UPDATE 1-Ex-Colonial Bank exec gets 8 years in TBW fraud
* Kissick gets longest sentence so far in TBW probe
* An assistant sentenced to 3 months in prison (previously WASHINGTON, adds comments, details of informant)
ALEXANDRIA, Va., June 17 (Reuters) - A former bank executive who served as the go-between during a seven-year, $2.9 billion fraud scheme at Taylor, Bean & Whitaker Mortgage Corp was sentenced on Friday to eight years in federal prison.
Catherine Kissick, 50, who headed Colonial Bank's mortgage warehouse lending division, pleaded guilty in March to one count of conspiracy to commit bank, securities and wire fraud. She also testified against TBW former chairman Lee Farkas.
She received the longest prison sentence so far related to the TBW investigation, though Farkas, who was convicted on 14 counts for the fraud at the mortgage firm he built, is due to be sentenced on June 27.
"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," said U.S. Attorney Neil MacBride. "Without help from Catherine Kissick ... the fraud scheme might have been discovered in its infancy."
During a tearful court hearing, Kissick told District Judge Leonie Brinkema that her "intent was never to hurt the bank" and that she was "very scared and didn't know what to do."
Federal prosecutors had sought 11 years of prison for her, saying she was "in the number one position to stop the fraud." But they acknowledged that Farkas had manipulated her and said other undisclosed family issues would result in a shorter sentence.
Brinkema said the sentence was necessary as a deterrent, especially given Kissick's senior position at the bank.
Kissick was the primary contact point for Farkas and helped devise plans that enabled TBW to sell loans that did not exist or had already been sold to other banks or investors.
Colonial Bank ended up advancing money to TBW for the loans. They came up with the scheme to help address constant overdrafts by TBW which resulted from massive losses by the firm, according to prosecutors.
Brinkema also sentenced one of Kissick's assistants, Teresa Kelly, who worked as an operations supervisor and processed many of the transactions of fake mortgage sales, to three months in prison followed by nine months of house arrest.
Kelly's lawyer said that when the assistant was first approached by the FBI in July 2009 before the bank and TBW collapsed, Kelly agreed to serve as an informant, including having a microphone sewn into her clothing to record conversations.
Colonial Bank, a unit of Colonial BancGroup Inc CBCDQ.PK was one of the largest U.S. banks before it collapsed. The bank and the mortgage company TBW filed for bankruptcy in August 2009, after which authorities began to uncover the fraud.
As losses mounted at TBW, it tried to drum up capital to help Colonial Bank win $553 million in funding from the federal bank bailout program known as the Troubled Asset Relief Program, prosecutors said. No money was disbursed.
The TBW investigation represents a big victory for the Obama administration which has been under pressure to prosecute senior executives who were responsible for the U.S. housing market collapse, which touched off a deep recession.
Last week, two of Farkas' key lieutenants received prison sentences. Former TBW treasurer Desiree Brown was sentenced to six years in prison and former TBW president Raymond Bowman got 30 months.
The cases are USA v. Kissick, No. 11-cr-88, and USA v. Kelly, No. 11-cr-119 in U.S. District Court for the Eastern District of Virginia. (Editing by Dave Zimmerman and Derek Caney)