Bank Of America Can Sue FDIC For $1.7B Related To Taylor Bean Whitaker Bankruptcy

by Tara Arick on December 15, 2012 · 0 comments

in Banking,Bankruptcy

From LexisNexis® Mealey’s™ Daily Legal News.

A District of Columbia federal judge on Dec. 10 ruled that Bank of America could proceed with a lawsuit against the Federal Deposit Insurance Corp. to collect $ 1.7 billion related to the Chapter 11 bankruptcy of Taylor Bean Whitaker Mortgage Corp.
(TBW) (Bank of America v. Federal Deposit Insurance Corporation, No. 10-1681, D. D.C.).


In 2009, TBW filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Middle District of Florida. TBW’s affiliate, Ocala Funding LLC, also filed for Chapter 11 bankruptcy in the same Bankruptcy Court on July 10, 2012 (In Re: Ocala Funding LLC, No. 12-04524, Chapter 11, M.D. Fla. Bkcy.).

Ocala was established in 2005 by TBW to provide short-term liquidity to TBW’s mortgage origination business. Bank of America was the collateral agent, indenture trustee, depositary and custodian of the loans.

TBW Chairman Lee Bentley Farkas received a 30-year prison sentence after he was convicted in federal court of fraud related to a scheme he concocted with the help of employees from Colonial Bank and Platinum Community Bank.


Specifically, Farkas committed fraud by simultaneously selling the same mortgages to Colonial Bank, Ocala and Freddie Mac.

In connection with the bankruptcy, Bank of America sued the FDIC in the U.S. District Court for the District of Columbia, alleging that it is entitled to recover $ 1.7 billion from the FDIC as the receiver for the now-defunct Colonial and Platinum banks.

The FDIC, in turn, has countersued. It seeks to recover $ 900 million from Bank of America for allegedly breaching its duties as the custodian and bailee for Colonial.


TBW collapsed in August 2009, at which point it came to light that TBW had been manipulating the system, Judge Barbara Jacobs Rothstein said. Bank of America alleges that Farkas and employees at Colonial and Platinum fraudulently diverted virtually all of Ocala’s assets, the result of which was that Ocala was unable to make payments to its outside investors.

Bank of America seeks to recover this loss from the FDIC, but the FDIC alleges that at some point in 2008, TBW began to manipulate its operation such that thousands of loans were pledged as collateral to Ocala, Colonial and Freddie Mac at the same time.

The FDIC alleges that Colonial was unaware of this “multi-pledging scheme” and ultimately lost a total of $ 900 million. The FDIC claims that Bank of America was complicit in the “multi-pledging” and seeks to recover the $ 900 million loss.


The FDIC moved to dismiss Bank of America’s lawsuit, but Judge Rothstein ruled that the bank has standing to bring claims on behalf of itself and Ocala’s investors. Accordingly, the judge said the District Court has subject matter jurisdiction over the claims.

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