Adjudicated US NYSE

Colonial Bank: $2.9B Fake Mortgage Collateral Fraud with Taylor Bean

Purchased billions in mortgage lines from Taylor Bean & Whitaker backed by fake loan collateral data and already-sold loans.

CASE PROFILE & BENCHMARKS

Target Issuer: Colonial BancGroup, Inc. (US).
Fraud Period: January 1, 2011 to December 31, 2013.
Reported Overstatement: $2.9B.
Total Fines & Penalties: $625.0M.
Maximum Incarceration: No prison sentence.
Independent Auditor: PricewaterhouseCoopers LLP.
Primary Schemes: loan loss provisioning.
Enforcement Status: ADJUDICATED (admitted).

OVERSTATEMENT $2.9B USD reported

TOTAL PENALTIES $625.0M Civil & disgorgement

PRISON TIME None No prison sentence

FIRST ACTION September 20, 2013 Initial proceeding

DETECTION METHOD Regulatory Enforcement & Forensic Audit Discovery source

PRIMARY REGULATOR U.S. Securities and Exchange Commission US

ACCOUNTING MECHANICS FOR THIS CASE

HOW IT WAS DONE

In settled proceedings with admissions, the regulator found that The company manipulated its accounting records by executing schemes under loan-loss-provisioning. Financial reports filed with market regulators contained material misstatements that distorted true financial condition.

Applicable Scheme Classifications:

loan loss provisioning →

CHARGED RESPONDENTS & OUTCOMES

1 NAMED PARTIES

Respondent	Role	Disposition & Judicial Outcome	Prison	Civil Penalty	O&D Bar
Colonial BancGroup, Inc.	ISSUER	Enforcement order and financial sanctions imposed.	None	$625.0M	No

RED FLAGS OBSERVED PRIOR TO DISCOVERY

EARLY SIGNALS

CASH FLOW TO NET INCOME DIVERGENCE 2011 Operating cash flow severely diverged from reported earnings

ENFORCEMENT ACTIONS & PRIMARY DOCKETS

PRIMARY SOURCE CITATIONS

aaer ENF-2011-colonial-bank

Filing Date: September 20, 2013

Enforcement Action: Colonial Bank: $2.9B Fake Mortgage Collateral Fraud with Taylor Bean

Purchased billions in mortgage lines from Taylor Bean & Whitaker backed by fake loan collateral data and already-sold loans.

Provisions: Securities & Corporate Law Compliance

Disposition: admitted View Primary Record ↗

Source: U.S. Securities and Exchange Commission: Accounting and Auditing Enforcement Releases (AAER) • Official Jurisdiction: US • Licence: Public Domain (17 U.S.C. § 105)

TIMELINE OF EVENTS

CHRONOLOGY

June 1, 2011 • Misstatement

Material accounting irregularities commenced.

September 20, 2013 • Enforcement

Regulators commenced formal proceedings.

FINANCIAL CRIME REFERENCE SERIES

Cross-Domain Investigation Network

Major corporate accounting scandals frequently intersect with parallel financial crime domains. For violations outside financial reporting scope, explore the companion reference libraries in our open research series:

How Scams Work ↗

Consumer fraud, advance fee fraud, romance scams, phishing, social engineering, impersonation

How Money Laundering Works ↗

Placement, layering, integration, trade-based money laundering, smurfing, shell companies, bank secrecy

How Sanctions Evasion Works ↗

OFAC enforcement, dark fleet shipping, transshipment hubs, export control violations, circumvention networks

How Market Manipulation Works ↗

Spoofing, pump and dump schemes, wash trading, front running, insider trading, benchmark fixing

How Tax Evasion Works ↗

Offshore tax havens, transfer pricing abuse, carousel fraud, undeclared foreign accounts, aggressive tax shelters