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Troutman, Florida Firm on Taylor Bean's Bankruptcy

American Lawyer - Zach Lowe

Published August 24, 2009

Troutman Sanders and bankruptcy litigation boutique Stichter, Riedel, Blain & Prosser in Tampa, Fla. are representing Taylor, Bean & Whitaker--once the national's largest independent mortgage lender--in its long anticipated bankruptcy.

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The company's Chapter 11 filing on Monday has been expected since Taylor Bean closed its mortgage lending business on Aug. 4 amid a federal probe into accounting fraud, loan documents problems and failure to report to government regulators, according to The New York Times and our previous reporting on the company.

The same day, the Federal Housing Administration, Freddie Mac and Ginnie Mae suspended Taylor Bean's right to service mortgages and issue mortgage securities.

Taylor Bean immediately laid off 2,000 employees, prompting some of them to file a federal suit claiming Taylor Bean failed to follow a federal law that mandates companies give employees 60 days notice before a mass layoff--or the equivalent in salary and benefits. (Outten & Golden, a labor and employment boutique in New York that filed the suit earlier this month, refiled it Monday in Taylor Bean's bankruptcy case.)

Taylor Bean's troubles began emerging at the end of its fiscal year on March 31, when it announced an agreement to lend Colonial Bancgroup--its main depository bank--$300 million to help Colonial qualify for federal bailout funds.

To make that loan and meet its end-of-year reporting requirements, Taylor Bean hired Deloitte to perform an internal audit, court records show. That audit turned up red flags in June, including the possibility that Taylor Bean and Colonial officials conspired to alter the value of real estate and other assets in Taylor Bean's portfolio.

Auditors also found that Taylor Bean was late submitting reports to federal housing regulators, including Freddie Mac and Ginnie Mae. Taylor Bean then hired Troutman Sanders partners David Dantzler and Jeffrey Kelley to get its house in order.

The Troutman lawyers pushed company executives to submit financial reports to federal regulators--reports that were due months earlier. But without their knowledge, court records say, Taylor Bean CEO Paul Allen sent Ginnie Mae a letter on July 6 explaining the company's failure to submit reports on time.

When Ginnie Mae officials suspected Allen lied in that letter, Troutman and Deloitte took over communication between Taylor Bean and federal regulators. But it was too late. Federal authorities, suspecting a larger fraud, raided Taylor Bean on Aug. 3 and suspended its operations over the next 48 hours.

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