UPDATE 2-Ex-Taylor Bean chairman's fraud conviction upheld

Thu Jun 21, 2012 1:02am IST

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* Farkas convicted in 2011 of $2.9-billion bank fraud

* One of biggest prosecutions stemming from financial crisis

* 4th Circuit says jury instructions were proper

* Farkas serving 30-year prison term; appeal plans unclear

By Jonathan Stempel

June 20 (Reuters) - A federal appeals court on Wednesday upheld the conviction of former Taylor, Bean & Whitaker Mortgage Corp Chairman Lee Farkas, who was accused of masterminding a $2.9 billion bank fraud, one of the largest in U.S. history.

The 4th U.S. Circuit Court of Appeals in Richmond, Virginia rejected Farkas' claims that the trial judge had violated his Fifth Amendment rights by instructing the jury improperly, and also denied him his Sixth Amendment right to counsel. It also upheld a $38.5 million forfeiture order.

Farkas, 59, is serving a 30-year prison term after a jury in Alexandria, Virginia convicted him in April 2011 on 14 counts of bank fraud, securities fraud, wire fraud and conspiracy.

He is among the highest-ranking executives convicted over activity related to the U.S. housing and financial crises. No top executives at large Wall Street or commercial banks have been convicted of criminal charges.

Prosecutors said Farkas' fraud ran from 2002 to 2009, ending in Taylor Bean's bankruptcy and the collapse of Colonial BancGroup Inc, a large southeastern U.S. bank.

Wednesday's ruling "confirms that justice was done in this case," said Lanny Breuer, assistant attorney general for the U.S. Department of Justice's criminal division.

A decision on whether Farkas will appeal has not been made.

"We have been very clear with Lee that this is a difficult undertaking," David Coorssen, a lawyer who argued the appeal of Farkas' conviction, said in a phone interview. "While we are very disappointed for Lee, he is not going to be greatly surprised by this ruling."

Several other former Taylor Bean officials have pleaded guilty, including former Chief Financial Officer Delton de Armas in March.

Taylor Bean had been based in Ocala, Florida, and was the 12th-largest U.S. mortgage lender.

Farkas claimed that trial judge Leonie Brinkema made it too easy for the government to meet its burden of proof, by telling jurors that their "sole interest is to seek the truth" and by refusing to explain the meaning of "beyond a reasonable doubt."

But Judge Andre Davis wrote for a three-judge panel of the 4th Circuit that the jury instructions "taken as a whole" were proper, given the emphasis on the reasonable doubt standard and that jurors not surrender their honest beliefs.

Davis said the trial judge was correct to appoint a lawyer to defend Farkas rather than let him use his own, and in refusing to move the case to another court.

Prosecutors said Farkas and other Taylor Bean officials hid losses by shuffling money among Colonial accounts, and by selling nonexistent or worthless mortgages.

Farkas had also attempted to help Montgomery, Alabama-based Colonial obtain a $553 million loan from the federal bank bailout program, but money was never disbursed.

The FDIC shut down Colonial in August 2009, and BB&T Corp bought most of its assets.

Colonial's collapse was the sixth-largest U.S. bank failure and the third largest since 2007.

Farkas is not eligible for release from prison until May 2037, federal records show. He is housed at the Butner, North Carolina complex, which also houses swindler Bernard Madoff.

The case is U.S. v. Farkas, 4th U.S. Circuit Court of Appeals, No. 11-4714.

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