Taylor Bean & Whitaker Mortgage Settlement: FCA in Action

TBW Agrees To Pay More Than $320 Million for Fraud Allegations

Taylor Bean & Whitaker (TBW), a prominent mortgage company formerly operating as a major player in the mortgage industry alongside its affiliate Home America Mortgage Corp, agreed to pay over $320 million to resolve fraud allegations under the False Claims Act (FCA). The allegations centered on deceptive practices that undermined federal programs, including fraudulent claims submitted to government-backed entities. The case underscores the widespread damage caused by financial misconduct in the mortgage lending sector.

This settlement, one of the largest of its kind, exposed a cycle of systemic fraud involving mortgage-backed securities and the misuse of funds linked to the Troubled Asset Relief Program (TARP). The fraudulent activities not only defrauded government programs like Ginnie Mae and the Federal Housing Administration (FHA) but also left investors facing significant losses. This case highlights the critical role of FCA enforcement in holding companies accountable for financial malfeasance.

A Cycle of Fraudulent Business Practices

The fraudulent scheme involved TBW’s deliberate manipulation of financial data, deceiving regulators and housing authorities allowing the mortgage company to conceal its precarious financial state and continue its operations.

The company submitted materially false financial data to the Government National Mortgage Association (Ginnie Mae) and the Federal Housing Administration (FHA) to continue issuing FHA mortgage loans and mortgage-backed securities. These misrepresentations, which overstated assets in quarterly filings and annual reports, also misled entities into backing risky mortgage securities.

TBW also siphoned funds from its subsidiary, Ocala Funding, and concealed massive overdrafts at Colonial Bank, one of its main banking partners. Court documents disclosed evidence of wire fraud, where TBW falsified financial data and manipulated overdrafts to sustain its business operations despite significant liabilities.

Qui Tam Action Filed Under the False Claims Act

The case came to light through a qui tam action filed by whistleblowers—specifically insider employees—under the False Claims Act. These courageous individuals exposed TBW’s fraudulent scheme, including submitting false claims to Ginnie Mae and FHA, which relied on truthful reporting to back billions in mortgage loans. This case underscores the FCA’s critical role in holding companies accountable and protecting federal programs from exploitation.

Farkas (TBW) in Prison, Case Continues Against Hicks (Home America)

The fallout from Taylor Bean & Whitaker’s (TBW) fraud extended well beyond its bankruptcy, with former chairman Lee Farkas serving a 30-year federal prison sentence for orchestrating one of the largest bank frauds in U.S. history. His fraudulent schemes caused billions in losses to financial institutions and government programs, including the collapse of Colonial Bank, which heavily relied on TBW for mortgage transactions.

Home America Mortgage also became entangled in TBW’s web of fraud, with principal Greg Hicks facing charges for submitting materially false financial data and tricking the government into insuring bad loans. The whistleblowers routinely witnessed the falsification of credit scores, assets, and income before stepping forward.

The legal actions against Farkas and Hicks illustrate the government’s commitment to holding individuals accountable for defrauding public and private entities. These cases highlight the systemic vulnerabilities exploited by bad actors and the ongoing efforts of federal agencies to ensure justice in one of the largest financial frauds in U.S. history.

Role of an Experienced FCA Firm

Cases like this highlight the pivotal role that experienced False Claims Act counsel plays in pursuing justice for the federal government and whistleblowers in complex mortgage fraud matters, helping whistleblowers safely expose systemic schemes that defraud financial institutions, Ginnie Mae, and public investors. The McCabe Law Firm brings deep expertise in FCA litigation and closely monitors watershed cases like this one, making our team a strong choice for whistleblowers considering similar claims. The case is widely regarded as one of the most significant fraud prosecutions in the mortgage lending industry.

Role of the HUD and DOJ

The Department of Housing and Urban Development (HUD) and the Department of Justice (DOJ) worked closely to uncover the breadth of the fraud. HUD, as a regulator of FHA loans, and the DOJ pursued criminal and civil actions to recover funds and penalize those responsible. The case revealed systemic weaknesses in regulatory oversight, including failures at Colonial Bank’s regulator to detect and prevent the fraudulent activities that devastated the mortgage industry.

False Claims Act Pays Percentage to Successful Whistleblowers

The FCA encourages individuals to report fraud against the government by awarding whistleblowers a percentage of the recovered funds. In the case of TBW, whistleblowers played a critical role in uncovering fraudulent schemes that cost taxpayers and financial institutions billions. By stepping forward, these whistleblowers enabled the federal government to address one of the largest bank frauds in U.S. history and recover substantial losses.

As part of the settlement, whistleblowers received millions of dollars for their contributions to exposing TBW’s fraudulent practices under the FCA’s qui tam provisions. This financial incentive not only rewards individuals for their courage but also underscores the vital role of whistleblowers in protecting government programs like the Federal Housing Administration (FHA) and the Troubled Asset Relief Program (TARP). The case demonstrates how whistleblowers can help bring justice while ensuring accountability in the financial and housing sectors.

Settlement Agreement

The $320 million settlement resolved claims tied to fraudulent practices, including issuing false Ginnie Mae securities backed by deceptive financial data. The settlement addressed losses tied to Ocala Funding and Colonial BancGroup, where annual reports contained fraudulent data that inflated TBW’s financial health to secure additional funding. Additionally, Deloitte, TBW’s auditor, faced scrutiny for its role in failing to detect the fraud.

Breakdown of key areas in the settlement:

• FHA and Ginnie Mae: Recovered funds to restore losses incurred from fraudulent FHA mortgage loans and securities.
• Colonial Bank: Addressed overdrafts and false collateral claims tied to Ocala Funding.

Prison Sentences for Ex-TBW Management

Apart from Lee Farkas, several other key players at TBW received significant sentences:

• Desiree Brown, TBW’s former treasurer, received six years in prison.
• Catherine Kissick, a former Colonial Bank employee, was sentenced to eight years for facilitating the fraud.
• Raymond Bowman, TBW’s former president, and others involved faced supervised release and financial penalties.

These sentences demonstrate the government’s commitment to holding individuals accountable for financial crimes.

Conclusion

The Taylor Bean & Whitaker case serves as a landmark example of the power of the False Claims Act in uncovering and addressing fraud. The $320 million settlement, coupled with prison sentences for key players, sends a clear message about the consequences of exploiting federal programs like FHA and Ginnie Mae.

The involvement of whistleblowers, expert legal counsel, and federal agencies like HUD and DOJ highlights the importance of collaboration in fighting fraud. For whistleblowers and legal experts, cases like this reinforce the significance of reporting fraud to protect public funds and ensure justice.

If you suspect financial or mortgage fraud within your organization, contact the skilled FCA case attorneys at The McCabe Law Firm today to evaluate your options safely and confidentially.