* Former CEO to spend 40 months in prison
* Former chairman Farkas to be sentenced on June 27
WASHINGTON, June 21 The former chief executive
of one of the largest mortgage firms to collapse in the U.S.
housing crash was sentenced to more than three years in prison
on Monday for his role in a fraud scheme dubbed "Plan B" that
federal prosecutors say cost investors $1.5 billion.
Paul Allen, 55, the former CEO of Taylor, Bean & Whitaker,
or TBW, pleaded guilty in April to one count of making false
statements and one count of conspiring to commit bank and wire
The Justice Department said the fraud scheme contributed to
the failure of TBW, which was one of the largest privately held
U.S. mortgage lending companies, as well as the bankruptcy of
Alabama-based Colonial Bank COBK.O, which was one of the 50
largest U.S. banks.
Former TBW Chairman Lee Farkas, who was convicted on April
19 on 14 counts of fraud for his role in masterminding the
scheme, is scheduled to be sentenced on June 27. The Securities
and Exchange Commission (SEC) also has a civil action pending
against Farkas in the Eastern District of Virginia.
Allen's co-conspirator Sean Ragland, a 37-year-old former
senior financial analyst at TBW, was also sentenced today by
Judge Leonie Brinkema to three months in prison.
Four other senior officials with TBW and Colonial Bank have
also been sentenced to time in prison ranging from three months
to eight years for their role in the fraud.
Assistant Attorney General Lanny Breuer said Allen
"concealed TBW's staggering deficits through false financial
reports, which ultimately caused investors to lose more than
He said the sentencing sent a "strong message that
corporate fraud by senior executives will not be tolerated,"
but also showed that plea deals like Allen's -- under which he
provided "substantial assistance" to government investigators
-- would be taken into account at sentencing.
According to court documents and information presented at
trial, Allen and Ragland distributed materially false documents
to investors in Ocala Funding, a TBW multi-billion dollar
lending facility, from early 2005 through August 2009.
As a result, investors in Ocala Funding lost more than $1.5
billion, while Colonial Bank lost $900 million.
Court documents also showed that Allen played a key role in
submitting material false information about Colonial Bank when
it sought more than $500 million in funds from the federal bank
bailout program, the Troubled Asset Relief Program.
Both Colonial Bank and TBW both filed for bankruptcy
protection in August 2009.
(Reporting by Andrea Shalal-Esa; Editing by Lisa Shumaker)