Lee B Farkas – Received a 30 Year Prison Sentence – But “I did nothing wrong!”

Convicted of orchestrating a $3 billion fraud as chairman of one of America’s largest private mortgage companies, Taylor Bean & Whitaker, Lee B Frakas was sentenced to 30 years in prison.  Prosecutors sought a life sentence Farkas calling the case against him one of the most significant arising from the nation’s financial meltdown.

A jury convicted Farkas of all 14 counts leveled against him, including securities fraud and conspiracy. Farkas testified that he had done nothing wrong.  Nothing wrong?  Surely by the time he found himself facing a jury and judge he might have concluded that something was wrong – and the common denominator was him!

According to news reports the Farkas fraud began in 2002 and took multiple forms, according to prosecutors.   Taylor Bean overdrew its main account with Colonial Bank by several million dollars and eventually double- and triple-pledged mortgages it held to a variety of investors. Prosecutors also alleged that Taylor Bean sold hundreds of million in worthless mortgages to Colonial.

Prosecutors say Farkas led a lavish lifestyle that included multiple houses — including one on Key West — several dozen classic cars, a private jet and a seaplane.

Farkas, of Ocala, Fla., is the last of seven employees and executives from Taylor Bean and from Colonial to be sentenced. Taylor Bean collapsed in 2009 when the scheme unraveled, putting 2,000 employees out of work.

When the house of cards begins to fall – all I can say is get out of the way!  Reports states that Colonial and two other major banks — Deutsche Bank and BNP Paribas — were collectively cheated out of nearly $3 billion during a scheme that spanned more than seven years.

According to a Time Magazine report: Farkas and his co-defendants also tried to fraudulently obtain more than $500 million in taxpayer-funded relief from the government’s bank bailout program, the Troubled Asset Relief Program (TARP). Neither Taylor Bean nor Colonial ever received any TARP money, even though TARP at one point gave conditional approval to a payment of roughly $550 million, investigators say.

U.S. District Judge Leonie Brinkema told Farkas she detected no remorse as she sentenced him to 30 years — twice the 15-year sentence requested by his attorneys.

QUESTION:

How is it that someone who has some obvious intelligence can be so caught up in the illusion of their actions that they fail to accept reality and comprehend the gravity of their choices?

If you have insight into the mind of Farkas or were caught up in the inner operations of what brought down the private mortgage company…feel free to comment!

YOUR COMMENTS ARE WELCOME!

President Obama and Those Fat Cats from Wall Street – 2009 Ethics a Year in Review (1 of 3)

Frankly I couldn’t believe what I heard on the news when President Obama, in an interview, called bankers into the White House to seek their help with the economy – having referred to them the day before as “Fat Cat” bankers.  Hum…the President of the United States resorting to labeling people in less than a professional manner.  Perhaps it is just his folksy style, but that type of approach seems much less than presidential.  But then I got to thinking…

Seems like in this administration there was some effort to curb the abuses that the banks have hurled at consumers when it came to credit cards.  That, for everyone but the banks, was hailed as “about time” legislation.  Ethically, the banks have played less than fair with consumers.  Personal example…my wife, who has spotless credit had a Bank of American card with a zero balance and substantial credit limit, received a letter from BofA increasing her interest rate to 22.9% from 8.9%.  She called asking why and was told it was a mistake, but one that could not be undone.  After expressing her deep dissatisfaction and then vowing (after she got off the phone not to ever use the card), she got a letter from Bank of America (just a week later) cutting her credit line by 75%.  Ethical actions by Bank of America – yea right.

According to Money Magazine senior writer – Donna Rosato – “Lawmakers gave issuers till February 2010 to fully comply with the new law. Meanwhile, issuers have rushed to raise interest rates, impose new fees and cut credit limits. The median rate on credit cards surged 13% to 23% from December 2008 to July 2009, according to a study by the Pew Charitable Trusts. Meanwhile, a bill to expedite the credit card reforms, the Credit Card Rate Freeze Act, has gone nowhere. When the new law kicks in in 2010, consumers will have more protection.”

Maybe the term “Fat Cat” Bankers was justified.

Ah…but there’s more.

Fortune Magazine states:

What Ken Lewis wanted, Ken Lewis got. During his eight-year tenure as Bank of America’s CEO, he embarked on a dizzying series of acquisitions to create the nation’s biggest financial services company.

But when his last two big buys — toxic-mortgage giant Countrywide and dead-on-its-feet bank Merrill Lynch — drew too much scrutiny from regulators and shareholders, Lewis packed up his golden parachute last October and bailed.

Maybe I should be a bit kinder in my blog.  Perhaps after squandering Bank of American funds on losing propositions, they needed the rate increase on credit cards.  Of course, that assumes that folks use those credit cards.  In our case, I think not.

BUT TO TOP IT OFF…

When the government, back in the Clinton administration, asked Fannie Mae and Freddie Mac to extend credit to many American who, otherwise, were not credit worthy – I have to ask the question – with rising deficits and massive government spending – why should anyone in the government call anyone names when the government is doing just what those Wall Street “Fat Cats” did – namely living above their means.  We have massive debt and seem to believe that living in debt is O.K.

Perhaps the ethical thing to do is say – NO to additional government debt and do what is being preached to the population – live within your means and act ethically and in a responsible manner.

WHAT DO YOU THINK?

