Mortgage Executive Receives 30-Year Sentence

A federal agent escorted Lee B. Farkas, a former mortgage industry executive, after a court appearance in June 2010 in Ocala, Fla. Bruce Ackerman/Ocala Star-BannerA federal agent escorted Lee B. Farkas, a former mortgage industry executive, after a court appearance in June 2010 in Ocala, Fla.

8:40 p.m. | Updated

A federal judge on Thursday sentenced Lee B. Farkas, a former mortgage industry executive accused of masterminding one of the largest bank fraud schemes in history, to 30 years in prison.

The case against Mr. Farkas, the former chairman of the mortgage firm Taylor, Bean & Whitaker, stands as the single-biggest prosecution stemming from the financial crisis. Prosecutors had asked for a sentence of as much as 385 years.

“I do not detect one bit of actual remorse,” Judge Leonie M. Brinkema told Mr. Farkas in a federal courtroom in Alexandria, Va., on Thursday. “You regret getting caught.”

Mr. Farkas, 58 years old, wearing a green prison jumpsuit, read from a statement that said he “strived to be a good person.”

As chairman of Taylor Bean, Mr. Farkas orchestrated a plot that caused the demise of Colonial Bank and cheated investors and the government out of billions of dollars, prosecutors say.

Still, Taylor Bean was a minor financial firm based in Florida, and the crimes of Mr. Farkas began well before the crisis struck. So while the case is a defining moment for the government, its relative obscurity also highlights the continued struggle to prosecute financial fraud in the wake of the crisis.

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Other than Mr. Farkas and a string of smaller mortgage fraud prosecutions, no senior financial executives have been convicted of crimes. Even now, federal prosecutors have yet to bring charges against an executive who ran a large Wall Street institution leading up to the crisis.

A 2009 case against two hedge fund managers at Bear Stearns ended in acquittals. Prosecutors also recently dropped an investigation into Angelo R. Mozilo, the former head of the subprime lending giant Countrywide Financial.

“We’re going to pursue financial institutions when we believe we can prove those cases,” Lanny A. Breuer, the assistant attorney general, said in an interview on Thursday. “These can be very complicated cases that take a long period of time.”

The government, aiming to send a message to the financial industry, asked Judge Brinkema to impose up to the maximum 385-year sentence on Mr. Farkas. As an alternative, the government recommended a penalty of at least 50 years to ensure that he will “spend the remainder of his life in prison.”

Richard L. Scheff, a former federal prosecutor who is now a criminal defense lawyer and chairman of Montgomery, McCracken, Walker & Rhoads, called the government’s request “completely over the top.”

“Under any stretch of the imagination, 30 years is very significant; it’s tantamount to a life sentence,” he said.

Mr. Farkas, who also was ordered to turn over roughly $38.5 million in gains, had asked for a 15-year sentence. His lawyers argued that his actions were intended to keep Taylor Bean and Colonial Bank in business.

His sentence, while steep, falls short of the 150 years given to Bernard L. Madoff for running a huge Ponzi scheme.

Mr. Farkas’s fellow Taylor Bean executives fared far better. The firm’s former chief executive and treasurer, among others, pleaded guilty and cooperated in the case against Mr. Farkas. The executives received sentences ranging from three months to eight years.

In recent letters to the court, friends and supporters of Mr. Farkas painted him as a kind-hearted humanitarian, someone who always “displayed integrity.” Mr. Farkas once paid a stranger’s medical bills, often donated to the local Salvation Army’s Christmas fund-raiser and even offered his private jet to take a mother and her baby to New York for cancer treatment, they said.

Mr. Farkas took the stand during the trial to defend this reputation and deny any wrongdoing.

But a federal jury in Virginia was unmoved. In April, after a 10-day trial and little more than a day of deliberations, the jurors found Mr. Farkas guilty on 14 counts of securities, bank and wire fraud and conspiracy to commit fraud.

Mr. Farkas’s $2.9 billion scheme began in 2002, prosecutors say, when Taylor Bean was facing mounting losses. To hide the losses, Taylor Bean executives secretly overdrew the firm’s accounts with Colonial Bank. The lender, aiming to cover up the overdrafts, sold Colonial about $1.5 billion in “worthless” and “fake” mortgages. The government, in turn, guaranteed the bogus loans.

When Colonial started to struggle, Mr. Farkas helped convince the bank to apply for more than $550 million in taxpayer bailout funds. The Treasury Department initially approved the rescue loan, but ultimately withdrew the offer.

Colonial filed for bankruptcy in August 2009, making it the sixth-largest bank failure in history.

Mr. Farkas, meanwhile, diverted more than $40 million from Taylor Bean and Colonial to “finance his lifestyle,” prosecutors said. He used the money, according to the government, to buy a private jet, vacation homes and a collection of vintage cars.

“He did this to live like a king, and now justice has come to bear,” Mr. Breuer said.