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Former Franklin Bank executives charged with fraud

chicagotribune.comApr 6, 2012

WASHINGTON (Reuters) - The government charged two former executives of Franklin Bank Corp, a Houston-based lender founded by a mortgage bond pioneer, with a fraudulent scheme to conceal how badly the bank was doing during the height of the financial crisis. The U.S. Securities and Exchange Commission on Friday said former Franklin chief executive Anthony Nocella and the bank's former chief financial officer, J. Russell McCann, inflated the bank's reported earnings and tried to conceal its loan quality during the second half of 2007.

Franklin Bank eventually filed for bankruptcy in November 2008.

The bank was founded by Lewis Ranieri, who is sometimes called "the father of securitization" for popularizing mortgage-backed securities in the 1980s, while he was at Salomon Brothers Inc.

"Nocella and McCann used the loan modification scheme like a magic wand to change non-performing loans into performing assets," said Robert Khuzami, director of the SEC's division of enforcement.

"Their disclosure and accounting tricks misled investors into believing that Franklin was outperforming other banks during the height of the financial crisis."

In three schemes, Nocella and McCann said loans that were delinquent or non-performing were actually performing, concealing $11 million in non-performing single-family residential loans and $13.5 million in non-performing residential construction loans.

Because of the scheme, Franklin overstated its third-quarter net income in 2007 by 317 percent, and its earnings by 77 percent.

The SEC filed its complaint in the U.S. District Court for the Southern District of Texas late on Thursday. It seeks financial penalties, permanent injunctive relief, and officer and director bars against Nocella and McCann.

It also wants them to give back any bonuses they got, under a law that allows for "clawbacks" of executive bonuses if the company must later restate its earnings.

(Reporting by Anna Yukhananov; Editing by Lisa Shumaker)

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CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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