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March 2, 11

NEWS / Former Senior Vice President of Colonial Bank Pleads Guilty to Fraud Scheme

WASHINGTON – Catherine Kissick, a former senior vice president of Colonial Bank and head of its Mortgage Warehouse Lending Division, pleaded guilty today to conspiring to commit bank, wire and securities fraud for her role in a fraud scheme that contributed to the failures of Colonial Bank and Taylor, Bean & Whitaker (TBW).

The guilty plea was announced today by Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney Neil H. MacBride for the Eastern District of Virginia; Special Inspector General Neil Barofsky for the Troubled Asset Relief Program (SIGTARP); Assistant Director in Charge James W. McJunkin of the FBI’s Washington Field Office; Michael P. Stephens, Inspector General of the Department of Housing and Urban Development (HUD OIG); Jon T. Rymer, Inspector General of the Federal Deposit Insurance Corporation (FDIC OIG); Steve A. Linick, Inspector General of the Federal Housing Finance Agency (FHFA OIG); and Victor F. O. Song, Chief of the Internal Revenue Service (IRS) Criminal Investigation.

Kissick, 50, of Orlando, Fla., pleaded guilty before U.S. District Judge Leonie M. Brinkema in the Eastern District of Virginia. Kissick faces a maximum penalty of 30 years in prison when she is sentenced on June 17, 2011. In a related action, the U.S. Securities and Exchange Commission (SEC) today filed an enforcement action against Kissick in the Eastern District of Virginia.

According to court documents, Kissick admitted that from 2002 through August 2009, she and her co-conspirators, including former TBW chairman Lee Farkas, engaged in a scheme to defraud various entities and individuals, including Colonial Bank, a federally-insured bank; Colonial BancGroup Inc.; the Troubled Asset Relief Program (TARP); and the investing public. Kissick admitted that she knowingly and intentionally placed Colonial Bank and Colonial BancGroup at significant risk by causing them to purchase and hold more than $400 million in assets on their books that had no value.

Court documents state that in early 2002, TBW began running overdrafts in its master bank account at Colonial Bank because of TBW’s inability to meet its operating expenses, which included payroll, servicing payments owed to third-party purchasers of loans and/or mortgage-backed securities and other obligations. Kissick and her co-conspirators engaged in a series of fraudulent actions to cover up the overdrafts, first by sweeping overnight money from one TBW account with excess funds into another, and later through the fictitious “sales” of mortgage loans to Colonial Bank, a fraud scheme the conspirators dubbed “Plan B.” The conspirators accomplished this by sending mortgage data to Colonial Bank for loans that did not exist or that TBW had already committed or sold to other third-party investors. Kissick admitted that she knew and understood she and her co-conspirators had caused Colonial Bank to pay TBW for assets that were worthless to the bank.

According to court documents, Kissick and her conspirators also caused TBW to engage in sales to Colonial Bank of fictitious trades that had no collateral backing them and had no value. Kissick or another co-conspirator at Colonial Bank were the points of contact for conspirators at TBW when the mortgage company needed an advance from the bank, and Kissick would generally discuss new advances with Farkas before releasing the funds to TBW. Conspirators at TBW would wire a request that included false documentation purporting to represent the sale of the trades to Colonial Bank to support the release of the funds. Kissick and others caused the false information to be entered into Colonial Bank’s books and records, giving the appearance that Colonial Bank owned a 99 percent interest in legitimate securities, when in fact the securities had no value and could not be sold.

In the fall of 2008, Colonial BancGroup submitted an application to obtain $570 million in taxpayer funding through the Capital Purchase Program, a sub-program of the U.S. Treasury Department’s TARP program. Court documents indicate that in connection with the application, Colonial BancGroup submitted financial data and filings that included materially false information related to mortgage loan and securities assets held by Colonial Bank as a result of the fraudulent scheme perpetrated by Kissick and her co-conspirators. Colonial BancGroup never received the TARP funding, and Kissick admitted that she deleted and instructed members of her staff to delete electronic communications on their Blackberry PDAs to evade subpoenas for documents from the Special Inspector General for TARP.

In August 2009, the Alabama State Banking Department, Colonial Bank’s regulator, seized the bank and appointed the FDIC as receiver. Colonial BancGroup also filed for bankruptcy in August 2009.

In June 2010, Farkas was arrested and charged in a 16-count indictment for his role in the fraud scheme. His trial is scheduled to begin in April 2011. An indictment is merely a charge and a defendant is presumed innocent until proven guilty. Desiree Brown, the former treasurer of TBW, pleaded guilty on Feb. 24, 2011, for her role in the fraud scheme.

The case is being prosecuted by Deputy Chief Patrick Stokes and Trial Attorney Robert Zink of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Charles Connolly and Paul Nathanson of the Eastern District of Virginia. This case was investigated by SIGTARP, FBI’s Washington Field Office, FDIC OIG, HUD OIG, FHFA OIG and the IRS Criminal Investigation. The Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury also provided support in the investigation.

This case was brought in coordination with the President’s Financial Fraud Enforcement Task Force, which includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets and recover proceeds for victims of financial crimes. The task force is also making the public aware of resources available to protect against these types of fraud and how to report fraud when it occurs. To learn more about the task force visit its website, www.StopFraud.gov .


Tags: corporation, document, criminal investigation,


AnnaMaria Realbuto
Thank you for all your assistance and efficiency...
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Thanks a lot Anton!...
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Thank you so much! I’m sure I will be in touch again with something else that will need to be apost...
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Thank you again for your help with this case!...
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