A 30 year sentence – the maximum sentence allowed for fraud has been meted out to Lee Farkas who defrauded the US government funds of about $3.5 billion (TARP program of $550,000 and the Federal Housing Authority of the rest).
For those who don’t know, Farkas was Chairman of Taylor Bean and Whitaker Mortgage Corp based in Florida, US. And was one of the contributors of the GFC crisis in 2009 bringing down Colonial Bank, the 6th largest US bank in the process.
‘Farkas used Taylor Bean as his own “personal piggy-bank” and stole more than $30 million from the company he built to buy homes, cars, airplanes, restaurants and other side businesses, said Assistant U.S. Attorney Charles Connolly during closing arguments.’
With the verdict, prosecutors were keen to seize valuable properties and cars as well as a jet. These were already hidden under friends’ names, but it will be unlikely to stop the seizure as well as the fine of $38 million that is set by the Court.
Farkas hid shortfalls by shifting money in between accounts from the end of 2007 to 2009, first of all internally then later externally to the Colonial Bank, the shortfalls spun out from half a million dollars to nearly three billion. Farkas and his co-conspirators known as Plan B also defrauded the US government of funds which were diverted elsewhere. In Project Squirrel Farkas took $50 million for his own benefit and poured money into his own separate businesses.
Interestingly, throughout the trial and in 5 hours of testimony, Farkas insisted that he did nothing wrong. There was no showing of remorse or even regret for what he had done. No statements whatsoever. This was remarked upon by the trial Judge:
I do not detect one bit of actual remorse,” Judge Leonie M. Brinkema told Mr. Farkas in a federal courtroom in Alexandria, Va., on Thursday. “You regret getting caught.”
In my research I found a type of executive fraudster which was named by respondents as Arrogant who showed no remorse. Although the Arrogant Fraudster characteristics were typical of psychopathy there was no definitive link found in the interviews with co-workers.
One of the most telling indicators of psychopathy is the lack of remorse and is used in Robert D. Hare’s list – the gold standard of detecting psychopaths. Another indicator of psychopathy is ‘grandiose sense of self’. Farkas awarded himself large bonuses and salary appears to indicate this together with the purchasing of boy’s toys such as the personal jet and expensive rare cars, plus business ventures and several homes.
Unfortunately even after a substantive amount of research, there is little evidence prior to the bankruptcy and fraud charges that is known about Farkas. The only bit of evidence that is a bit odd that strikes me as being also indicative of an Arrogant Fraudster is the fact that he hired Stuart Scott within two weeks of being fired by Microsoft. Scott was CIO of this vast corporation and then was suddenly, and very publicly fired – something that is rare in business today. Microsoft only states that he was fired due to violations of company policies. A quote at the time reveals why Scott may have been so appealing to Farkas:
“Stuart’s credentials are impressive,” Farkas said in a statement. “Having someone of his caliber join us further solidifies our ability to deliver innovative technology solutions.” It was by using these innovative technologies that Taylor Bean and Whitaker were able to do cross deals with other banks. This is not to say that Scott is a fraudster, far from it, Scott that he would have been used as a vehicle for this type of dealing.
Sweet-talking and using people are another mark of the psychopath/Arrogant Fraudster type as they use people ruthlessly to meet their own ends. Being labeled as a philanthropist in the local community for instance is no testament to the real person underneath the mask.
Tragically, Lee Farkas and his sister Terri Huber lost their parents at a very young age (WSJ June 2011), I have no other details to go by on the effect that this trauma must have had on their lives. Becoming an orphan does not mean that the individual is destined to be a fraudster, however, Post Traumatic Stress Disorder can disrupt normal behaviour patterns for the rest of his or her life. In addition, there is evidence to support that the loss of maternal attachment at a young age results in a higher proportion of adults in jails and psychiatric wards (see the adoption literature).
However, the most telling indicator is the lack of remorse. The other alternative type of Fraudster I found in my research is the Likeable Fraudster, but once their fraudulent behaviour is discovered they are extremely quick to show true and overwhelming remorse – to the point of wanting to commit suicide. On the contrary, Farkas has been sending out letters to the media via his sister protesting his innocence since he has been in jail. He sees himself as a scapegoat of the US government and nothing less than a CEO who held the reins of a successful mortgage company during the tumultuous GFC crisis. This is not the mark of a Likeable Fraudster.
In the absence of other evidence, my conclusion that Farkas, now in jail for 30 years, is very likely of the Arrogant Fraudster type and could possibly be psychopathic as well. We do know that there is a far greater proportion of psychopaths in management than in the general population and selection committees and executive recruiters like the charm and the ‘results driven’ résumé that such people would possess.