Colonial Bank

Colonial Bank, formerly a subsidiary of Colonial BancGroup, was headquartered in Montgomery, Alabama. Colonial Bank had 346 branches in the states of Alabama, Georgia, Florida, Nevada and Texas.

Colonial's assets had grown from $166 million in 1981 to $26 billion. Colonial expanded from its base of Alabama to fast growing regional markets such as Florida, Georgia, Texas, and Nevada. Colonial Bank was the fifth largest commercial bank in Florida and 27th largest commercial bank in the USA. Colonial Bank was frequently the target of rumors that it would be acquired by a larger bank.

The bank ran into problems after it was revealed that it had bought over $1 billion in mortgages from Taylor, Bean & Whitaker that Taylor Bean did not own in one of the biggest fraud cases in history. The CEO of Taylor, Bean & Whitaker, Lee Farkas, was put on trial and found guilty of fraud. Bobby Lowder, the CEO of Colonial Bank, was investigated and was not involved with the fraud.^[1]

Between 2002 and 2009, Catherine Kissick, former senior vice president of Colonial Bank and head of Colonial Bank's Mortgage Warehouse Lending Division, and her co-conspirators, including former Taylor, Bean & Whitaker Chairman Lee Farkas, engaged in a scheme to defraud various entities and individuals, including Colonial Bank, Colonial BancGroup, Taylor, Bean & Whitaker, the Troubled Asset Relief Program, and the investing public.^[2]

According to court documents, Taylor, Bean & Whitaker began running overdrafts in its master bank account at Colonial Bank. Starting in 2002, Kissick, Farkas and their co-conspirators engaged in a series of fraudulent actions to cover up the overdrafts, first by sweeping overnight money from one Taylor, Bean & Whitaker account with excess in another, and later through the fictitious "sales" of mortgage loans to Colonial Bank, a fraud the conspirators dubbed "Plan B." The conspirators accomplished "Plan B" by selling Colonial Bank mortgage loans that did not exist or that Taylor, Bean & Whitaker had already committed or sold to other third party investors. ^[2]

Kissick admitted she knew and understood she and her co-conspirators had caused Colonial Bank to pay Taylor, Bean & Whitaker for assets that were worthless to the bank. As a result, false information was entered on Colonial Bank's books and records, giving the appearance that the bank owned interests in legitimate pools of mortgage loans when in fact the pools had no value and could not be securitized or sold.^[2]

The fraud caused Colonial BancGroup to file materially false financial data with the SEC regarding its assets in annual reports contained in Forms 10-K and quarterly filings contained in Forms 10-Q. Colonial BancGroup's materially false financial data included overstated assets for mortgage loans that had little to no value.^[3]

Colonial disclosed its legal problems on Aug. 4, 2009, stating that federal agents had executed a search warrant at its mortgage warehouse lending offices in Orlando, Florida, and that it had been forced to sign a cease and desist order with the Federal Reserve and regulators in relation to its accounting practices and its recognition of losses.^[4][5]

On August 14, 2009, the bank failed and its 346 branches were seized by regulators. $22 billion of the bank's deposits were subsequently sold by the FDIC to BB&T Corp. The bank's failure was the largest bank failure in 2009 and the 6th largest bank ever to fail in the United States, costing the FDIC's Deposit Insurance Fund an estimated $2.8 billion. It was also the 74th bank failure of 2009.^[6][7]

The bankruptcy trustee for Taylor, Bean & Whitaker Mortgage Corp., once one of the nation’s biggest privately held mortgage companies, is suing Price Waterhouse Cooper as the auditor of Colonial Bank, seeking $5.5 billion in damages. The trustee alleged in the 2013 suit that Price Waterhouse Cooper was negligent in not detecting a massive fraud scheme that brought down Taylor, Bean & Whitaker and helped trigger the 2009 collapse of Colonial Bank, a Montgomery, Ala. bank with $25 billion in assets, one of the biggest U.S. bank collapses during the Great Recession.^[8]

The closely watched case could lead to billions of dollars in damages depending on how a jury answers a fundamental question in accounting: How much responsibility do auditors have for catching fraud?^[8]

Price Waterhouse Cooper has maintained in court documents that its responsibility is to follow accounting principles — which might not necessarily detect fraud. But in a pretrial brief issued by the trustee, former Price Waterhouse Cooper chairman Dennis Nally is quoted in a 2007 Wall Street Journal article saying that the “audit profession has always had a responsibility for the detection of fraud.”^[9]

References

1. ↑ "Archived copy". Archived from the original on 2011-04-24. Retrieved 2011-04-20. 
2. 1 2 3 "United States v. Catherine Kissick Court Docket Number: 1:11-cr-88-LMB". justice.gov. Department of Justice. Retrieved 15 June 2015.   This article incorporates text from this source, which is in the public domain.
3. ↑ "United States v. Lee Bentley Farkas Court Docket Number: 1:10-cr-200". justice.gov. Department of Justice. Retrieved 15 June 2015. 
4. ↑ Press, CNN (2009-08-15). "BB&T buys Colonial bank; 4 other banks fail - CNN Money". Retrieved 2009-08-15. 
5. ↑ Press, South Florida Business Journal (2009-06-10). "Colonial hit with cease and desist order". Retrieved 2009-08-15. 
6. ↑ Press, Associated (2009-08-14). "Colonial BancGroup shut by regulators: Associated Press Business News - MSN Money". Retrieved 2009-08-15. 
7. ↑ "BB&T, Winston-Salem, North Carolina, Assumes All of the Deposits of Colonial Bank, Montgomery, Alabama - FDIC Failed bank list" (Press release). FDIC. 2009-08-14. Retrieved 2009-08-15. 
8. 1 2 Rapoport, Michael. "Crisis-Era Lawsuits Winding Down? Not for PricewaterhouseCoopers". WSJ.com. The Wall Street Journal. Retrieved 29 July 2016. 
9. ↑ Chabeli, Herrera. "Largest lawsuit against an auditor goes to court for $5.5 billion". MiamiHerald.com. The Miami Herald. Retrieved 29 July 2016. 

External links

• Colonial Bank official website