Taylor, Bean & Whitaker's (TBW)  former chairman and CEO Lee Farkas ordered data sent to its warehouse lender, Colonial Bank, for nonexistent mortgages in an effort to cover up growing deficits, an ex-president testified in court this week.

Raymond Bowman, testifying for the government in federal court in Alexandria, Va., said that in 2003 Farkas said selling "dummy" loans, known as Plan B, was necessary to keep Taylor Bean in business. "I told him I didn't think it was a good idea," said Bowman, who pleaded guilty last month to conspiracy and making false statements. Bloomberg News reported that Bowman said he thought the plan was unethical and "possibly illegal."

Colonial was TBW's largest warehouse provider. In 2009 the nonbank lender tried to engineer a deal to buy the Alabama-based depository. TBW was headquartered in Ocala, Fla. Both failed in the late summer/early fall of that year.

Bowman said the plan was put in place by Farkas and Catherine Kissick, who was in charge of warehouse credit for Colonial. "Lee said we had two options," Bowman said. "Not do it, and shut the company down. Cathy would lose her job and probably go to jail. Or borrow money … pay her back, and move forward."

In early March Kissick pleaded guilty to fraud charges and is cooperating with the government in the case.

Farkas is accused of spearheading a $1.9 billion fraud that duped its warehouse lenders and investors, targeted the Troubled Asset Relief Program bailout program, and contributed to Colonial's failure.

Bowman is among a handful of former employees who admitted to conspiracy charges and have agreed to testify against Farkas, who is charged with 14 counts of fraud. If convicted, Farkas faces up to 30 years in prison.

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