{"id":10168,"date":"2012-07-16T06:00:45","date_gmt":"2012-07-16T11:00:45","guid":{"rendered":"http:\/\/www.sequenceinc.com\/fraudfiles\/?p=10168"},"modified":"2015-03-15T20:48:02","modified_gmt":"2015-03-16T01:48:02","slug":"american-greed-cracking-the-facade-of-fraud","status":"publish","type":"post","link":"https:\/\/www.sequenceinc.com\/fraudfiles\/american-greed-cracking-the-facade-of-fraud\/","title":{"rendered":"American Greed: Cracking the Fa\u00e7ade of Fraud"},"content":{"rendered":"

\"\"Jenna Martino, CNBC Associate Producer<\/em><\/p>\n

When Sandy Smith of Stevenville, Texas, purchased her home, she never dreamed there would be any issue taking out a mortgage with Taylor, Bean & Whitaker, a lending company based in Ocala, Fla. The previous homeowners had used them. This wasn\u2019t Sandy\u2019s first time taking out a mortgage and she thought she knew what she was getting into. She made her payments on time each month, but before she knew it, she started receiving foreclosure notices. She had unknowingly become a victim to a multibillion-dollar scam and was one of more than 500,000 homeowners who fell prey to mortgage mogul Lee Farkas.<\/p>\n

Farkas\u2019s crimes added up to a $2.9 billion fraud and directly led to the sixth largest bank failure in U.S. history.<\/p>\n

<\/strong>The Scam <\/strong><\/p>\n

There are many layers to this scam, multiple cover-ups, and a list of criminals who took part in this massive fraud, but it all comes down to one man: Lee Farkas. His actions bankrupted his own company, TBW, one of the largest privately held mortgage lending companies in the United States, and led to the failure of Colonial Bank, one of the 25 largest banks in the United States in 2009.<\/p>\n

He diverted more than $40 million from his own company to finance his indulgent lifestyle, collecting classic cars, buying multiple vacation homes up and down the East Coast and purchasing a $28 million jet.<\/p>\n

Farkas had also made TBW one of the fastest-growing mortgage lenders in the country, but the company had a secret. Their account at Colonial was massively overdrawn upwards of $100 million.<\/p>\n

In an attempt to cover up the company\u2019s deficits, Farkas persuaded a Colonial Bank executive to help mask his shortfalls. By shuffling money between his company\u2019s accounts and pretending to sell loans to Colonial, they disguised the fraud for a period of time. However, the loans were either nonexistent or completely bogus, and the cover-up transformed into a vicious cycle.<\/p>\n

<\/strong>Banks & Fraud <\/strong><\/p>\n

There have been more than 400 bank closures in the past 4 years, and they have failed for various reasons including fraud.<\/p>\n

Although there are regulations and checks and balances in place for banks to be vigilant in detecting and reporting fraud, executives with unbridled authority can be a driving force behind these crimes.<\/p>\n

Tracy Coenen<\/strong> is a forensic accountant and expert in financial fraud and head of Sequence Inc., a forensic accounting and fraud examination service.<\/p>\n

According to Coenen, problems in management oversight and internal and external abuses are contributing factors in how a bank can fail.<\/p>\n

\u201cTo commit the fraud, executives can approve transactions without proper documentation or any substance behind the transactions,\u201d Coenen said. \u201cThey also have the authority to cover up these acts by creating fake documentation, making false accounting entries, directing employees to aid in the cover-up, and otherwise diverting attention away from the bad acts.\u201d<\/p>\n

Coenen mentions two ways in which Farkas\u2019s bank scam grew so large that it led to the demise of Colonial Bank.<\/p>\n

\u201cCollusion and complexity. With multiple actors on either side of the fraud, the chances are increased that they\u2019ll get away with the fraud for a longer period of time. Add to this a complex web of transactions that the fraudsters create, and it\u2019s difficult to unravel the fraud,\u201d Coenen said.<\/p>\n

How did Farkas\u2019s fraud last for so many years?<\/p>\n

The scam involving TBW and Colonial Bank is one of the largest and longest running frauds in U.S. history. It lasted 7 years before being discovered.<\/p>\n

\u201cSadly, the traditional audit process is not very good at detecting fraud because we\u2019re dealing with very sophisticated knowledgeable executives. They are at very high levels, and they are familiar with banking and auditing. They know what the auditors will look for, so they can plan their fraud and cover-up accordingly,\u201d Coenen said. \u201cNormally, there are checks and balances in place to stop these kinds of schemes. But when upper level executives are in on the fraud, they override those checks and balances.\u201d<\/p>\n

<\/strong>When it All Comes to an End <\/strong><\/p>\n

For Farkas, problems finally arose when Colonial Bank began to struggle and applied for $553 million from the government\u2019s Troubled Asset Relief Program. It was these investigators that finally revealed what he and his inner circle had tried so hard to cover up.<\/p>\n

\u201cIn this case, Colonial Bank applied to the TARP program to receive additional funding. Presumably some of the funding was going to go to fund the fraud that was going on with Farkas and the other executives,\u201d Coenen added.<\/p>\n

Potentially, without the request for TARP funds, this fraud could have continued in the same fashion. However, when the investigators dug into the books, it did not take very long for red flags to pop up everywhere. The fraud broke wide open.<\/p>\n

<\/strong>Cracking the Fa\u00e7ade of the Fraud <\/strong><\/p>\n

Ultimately, Farkas destroyed his own company. He left more than 2,000 employees without work, and Colonial filed for Chapter 11 bankruptcy. Farkas was sentenced in 2011 to 30 years in prison after being convicted of 14 counts of conspiracy, bank, securities, and wire fraud. The scam, which had grown to $2.9 billion is responsible for the sixth largest bank failure in American history.<\/p>\n

<\/strong>Is Your Money Safe? <\/strong><\/p>\n

According to Coenen, if you are a patron of a bank that fails, you are generally not going to lose any money.<\/p>\n

\u201cBy knowing the FDIC limits and not exceeding them, if a bank goes under, the FDIC will reimburse customers for insured deposits up to a limit,\u201d Coenen said.<\/p>\n

As for Sandy Smith, it has been a terribly expensive and exhausting journey. She\u2019s faced foreclosure six times and has fought eviction in court.<\/p>\n

\u201cYou never know who is going to knock on your door, what is going to come in the mail, or who\u2019s on the other end when you pick up the telephone. It\u2019s 24 hours a day, 7 days a week. It\u2019s a lot of stress,\u201d Smith said.<\/p>\n

When asked about her credit score, Smith replied, \u201cIt\u2019s basically nonexistent. The last time I checked, there were two foreclosure notices. I haven\u2019t checked it since.\u201d<\/p>\n

She admits what happened to her was terrible but refers to it as an \u201cincredible journey.\u201d<\/p>\n

Now, Smith works with other victims to try to help them through their struggles concerning their own mortgage issues with Taylor, Bean & Whitaker. Although she could choose to be bitter, Smith instead says, \u201cIt\u2019s not about me. It\u2019s about putting the truth out there, to help as many people as I possibly can.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

Jenna Martino, CNBC Associate Producer When Sandy Smith of Stevenville, Texas, purchased her home, she never dreamed there would be any issue taking out a mortgage with Taylor, Bean & Whitaker, a lending company based in Ocala, Fla. The previous […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[5],"tags":[],"class_list":["post-10168","post","type-post","status-publish","format-standard","hentry","category-fraud-news-stories"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p6Z0e-2E0","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts\/10168","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/comments?post=10168"}],"version-history":[{"count":0,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts\/10168\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/media?parent=10168"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/categories?post=10168"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/tags?post=10168"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}