A former executive at Alabama-based Colonial Bank pleaded guilty Wednesday to a nearly billion-dollar fraud conspiracy that contributed to the collapse of both the bank and what had been one of the country's largest mortgage lenders.
Catherine Kissick, 50, of Orlando, Fla., who had been a senior vice president at Colonial, faces up to 30 years in prison after pleading to conspiracy to commit bank fraud, wire fraud and securities fraud in federal court in Alexandria.
It is the second plea deal in the last two weeks involving the 2009 collapse of Colonial _ the sixth largest bank collapse in U.S. history _ and Florida-based mortgage lender Taylor Bean & Whitaker. U.S. District Judge Leonie Brinkema said she expects more pleas as the government prepares for an April trial against Lee Farkas, Taylor Bean's CEO.
Neil Barofsky, the special inspector general for the government's Troubled Assets Relief Program (TARP), has said the Farkas case "arguably represents the most significant criminal prosecution to date arising out of the financial crisis."
The fraud conspiracy between Colonial and Taylor Bean executives began in 2002, according to court documents. Taylor Bean, struggling to meet operating expenses, began running overdrafts on its account at Colonial. Kissick and others covered up the overdrafts by transferring money from other accounts. Between 2002 and 2003, Taylor Bean had run up a deficit of tens of millions of dollars.
The scheme escalated in subsequent years when Kissick and others at Colonial agreed to buy more than $400 million in worthless mortgages from Taylor Bean. Some of the mortgages bought by Colonial were completely fictitious; others had already been sold to other investors and were worthless to Colonial.
Colonial and Taylor Bean eventually used their cooked books to try to obtain $570 million in TARP funding in late 2008. The Treasury Department gave conditional approval to the application, but ultimately the TARP funding was never approved.
The court documents indicate that Kissick did not profit personally from the fraud scheme. It is not entirely clear why Kissick agreed to participate in a fraud in which her bank was buying hundreds of millions of dollars in worthless mortgages. It is clear, though, that Colonial and Taylor Bean's financial fortunes became increasingly entangled as the fraud scheme grew over the years.
Kissick and her attorney declined comment after the hearing.
A. Jeff Ifrah, a defense attorney in Washington with expertise in securities law, said it remains to be seen whether Farkas influenced Colonial Bank executives to look the other way.
"I don't know that I find it so surprising that a beholden bank like Colonial would continue to trust and have confidence in a successful man like Farkas. Hindsight is always 20/20, but during the events in question, he was an awfully successful businessman who had clearly brought some great business to Colonial," said Ifrah, who was not involved this particular case.
Last week, Taylor Bean's former treasurer, Desiree Brown, pleaded guilty to similar fraud charges. Both Brown and Kissick are expected to testify at Farkas' trial.
Roughly 2,000 workers at Ocala, Fla.-based Taylor Bean lost their jobs in August 2009 when they were laid off on the same day that federal agents raided the company's headquarters.
Also Wednesday, the Securities and Exchange Commission filed related civil charges against Kissick, accusing her of using her position at Colonial Bank to enable the sale of sham and impaired home loans and mortgage securities from Taylor Bean to the bank. Kissick had the securities falsely reported to the investing public as being high quality and readily sold, the SEC said in a lawsuit.
Kissick agreed in a settlement to orders barring her from serving as an officer or director of any public company, and as a senior manager at any company engaging in mortgage business or other financial institution. She neither admitted nor denied the SEC's allegations but did agree to refrain from future violations of securities laws.
The SEC will also seek civil penalties against Kissick.
Associated Press writer Marcy Gordon contributed to this report from Washington.