* 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 fraud.
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 $1.5 billion."
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)