The Securities and Exchange Commission (SEC) late Wednesday filed civil charges against a former operations chief at the now defunct Colonial Bank, accusing her of playing a key role in $1.5 billion warehouse lending related scam.
The SEC said that Teresa A. Kelly, operations supervisor for Colonial "enabled the sale of fictitious and impaired mortgage loans and securities" to the bank by its largest warehouse customer — Taylor, Bean & Whitaker Mortgage — representing these assets as "high-quality, liquid assets."
At press time Kelly could not be reached for comment. Colonial was based in Montgomery, Ala., TBW in Ocala, Fla.
In a statement, SEC associate regional director William P. Hicks said: "For nearly seven years, Kelly abused her access to Colonial Bank's accounting systems, allowing [Lee] Farkas and TBW to defraud the bank and its investors out of more than $1.5 billion." Farkas, who is under indictment, was a principal in TBW and its CEO.
TBW filed for bankruptcy in late August 2009. The Federal Deposit Insurance Corp. seized Colonial shortly thereafter.
Investigators say that before TBW failed it experienced liquidity problems "and overdrew its then-limited warehouse line of credit with Colonial Bank by approximately $15 million each day."
The agency said Kelly, Farkas, and former Colonial warehouse executive Catherine Kissick "concealed the overdraws through a pattern of 'kiting' in which certain debits were not entered until after credits due for the following day were entered."
Last week Kissick, a well known figure in warehouse lending circles, pleaded guilty to criminal charges tied to the collapse of TBW, one of the nation's largest FHA lenders. She is now cooperating with the government's investigation.