TBW Executive Pleads Guilty to Criminal Charges

A former executive of Taylor, Bean and Whitaker Mortgage Corporation (TBW) is facing a maximum penalty of 10 years in prison after pleading guilty Tuesday to making false statements and conspiring to commit bank and wire fraud.  Delton de Armas, former chief financial officer of TBW is the latest of over a half dozen former officials to either plead or be found guilty of charges arising out of a $2.9 billion scheme that contributed to the failures of TBW and Colonial Bank.

According to court documents, De Armas, 41, of Carrollton, Texas joined TBW in 2000 as its CFO and reported directly to its chairman, Lee Bentley Farkas, and later to its CEO, Paul Allen.  De Armas admitted in court that from 2005 through August 2009, he and other co-conspirators engaged in a scheme to defraud financial institutions that had invested in a wholly-owned lending facility called Ocala Funding.  Ocala Funding sold asset-backed commercial paper to financial institutions, including Deutsche Bank and BNP Paribas to raise funds for TBW’s lending. The facility was managed by TBW and had no employees of its own.

According to court records, shortly after Ocala Funding was established, de Armas learned there were inadequate assets backing its commercial paper, a deficiency referred to internally at TBW as a “hole.”  De Armas knew that the hole grew over time to more than $700 million.  He learned from the CEO that the hole was more than $1.5 billion at the time of TBW’s collapse.  De Armas admitted he was aware that, in an effort to cover up the hole and mislead investors, a subordinate who reported to him had falsified Ocala Funding collateral reports and periodically sent the falsified reports to financial institution investors in Ocala Funding and to other third parties.  De Armas acknowledged that he and the CEO also deceived investors by providing them with a false explanation for the hole in Ocala Funding. 

De Armas also admitted in court that he directed a subordinate to inflate an account receivable balance for loan participations in TBW’s financial statements, and knew that the falsified financial statements were subsequently provided to Ginnie Mae and Freddie Mac for their determination on the renewal of TBW’s authority to sell and service securities issued by them. In addition, de Armas admitted in court to aiding and abetting false statements in a letter the CEO sent to the U.S. Department of Housing and Urban Development, through Ginnie Mae, regarding TBW’s audited financial statements for the fiscal year ending on March 31, 2009. 

According to Assistant U.S. Attorney General Lanny A. Breuer, “As TBW’s chief financial officer, Mr. de Armas concealed a massive $1.5 billion deficit in TBW’s funding facility and another large deficit on TBW’s books.  He tried to conceal the gaping holes by falsifying financial statements and lying to investors as well as the government.” 

De Armas pleaded guilty before U.S. District Judge Leonie M. Brinkema in the Eastern District of Virginia.   He joins six other defendants, including Paul Allen, who have pleaded guilty and received prison sentences ranging from three months to eight years.  In April 2011, a jury in the Eastern District of Virginia found Lee Bentley Farkas, the chairman of TBW, guilty of 14 counts of conspiracy, bank, securities and wire fraud was sentenced to 30 years in prison.  De Armas faces sentencing on June 15.

Article source: http://www.mortgagenewsdaily.com/03202012_mortgage_fraud.asp

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