SEC charges lender with $1.5B fraud

The federal government on Wednesday charged the former chairman of a major mortgage lender with $1.5 billion in fraud related to the financial bailout.

The Securities and Exchange Commission (SEC) alleged Lee Farkas, former chairman and majority owner of Taylor, Bean & Whitaker Mortgage Corp., sold $1.5 billion in fabricated or impaired loans to Colonial Bank. The government alleged those loans were falsely represented as high-value assets.

Farkas was also responsible for a "bogus" equity investment in the bank that allowed Colonial to satisfy requirements to receive money from the $700 billion bailout package, according to the SEC.

"As the country's mortgage markets began to falter, Farkas arranged the sale of more than $1 billion dollars worth of mortgage loans and securities he knew to be fictitious or impaired," said Lorin Reisner, deputy director of the SEC's division of enforcement. The SEC said the scheme involved $500 million in fake residential loans and $1 billion in impaired residential loans and securities.

Taylor, Bean & Whitaker was once the nation’s largest non-depository mortgage lender, according to the SEC, but it fell into trouble during the housing crisis and filed for bankruptcy in August 2009.

Farkas was not a major contributor to political campaigns, but he gave $2,250 to the National Republican Congressional Committee (NRCC) in 2006 and 2007.