Ex-Mortgage CEO Sentenced to Just 40 Months in Prison for $3B Fraud


mortgageThe CEO of what had been one of the nation’s largest privately held mortgage lenders was sentenced Tuesday to more than three years in prison for his role in a $3 billion scheme that officials called one of the biggest corporate frauds in U.S. history.

The 40-month sentence for Paul R. Allen, 55, of Oakton, Va., is slightly less than the six-year term sought by federal prosecutors.

“I messed up. I messed up big,” Allen told U.S. District Judge Leonie Brinkema before he was sentenced, apologizing to his family and “the entire financial community. “There was no excuse for my behavior.”

Allen was chief executive at Ocala, Fla.-based Taylor Bean & Whitaker, which collapsed in 2009 after the criminal investigation became public, resulting in its 2,000 employees losing their jobs. The fraud also contributed to the collapse of Alabama-based Colonial Bank – the sixth largest bank failure in U.S. history – after Colonial bought hundreds of millions of dollars in Taylor Bean mortgages that had already been sold to other investors.

Two other banks – Deutsche Bank and BNP Paribas – lost nearly $2 billion after buying corporate paper from Taylor Bean that was not properly backed with collateral, authorities said.

Taylor Bean and Colonial also tried to obtain more than $500 million from the government’s Troubled Asset Relief Program but ultimately never received any funding from the program also known as TARP.

Neil Barofsky, who served as TARP’s special inspector general, said the Taylor Bean case was the most significant criminal prosecution to arise out of the nation’s financial crisis. The convictions of company chairman Lee Farkas and Allen represent some of the most high-profile executives in the housing and financial industries to receive prison time in the aftermath of the housing sector meltdown.

Allen’s lawyer argued for leniency on the theory that Allen was CEO in name only. The real mastermind was Farkas, who kept Allen out of the loop on much of the company’s day-to-day operations, according to trial testimony.

“Mr. Allen was not treated as a CEO. He did not function as a CEO,” said defense lawyer Stephen Graeff. “Sentence Mr. Allen the man, not Mr. Allen the title.”

But Brinkema said Allen’s title was significant, adding Allen’s reputation in the industry lent credibility to Taylor Bean that it otherwise would not have had. Even worse, Brinkema said, Allen had subordinates who were reporting the problems to Allen, but Allen left them to fend for themselves. One of those Taylor Bean employees, Sean Ragland, also was sentenced Friday to three months in prison and nine months of home detention for his role in the scheme.

“I can’t understand why in the world you didn’t stop it,” Brinkema told Allen.

Allen, for his part, apologized to his family and to “the entire financial community.”

By the time Allen became CEO in 2003, the fraud was already under way, and Taylor Bean owed more than $100 million to Colonial. Allen’s part in the schemes, came later, especially in the commercial paper loans from Deutsche bank and BNP Paribas that eventually grew to become the largest part of the fraud.

Ragland and Allen are the fifth and sixth persons to be sent to prison as part of the Taylor Bean-Colonial fraud, and investigators say the investigation is continuing. Sentences have ranged from three months to eight years.

All six received credit on their sentences for cooperating with investigators and testifying at Farkas’ trial.

“Mr. Allen’s sentence reflects his ultimate cooperation with this investigation, but also sends the message that unless executives expose and stop fraud when they first learn of it, they will be punished,” said Neil MacBride, U.S. Attorney for the Eastern District of Virginia.

Farkas is to be sentenced next week, and prosecutors have indicated they will seek a significantly longer sentence for Farkas than for his co-conspirators.

{AP Business/Matzav.com Newscenter}


  1. thats because the rubashin case & situation IS COMPLETELY cause hashem is waiting for klal yisroel to turn to him STRAIGHT with tefillah for his help. ARE WE DOING THAT? have we davened enough for another yid? if you think we/you did you are far from right. KEEP ON DAVENING & go straight to hashem & don’t depend on rebbe”s & rabbonim for help for thats a lack of faith in Hashem. for one that seek’s out hashem lacks nothing that is good (tehillim chapter 34)

  2. Send him to Iowa for the trial and put a yarmulka on his head then lets see if he ever sees the light of day again!

  3. This is terrible why has Rabbi Rubashkin recieved such a severe sentence compared to this rogue? And my goodness how many tears I’ve shed, and most of Klal Yisroel has too, over Rabbi Rubashkins plight. So I’m not sure what commentar #7 is talking about! We must not forget that this Country which has been mostly great for Jews most of the time, seems to be turning against us. I still hope we see Mrs Reade’s punishment in our lifetime, I.y.h.

