A former bank executive was sentenced Friday to eight years in prison for her role in a $3 billion fraud scheme that helped topple her bank as well as one of the nation's largest private mortgage companies.
Federal prosecutors had sought a term of 11 years for Catherine Kissick, 50, of Orlando, Fla. Kissick had been a senior vice president at Alabama-based Colonial Bank.
Prosecutors said that Kissick, more than anybody, could have put a halt at the earliest stages to a staggering fraud scheme masterminded by Lee Farkas, the owner of Florida-based mortgage company Taylor Bean & Whitaker.
Indeed, Kissick's willingness to further such a massive fraud when she had no financial incentive to do so was one of the biggest mysteries in a case that officials have called the biggest prosecution to stem from the nation's financial crisis. Kissick received no bribes or payments to look the other way _ court papers, in fact, show that prosecutors were initially incredulous that Kissick had willingly enabled Taylor Bean to steal hundreds of millions of dollars unless she was receiving some kind of kickback.
But Kissick said she felt she was trapped in a lie as events spiraled out of control.
She knew by 2002 that Taylor Bean & Whitaker was routinely overdrawing on its main account at Colonial by several million dollars. At first Kissick alerted her superiors and tried to work with Taylor Bean to fix the problem. Instead, the problem grew worse and worse and Kissick concealed from top bank officials that the hole in Taylor Bean's account was growing to hundreds of millions of dollars. The scheme took several forms, but the biggest damage came from worthless mortgages that Taylor Bean routinely sold to Colonial even though they had already been purchased by other investors.
The fraud continued for seven years, as Farkas and other Taylor Bean executives essentially steamrolled over Kissick and her constant entreaties to fix the problem. Kissick testified that she felt she had no choice to but to continue the scheme and hope that Taylor Bean would eventually make good on its debt.
Eventually, Taylor Bean defrauded Colonial out of more than $500 million. Two other banks, Deutsche Bank and BNP Paribas, lost nearly $2 billion in a separate scheme. Taylor Bean and Colonial even tried to use their cooked books to obtain more than $500 million in funding from the government's Troubled Assets Relief Program (TARP). But TARP never gave either Colonial or Taylor Bean any money, and TARP investigators helped unravel the scheme in 2009.
Colonial and Taylor Bean collapsed in 2009. Colonial's collapse was the sixth largest bank failure in U.S. history, and 2,000 Taylor Bean employees lost their jobs when the company shut its doors after a federal raid in August 2009.
At Friday's sentencing hearing, Kissick apologized for her actions.
"I started out at Colonial Bank trying to do the right thing," Kissick said. "I am so ashamed I was ever part of it."
Kissick said she should have told her superiors from the very outset that the problem couldn't be covered up.
In handing down the sentence, U.S. District Judge Leonie Brinkema expressed some sympathy for Kissick, but said she ultimately should have known that her efforts to fix the problem were fruitless and counterproductive.
"Seven years this was going on," Brinkema said. "At any point you could have gone to the auditors."
U.S. Attorney for the Eastern District of Virginia Neil MacBride said Kissick served as the ultimate enabler.
"Lee Farkas pulled off one of history's largest bank frauds because he had people inside Colonial Bank with the power to do it and hide it. Without help from Catherine Kissick - a high-level executive at one of the nation's top regional banks - the fraud scheme might have been discovered in its infancy."
Also on Friday, a lower-level Colonial employee _ Teresa Kelly, 35, of Ocoee, Fla. _ was sentenced to three months in prison for her role in the scheme. Kissick and Kelly are the third and fourth people to receive jail sentences in the investigation. Three more, including Farkas and Taylor Bean CEO Paul Allen, will be sentenced later this month.