Delton de Armas, previously CFO of Taylor, Bean & Whitaker (TBW), pleaded guilty today to making false statements and conspiring to commit bank and wire fraud.
The guilty plea was part of de Armas' role in the over $2.9 billion fraud scheme that helped cause TBW's and Colonial Bank's failures.
De Armas pleaded guilty before U.S. District Judge Leonie Brinkema in the Eastern District of Virginia. De Armas faces a maximum of 10 years in prison upon his June 15 sentencing.
Based on court documents, de Armas joined TBW in 2000 as its CFO and reported directly to its chairman, Lee Bentley Farkas, and later to its CEO, Paul Allen. He admitted in court that from 2005 until August 2009, he and other co-conspirators were part of a scheme to defraud banks that had bought into TBW's wholly-owned lending facility called Ocala Funding.
The facility obtained funds for TBW's mortgage lending operations from ABCP sales to banks such as Deutsche Bank and BNP Paribas. TBW managed the facility and had no employees of its own.
Based on court records, soon after Ocala Funding's establishment, de Armas learned there were not enough assets backing its ABCP. De Armas learned from Allen that the hole was over $1.5 billion at the time of TBW’s collapse. De Armas admitted he was aware that to cover up the lack of funds, a subordinate who reported to him had falsified Ocala Funding collateral reports and periodically sent the falsified reports to the bank that bought into Ocala and to other third parties. De Armas also admitted that he and Allen also deceived buyers by giving them a false explanation for Ocala Funding's insufficient funds.
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. De Armas acknowledged that he knew that the falsified financial statements were offered to Ginnie Mae and Freddie Mac to renew TBW’s authority to sell and service securities issued by them.
Additionally, 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, via Ginnie Mae, regarding TBW’s audited financial statements for the fiscal year ending on March 31, 2009. De Armas reviewed and edited the letter, knowing it contained material omissions.
In April 2011, a jury in the Eastern District of Virginia found Farkas guilty of 14 counts of conspiracy, bank, securities and wire fraud. On June 30, 2011, Brinkema sentenced Farkas to 30 years in prison. Six individuals have also pleaded guilty for their roles in the fraud scheme, including: Allen, who was sentenced to 40 months; Raymond Bowman, former TBW president, who was sentenced to 30 months; Desiree Brown, former TBW treasurer, who was sentenced to six years; Catherine Kissick, former Colonial Bank senior vice president and head of its mortgage warehouse lending division (MWLD), who was sentenced to eight years; Teresa Kelly, former operations supervisor for Colonial Bank’s MWLD, who was sentenced to three months ; and Sean Ragland, a former senior financial analyst at TBW, who was sentenced to three months.
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.
