"I messed up. I messed up big."
This line came from:
a) A paper towel commercial.
b) A Willie Nelson song.
c) Charlie Sheen, after his "winning" spree ended.
d) Newt Gingrich, writing a card to his wife with gift of expensive jewelry.
e) One of the biggest mortgage company executives to be sentenced to prison so far.
Answer: Paul R. Allen, 55, of Oakton, Va., former CEO of Ocala, Fla.-based Taylor Bean & Whitaker, which had been one of the nation's largest privately held mortgage lenders until it collapsed in 2009.
Allen uttered these lyrical words to a federal judge at sentencing on Tuesday. He then received a 40-month prison sentence for his role in a $2.9 billion fraud.
His troubles began in 2003 when he landed a great gig as a work-at-home CEO. Who ever heard of a work-at-home CEO?
"Mr. Allen was not treated as a CEO. He did not function as a CEO," Allen's defense lawyer Stephen Graeff argued. "Sentence Mr. Allen the man, not Mr. Allen the title."
"Allen the title" began his career as a senior economist at Freddie Mac and became one of its divisional vice presidents. He later joined Fannie Mae as vice president of Financial Consulting for its Single Family Business Division.
"The organization is privileged to have such a well-respected individual join the executive team," said Taylor Bean's chairman Lee Farkas in an August 2003 news release. "I expect Paul to have an immediate impact on the way we do business."
He sure did. Allen went on to help Farkas hide what's colloquially described in court documents as "a hole."
It was just one of those little accounting gaps that seem to appear in a big business from time to time. But it eventually grew to hundreds of millions of dollars as it was shuffled through various accounts and corporate entities.
It eventually led to the failure of Taylor Bean's primary source of funds, Alabama-based Colonial Bank. This was the sixth-largest bank collapse in U.S. history, all because of a hole.
A recent report from the inspector general for the Federal Housing Finance Agency said that in 2008 a journalist tipped off regulators that Taylor Bean was dumping bad loans on Freddie Mac.
The tip wasn't sufficiently pursued. So the fraud was not uncovered until Colonial applied for bailout funds from the government's Troubled Asset Relief Program.
Taylor Bean had offered to help gather private equity to assist Colonial in getting the TARP funds, but the private equity didn't really exist, only the hole and the shameless plea for taxpayer assistance.
In another scheme, Taylor Bean sold mortgages to Colonial that it also sold to Allen's former employer Freddie Mac, according to court documents. Selling the same lousy assets twice must have been double the fun.
"Allen used his extensive experience gained from employment with the government sponsored enterprises .. to assist Lee Farkas in his massive fraud scheme," said Steve Linick, Inspector General of the Federal Housing Finance Agency in a news release.
For his part, Farkas is scheduled to be sentenced on Monday. They're taking away his money, his real estate and his toys, including a 1963 Rolls Royce and 1958 Mercedes Benz Cabriolet. They'll soon get his freedom, too.
A handful of other Taylor Bean executives also have been sentenced. Such justice is so rarely well served.
The case marks one of the few times the Justice Department has rounded up a bunch of mortgage hoodlums from a sizeable company and sent them to prison.
It also hints at one of the ways Freddie Mac and Fannie Mae ended up with so much bad debt that they had to be taken over by taxpayers:
Some of the guys who peddled bogus paper used to work there.
Talk about messed up.
(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. Contact Al at email@example.com or tellittoal.com)