Colonial Bank, ultimately leaving a deficit of more than $500 million inits Assignment of Trade (“AOT”) financing facility. He directed the misappropriation of morethan $1.5 billion from Ocala Funding, a commercial-paper vehicle set up by TBW to finance
Case 1:10-cr-00200-LMB Document 295 Filed 06/23/11 Page 1 of 31 PageID# 4963
 
 
Page 2 of 31mortgage purchases and funded by Deutsche Bank (“DB”) and BNP Paribas (“BNP”). Heoversaw the triple-selling of mortgage loans, worth approximately $900 million, to ColonialBank, Ocala Funding, and Freddie Mac. He led an effort to fraudulently obtain another $553million from the government’s Troubled Asset Relief Program (“TARP”). His schemecontributed significantly to the failure of Colonial Bank, wiping out shareholder value in itspublic parent company, Colonial BancGroup. And, throughout, Farkas profited handsomely. Asthe principal owner of TBW, which would have collapsed in 2002 but for the fraud scheme,Farkas took home millions in salary. He personally stole more than $40 million from TBW andColonial Bank. He acquired a jet, in part, through the sale of fake mortgages. He diverted TBWmoney to assemble a large personal collection of expensive antique and collector cars. Heamassed a substantial portfolio of vacation homes, rental properties, restaurants, and smallbusinesses, all financed by TBW. And he drew attention to himself through charitable givingmade possible only because of his fraud.Farkas fueled his lifestyle of ostentatious wealth by ripping off banks and attempting tosteal from the government, all with little to no regard for the consequences to TBW’s or ColonialBank’s employees, thousands of whom lost their jobs when TBW and Colonial Bank closed, orto the shareholders of Colonial BancGroup. Between 2007 and August 2009, as the countryfaced one of the worst financial crises in recent history largely sparked by suspect mortgage-related transactions, Farkas ramped up his scheme to rip off banks through sales of fakemortgage assets and by double-and triple-selling mortgage loans. And to this day, as evidencedby his deceitful testimony on the stand and his written submission to the probation officer,Farkas continues to deny any responsibility for the devastation brought on by the staggeringfraud scheme that he initiated and led.
Case 1:10-cr-00200-LMB Document 295 Filed 06/23/11 Page 2 of 31 PageID# 4964
 
 
Page 3 of 31The nature, duration, and scope of Farkas’s criminal acts warrant maximum punishmentfor maximum deterrence. The Guidelines in this case advise a sentencing range of life, bound bythe statutory maximum of 385 years. In light of Farkas’s stunning criminal scheme, giving fullforce to the advisory Guidelines range here would be fair and just. Accordingly, the governmentrespectfully submits that an appropriate sentence in this case would be a Guidelines sentencecapped at the statutory maximum of 385 years. Alternatively, the government respectfullyrecommends a period of years that would ensure that Farkas will remain in prison for life andforcefully promote general deterrence.
 Background 
1
 
Lee Farkas was the chairman and principal owner of TBW, a mortgage company based inOcala, Florida. Colonial Bank was one of the 25 largest depository banks in the country and wasbased in Montgomery, Alabama. Colonial’s Mortgage Warehouse Lending Division (“MWLD”)provided financing to mortgage origination companies, including TBW. From approximately2002 through August 2009, Farkas and numerous co-conspirators defrauded three banks of morethan $2.9 billion, misled shareholders of Colonial BancGroup, and attempted to fraudulentlyobtain approximately $553 million from the government’s TARP program.
I.
 
T
HE
F
IVE
P
HASES OF THE
F
RAUD
S
CHEME
 At trial, the government proved Farkas led a five-part fraud scheme:
A
.
Overdraft / sweeping scheme
 Beginning in 2002, Farkas and other co-conspirators engaged in a “sweeping” schemeto hide overdrafts in TBW bank accounts held at Colonial Bank. TBW ran large overdrafts
1
In light of this Court’s familiarity with the facts of this case, the Government includes only abrief overview and recitation of the key facts.
Case 1:10-cr-00200-LMB Document 295 Filed 06/23/11 Page 3 of 31 PageID# 4965

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