This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Another Benefit of TARP: Uncovering Bank Fraud

Stocks in this article: BAC C JPM WFC MS

SIGTARP investigations have already led to $4.3 billion in assets being returned to fraud victims or the government.

The agency also has investigated fraud activity tied to the Home Affordable Modification Program, or HAMP, since "Homeowners with HAMP modifications from 2009 are redefaulting at an alarming rate of 46%, 38% for 2010 modifications." SIGTARP made several recommendations to clean up HAMP.

The TARP fraud that probably received the most coverage was that of former Taylor, Bean and Whitaker chairman Lee Farkas, who is cooling off for 30 years after being convicted in 2011 of a 10-year $2.9 billion fraud that also involved employees of Colonial Bank of Montgomery, Ala., which had roughly $25 billion in total assets and failed in August 2009.

The troubled Colonial Bank had applied for $570 million in TARP money, and announced government approval to receive the funds on Dec. 2, 2008, without disclosing, until Jan. 27, 2009, that the Treasury was requiring the bank to raise $300 million on its own, before getting any TARP money.

Colonial Bank then announced on March 31, 2009 that it had made a deal for a preferred investment of $300 million by Taylor, Bean and Whitaker. There were some breathless headlines saying Colonial Bank had beaten its regulatory deadline to raise the capital, but the money was never received. This illustrates why investors need to dig a bit further when news headlines describe business agreements as done deals.

SIGTARP said in its report that "Beginning in 2002, Farkas and his co-conspirators at TBW and Colonial Bank -- one of the 25 largest banks in the U.S. at the time -- started a scheme to steal billions of dollars from the bank to hide TBW's steep operating losses. The scheme soon escalated to selling and pledging billions in fake mortgage assets to plug holes in the company's balance sheets, and to cover their tracks."

Farkas's scheme had nothing to do with TARP, but according to the Inspector General, the "scam began to collapse when SIGTARP investigators initially identified suspicious activity in connection with Colonial BancGroup's (Colonial Bank's parent) $570 million TARP application, which contained false and misleading information provided by Farkas and his co-conspirators to deceive the Government."

A Particularly Egregious Community Bank Fraud

An application to receive TARP money uncovered a "massive fraud scheme" at Bank of the Commonwealth of Norfolk, Va., which had roughly $902 million in total assets and 21 branches.

2 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs