Former Bank CFO Pleads Guilty to Fraud

By Mike Colpitts

The former chief financial officer of one of the U.S. largest mortgage banking operations has plead guilty to committing bank fraud and lying to federal investigators in a $2.9 billion Colonial Bank scheme that drove Taylor, Bean & Whitaker and Colonial Bank out of business.

Delton de Armas may receive up to 10 years in prison for his part in the conspiracy, which included the mortgage company’s CEO and seven other employees. De Armas, 41, of Carrollton, Texas will be sentenced June 15th.

“As TBW’s chief financial officer, Mr. de Armas concealed a massive $1.5 billion deficit in TBW’s funding facility and another large deficit on TBW’s books,” said U.S. assistant attorney general Lanny Breuer. “He tried to conceal the gaping holes by falsifying financial statements and lying to investors as well as the government.”

The collapse of Taylor, Bean & Whitaker sent hundreds of employees into the unemployment lines and bank customers to account for losses in their checking accounts, which were robbed from, according to federal prosecutors.

Delton de Armas plea is the eighth conviction in one of the nation’s largest bank frauds in the U.S. real estate crash. As the mortgage operation’s CFO, he could have put a stop to the fraud when it was discovered, but instead de Armas chose to profit from the lending company’s imminent failure.

The former CFO admitted in federal court that from 2005 through August 2009 he and other co-conspirators engaged in a scheme to defraud financial institutions that had invested in a wholly owned lending facility known as Ocala Funding. De Armas, who reported directly to chairman Lee Bentley Farkas, obtained funds for mortgage lending for TBW from the sale of asset-backed mortgage securities, including Deutsche Bank and BNP Paribas.

Shortly after Ocala Funding was established, de Armas found out there were inadequate assets backing its commercial paper, a deficiency referred to at TBW as a “hole” in Ocala Funding. As the deficit grew, the former bank lending officer learned from the CEO that the hole was more than $1.5 billion at the time of TBW’s collapse.

In an effort to hide the losses from investors, another bank employee was directed to falsify reports and send the reports to financial institutions required by federal reporting laws. De Armas admitted he and the company’s former CEO deceived investors by providing them with a false explanation for the hole in Ocala Funding.