AIG Bonuses – Ethical or Insane? Business Ethics Speaker Chuck Gallagher Comments…

I want to make this clear – I am pro business!  I think that free enterprise is the life blood of our economic system and I fully support people making lots of money.  But, I have to question whether the payment of upwards of $165 million in bonuses to AIG employees is ethical or just insane?

QUESTION ONE:

The arguement in favor of AIG paying the bonuses is that the contracts that generated the bonuses were established before the economic meltdown and before AIG accepted government bailout money.  Employees who work(ed) for AIG therefore should be entitled to payment under the terms of their contract for services performed.

• Do you agree?
• Does the company have an ethical or moral obligation to pay regardless of circumstances?

QUESTION TWO:

AIG has accepted, according to published reports, upwards of $170 BILLION of government bailout money.  Sorry for the editoral content, but that is quite amazing by any standard that I could consider.  Nothing like that has happened in my lifetime and I’m over a half century in years.  So – here are some questions to consider:

• Should AIG be forced to void pre-existing employment and bonus contracts if they accept government bailout money?
• Should bonuses be paid?
• What basis or grounds for payment or nonpayment make sense for AIG?

QUESTION THREE:

If a homebuilder constructs a home and finds that he/she cannot sell it for the asking price and, in fact, finds that the market for his product is below the construction loan – what happens?  Most of the time, the bank will foreclose and the sub-contractors, who have mechanic leins against the property, lose their time and receivable.  In other words, they lose because circumstances have changed.

• Is AIG in the same circumstance?
• Should the employment compensation contracts be treated similar to a mechanics lien – void through forclosure?
• Is the government’s bailout of AIG in effect a forclosure to avoid bankrupcy?
• Is there any reason that AIG should be treated differently than other small businesses that are unable to honor their commitments today?

FINAL THOUGHTS:

The definition of business ethics is, in business situations, the discipline dealing with what is good and bad and with a moral duty and obligation.  The question for AIG is – what is the ethical thing to do?  As a business ethics speaker, there is no right or wrong answer to most situations, it rather is a function of doing the right thing considering all the facts and circumstances.  My opinion – the moral duty and obligation in this situation is to void the employment bonus contracts and accept that were it not for the taxpayers, AIG would not be in business!

Now is the time for AIG and any organization that accpets bailout money to make the tough decisions that honor the trust that the federal government and taxpayers have given them.  Look to Lee Iacocca’s example – when the government bailed out Chrysler, he took $1 as his compensation.  Perhaps the folks at AIG should take note.  One thing is for sure they are not winning friends and influencing people – at least not positively.

YOUR COMMENTS WELCOME!

Credit Crisis – Subprime Mortgage Collapse – New York Times Article Shows That Choices Made Ten Years Ago Haunt Us Today! Comments by Mortgage Fraud Speaker Chuck Gallagher

Every day there is more news about the sagging economy.  Banks being considered for nationalization.  Companies contracting and downsizing.  Workers being laid off.  It’s hard to find the bright spots as there seems to be no light at the end of the tunnel.

But – every choice has a consequence – and the consequences we are living in today had a beginning with choices that were once made in good faith.  The more I research the more I find that is isn’t the banks who are totally at fault or greedy wall street tycoons.  Rather, the problem started with government pressure or direction.  Encouragement by our own federal government, coupled with shareholder profit pressure, created the momentum that has now turned into disaster. 

The following is an article written by Steven A. Holmes for the New York Times on September 30, 1999. (copyright New York Times 1999)  A portion of the article is reprinted here:

In a move that could help home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is not generally not good enough to qualify for conventional loans.  Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nations biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stockholders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called supprime borrowers.  These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.

“Fannie Mae has expanded home ownership for millions of families in the 1990′s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s Chairman and Chief Executive Officer.  “Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been regulated to paying significantly higher mortgage rates in the so-called subprime market.”

Demographic information on these borrowers is sketchy.  But at least one study indicates that at least 18 percent of the loans in the subprime market went to black borrowers, compared to 5 percent of loans in the conventional market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose difficulties during flush economic times.  But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980′s.

“From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute.  “If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

The whole article can be seen here.

Almost ten years ago, writer, Steven A. Holmes reported on what was the infancy of what would bring the US to its economic knees some ten years later.  The clarity of his comments are a haunting reminder simple reality checks and what many would now say is common sense business.

QUICK OVERVIEW:

• Politicians wanted the purse strings loosened so that more people could get what they wanted  – even though they couldn’t afford it.  Hum that seems to me to be bad economics but good politics.  Get more people what they want so they will vote for you.  After all, with term limits, most folks won’t be in power when the crisis hits.
• Shareholders – of Fannie Mae – push for higher and higher returns.  Gordon Gecko – “Greed is good” – yea right!  I have been a Sr. VP in a public company and know what that shareholder pressure is like.  But here’s a reality check:  the tide comes in and the tide goes out.  It is unrealistic to assume that there will always be growth.  If companies were run for the long haul, then some of the dumb decisions that are made would be avoided.  It is terribly frustrating to see what kind of decisions are made just to make the earnings work for the current quarter.
• Banks and investment firms wanted Fannie Mae’s expansion – why?  Obvious – another line of profitable business (at least for the short term).  I wonder today if those who were so quick to jump on the bandwagon would have done so – if they knew then what they know now.

Were the choices made then ethical?  As a business ethics speaker, I’m interested in your opinions.

WHAT DO YOU THINK?