Oakton Resident Pleads Guilty in $1.5B Fraud Scheme

Oakton resident Paul Allen, the former chief executive officer of the now defunct Taylor, Bean & Whitaker, pleaded guilty Friday to making false statements and conspiring to commit bank and wire fraud for his role in a $1.5 billion fraud scheme.

Allen faces 10 years in prison. His sentencing is scheduled for June 21.

Allen signed a plea agreement in which he admitted to participating in a scheme to defraud institutions that invested in TBW's lending facility, Ocala Funding. When it was discovered Ocala had inadequate assets to back up the commercial paper they sold to financial institutions such as Deutsche Bank and BNP Paribas, Allen and a co-conspirator covered up the hole and misled investors, Allen said. The money from those financial institutions had been used to purchase TBW mortgages.

Allen also testified he had kept TBW's chairman, Lee Farkas, informed of the shortfall. Allen was told in the fall of 2008 the shortfall had been moved to Colonial Bank's assets.

Allen said he was told to approach a private equity investor for capital to meet $300 million private capital requirement the U.S. Department of Treasury set for Colonial Bank to receive $553 million from the Troubled Assets Relief Program. Though Allen did not secure the capital, Farkas told others the investor contributed $50 million, Allen told the court. Allen also said Farkas diverted $5 million from Ocala Funding to an escrow account in the investor’s name, causing Colonial Bank to falsely claim it had met requirements for TARP funding.

Allen also admitted to making false statements to U.S. Department of Housing and Urban Development in a letter about TBW’s audited financial statements for the fiscal year ending March 31, 2009. Allen falsely attributed the delay in submitting financial data to a new acquisition and TBW’s switch to a compressed 11-month fiscal year. The delay occurred because of an independent auditor questioned the financial relationship between TBW and Colonial Bank.

Five people have pleaded guilty for their roles in this and related fraud schemes, according to the U.S. Department of Justice.

Farkas has been charged with 14 counts of bank, wire and securities fraud. His trial is set to begin today in Alexandria at the U.S. District Court.

For the full release from the Department of Justice, click here.