By Dana Hedgpeth and David S. Hilzenrath
Washington Post Staff Writer
Friday, February 25, 2011; 12:19 AM
The former treasurer of one of the country's largest mortgage firms - Taylor, Bean & Whitaker - pleaded guilty Thursday in U.S. District Court in Alexandria to charges of participating in a $1.9 billion fraud scheme.
Desiree Brown, 45, of Hernando, Fla., was accused of participating in a scheme that contributed to the collapse of Colonial Bank in Alabama, one of the nation's largest regional banks. She was also charged with participating in a fraudulent but unsuccessful effort to extract $570 million of federal bailout funds from the Troubled Assets Relief Program. The case is being prosecuted by the Justice Department's criminal division and the U.S. Attorney's Office for the Eastern District of Virginia.
In a parallel civil action announced Thursday, the Securities and Exchange Commission charged Brown with aiding and abetting securities fraud and an attempt to cheat TARP.
The case is one of the largest to emerge from the crisis that brought the nation's financial system to the brink of collapse.
Prosecutors say Taylor Bean acted as a middleman between lenders and investors. The firm borrowed money from Colonial Bank to buy home loans insured by the Federal Housing Administration, the government alleged. Taylor Bean would then pool the loans into securities and sell them to investors. Ginnie Mae would then guarantee them.
But when Taylor Bean began having significant cash flow problems, the government says, the firm's former chairman and chief executive, Lee Bentley Farkas, and his co-conspirators allegedly covered the shortfalls with money from Colonial Bank and investors in another mortgage-lending facility owned by Taylor Bean.
They misused more than $1 billion, authorities said.
Brown, who faces a maximum penalty of 30 years in prison, agreed to cooperate with the government. That could strengthen the prosecution's hand as it tries to convict her former boss Farkas.
Farkas was arrested in Florida in June and indicted by a federal grand jury in Alexandria on 16 counts of bank, wire and securities fraud and other charges. His trial is scheduled to begin in April.
Lawyers for Brown and Farkas did not respond to messages Thursday.