Four mortgage fraud probe examples in which DOJ losing teeth

Written by Biloxi

First example: New Century Financial

Los Angeles Times reported last year a SEC agreement with SEC, three officers, and the directors of New Century. No criminal charges for New Century execs.

Second example: Countrywide

Remember former Countrywide CEO Angelo Mozilo? Last year, SEC settled with Mozilo. Keep in mind SEC charged Mozilo with inside trading. Mozilo avoided a trial that could have provided for future criminal charges by settling with SEC. The DOJ dropped its criminal investigation into the facts behind that civil settlement of Mozillo this year.

Third example: Indy Mac

On July 16, 2008, an unnamed US Government official said that the FBI is investigating IndyMac for possible fraud. While it is not clear if the investigation began before the bank was taken over by the FDIC, the investigation appears to be focused on the company itself, and not individuals within the company.

However, the Office of Thrift Supervision (OTS) found numerous problems in Indy Mac's non-traditional mortgage products and ignored the warning signs accoding to the Inspector General's report.

Fourth example: Washington Mutual

OTS ignored the warning signs, like Indy Mac, of Washington Mutual. However, the former Washington Mutual CEO was indicted not by DOJ but by the FDIC for his role in the collapse of WAMU. Here the complaint:


In a complaint filed Thursday (17th March 2011), in Federal District Court in Seattle, regulators accused the former chief executive, Kerry K. Killinger, of leading Washington Mutual on a “lending spree” even though he knew that the real estate market was in a bubble. The suit also said that he failed to put in place the proper risk management systems and controls.

What happened to the WAMU investigation? Like Indy Mac and New Century, the WAMU criminal mortgage probe fizzled.

So here is the question: Has any bank top execs such Wells Fargo, Chase, Citi, and so on been jailed?  No, but a small brokerage firm CEO in Florida did. Taylor Bean & Whitaker CEO Lee Farkas got 30 years in the slammer:

The man charged with orchestrating possibly one of the most notorious mortgage fraud schemes in U.S. history has been handed a 30-year prison sentence.

A federal jury convicted Farkas on 14 counts of conspiracy, bank fraud, wire fraud, and securities fraud after two weeks of litigation in April.


Farkas took TBW from a small Florida brokerage in 1991 to one of the nation’s largest independent mortgage companies at the time of its collapse in 2009. From 2002 to 2009, his wheelings and dealings involved manufacturing fraudulent mortgages and securities.

In translation, the little fish sinks and big fish swims.