The Securities and Exchange Commission Wednesday accused the former operations supervisor of Colonial Bank‘s mortgage warehouse lending division of participating in a $1.5 billion securities fraud scheme. Teresa Kelly enabled the sale of fictitious and impaired mortgage loans and securities from her division’s largest customer, Taylor, Bean & Whitaker, to Colonial Bank, according to the SEC, which is seeking an undisclosed amount in civil penalties against Kelly. Kelly misrepresented these falsified securities as high-quality, liquid assets, the SEC said. The alleged fraud took place from March 2002 to August 2009, according to the SEC complaint. TBW relied on funding from Colonial Bank because it generally did not have enough internal capital to sustain its mortgage origination business. Once Florida-based TBW started experiencing liquidity problems, the complaint said, TBW overdrew its limited line of credit with Colonial by about $15 million a day. Kelly and several of her colleagues covered up the overdraws with a technique called “kiting,” in which certain debits were not entered until after credits due for the following day were entered. By the end of 2007, the scheme consisted of about $500 million in fake residential mortgages and $1 billion in severely impaired residential mortgages and securities, according to the SEC. The end of the fraud scheme fell simultaneously with the 2009 bankruptcy filings from TBW and Colonial BancGroup, Colonial Bank’s parent company. Regulators seized the bank shortly thereafter. “For nearly seven years, Kelly abused her access to Colonial Bank’s accounting systems, allowing (Lee) Farkas and TBW to defraud the bank and its investors out of more than $1.5 billion,” said William Hicks, associate regional director of the SEC’s Atlanta Regional Office. The SEC previously charged former TBW chairman and majority owner Lee Farkas in June 2010, former TBW treasurer Desiree Brown last month, and the head of Colonial Bank’s mortgage warehouse lending division Catherine Kissick earlier this month, in connection with the alleged kiting scheme. The SEC’s complaint was filed with the U.S. District Court for the Eastern District of Virginia. The regulator said its investigation is still continuing. Write to Christine Ricciardi. Follow her on Twitter @HWnewbieCR.