  4. Wanted to add, most of Klal Yisroel has shed tears. And spent huge sums of money. And did loads and loads of Davening on Rabbi Rubashkin plight. So commentar #7 is totally in the wrong there.

  5. “What a corrupt country.”

    A corrupt country? So why do you continue to live in it, I wonder?

    Ah yes! It`s comfortable, you have a good personal standard of living, so why should you leave?

    But this “corrupt country” that you denigrate is also a very tolerant country – which is why you are permitted to make such statements and not be hauled off to prison or CV things far worse than that.

  6. I want to first sat that I was, and still am very concerned about Shalom Rubaskin, and the sentence that he received. I have personalty donated to his cause, and hope he will have a yeshuah. However I think it is important to get our heads out of the sand and convincing ourselves that this (and everything else that becomes a frum cause celebre)is Antisemitism. While it very well may factor in, we don’t know what the cause was and we should not think this is the only case with a completely ridiculous sentence. Of course Matzav will highlight cases that got much lower sentences for worse crimes but there is a problem with sentencing in the US in general. Does not take away from the Rubashkin injustice, just don’t think it is the only case of its kind.

  7. to # 10

    in today’s generation & situation. Klal yisroel is on a very low level of Bitachon & Emuna (faith & trust) in Hashem. always depending on others & not hashem (ex. rebbe’s friends etc…) & forgetting that THEY ALSO COME FROM HASHEM.

    based on this fact i can give you a message

    THE KEY to success in Judaism if you have faith in Hashem, Hashem has faith in you. (that you will do his????). Theres nothing wrong with getting Chizzuk from a rebbe or a Rosh Yeshiva & learning from their ways etc… theres also nothing wrong with getting a bracha from a rebbe BUT getting a bracha from a rebbe & depending on it AKA: coming home & telling your wife we just got a bracha that were going to have a child or be rich or our daughter is going to have a refu’ah shleima etc… is a lack of Faith in Hashem. The Chovos Halevavos says in the chapter of faith that a person cannot have faith in 2 things (AKA Hashem & a Rebbe, Rav or friend) for when he does, he loses both. (he then brings a mashal (parable) of a Rabbi who needed tapes of his speeches made to sell so he asked 2 of his members to help make them, but he knew if he would ask them together, each one would say the other one is doing it so i don’t need to do it. Instead the Rabbi brought each one in separately & asked each one & was successful.) For when you depend on 2 you lose both.

  8. Yes, there’s an injustice here, but it’s not the one everyone is seeing. Mr. Rubashkin got a harsh sentence for a number of reasons.

    This guy, on the other hand, helped commit a fraud that is light years beyond anything Rubashkin did. It’s like comparing jumping the turnstile in the subway with robbing a bank. So why is he only getting 40 months? They should lock him up for a quarter of a century too, at least. Why is he getting off? He even tries to weasel out of responsibilty by blaming on the other guy.

    Put this guy away too, for a real sentence, not a wrist-slap.

  9. What I don’t understand is – and it’s only cuz I’m young & stupid is – how can judges just decide as they wish; ie. Rubashkin vs. this case!
    Isn’t there a general, stardard penal code? The disparity even among the legal scholars should certainly raise some brows! But then again, I’m young & stupid!

  10. #17 – there are sentencing guidelines for each type of crime, but judges are allowed to use their own judgment as to whether to go high or low within the guidelines.

    Yes, there is a lot of dispute about this issue. Just recently the laws that made possessing crack cocaine a minimum five year sentence as opposed to lower sentences for powdered cocaine, were changed to make them equal. Crack cocaine is used by poor people who can only buy small amounts. Powdered cocaine is expensive, and is usually used by middle class people (including judges and lawyers).

    But it isn’t that bad. We have an appeals court, so if you think the conviction or sentence was unfair, you can take it up to a higher level, and they will act as a check on the lower court. That is what the Rubashkins’ lawyer is doing now.