Bailout’s top cop probes twenty TARP fraud cases

Neil Barofsky, the top watchdog over the government’s financial bailout efforts, is pursuing 20 civil and criminal investigations into potential fraud in the programs.

In an interview with The Hill, Barofsky, the special inspector general for the Troubled Asset Relief Program (TARP), said he has urged his staff of 37 to zero in on fraud, push cases and deter crime.

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“We really need to press forward on these things because, unlike the traditional prosecutorial law enforcement investigation, where the end is the indictment and bringing justice, which is important, here we have such an important role in deterrence that it’s very important for us to get these charges out quickly,” said Barofsky, who is set to release a quarterly report on the TARP on Tuesday, and will testify before Congress on Thursday.

“Obviously we have to be right and we have to investigate fully, but there is a time pressure … We’re going to try to push these investigations, be as aggressive as we can and move as quickly as we can.”

Appointed by President Bush, Barofsky oversees a labyrinth: a dozen different programs spanning at least five federal offices and totaling roughly $3 trillion in government commitments. Just understanding the litany of new programs the government continues to develop takes a great deal of his time, Barofsky said.

His office already has served subpoenas in connection with criminal investigations, but declined to comment about the specifics of any investigations. Just applying for TARP makes any firm a potential subject of a case.

“We’ve received criminal investigation referrals as well from Congress that we’re looking into,” added Barofsky.

In addition to the 20 investigations, his office has opened six audits into, among other issues, the role of outside lobbying and other influences in winning federal money; the $165 million in bonuses at insurance firm AIG; Bank of America’s participation in four different government programs; and an overview of how the banks receiving equity from the government have used that money.

The last of those audits was the source of some resistance from Treasury Department officials, he said. Banks have long argued that tracking the money is too difficult because money is fungible.

Barofsky disagrees. He has received responses from all 364 banks that he asked about how they were using the TARP. “Yes, money is fungible,” he said, but some banks have provided “granular detail.”

So far, Treasury has only required that banks receiving government money provide statistics about their lending practices. Barofsky said those numbers do not go far enough; he wants lending numbers, but also the banks’ overall use of the funds. “To me, it makes a lot more sense to do both,” he said.

Barofsky, who works with his staff on the bottom floor of the Treasury building, intends to issue an interim report in early June on the bank responses in part to argue to Treasury that it is possible to trace specifically how taxpayer money is being used. “We want to back up what we’re saying,” he said. “We keep pressing for that.”

Unlike the Congressional Oversight Panel led by Harvard law Professor Elizabeth Warren, Barofsky’s office is focusing on criminal and civil wrongdoing in addition to more general recommendations and audits.

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“I come to this job as a former prosecutor,” said Barofsky, 38, who investigated fraud, white-collar crime and drug trafficking by the Colombian FARC rebel group as an assistant U.S. attorney in New York.

“Criminal investigations are obviously a very, very important focus of the office,” he said. “We’re the only ones doing them.”

 His office has received a great deal of support from Congress, with lawmakers voting to give him immediate access to the full $50 million in funds to support his office. Rep. Barney Frank (D-Mass.) said simply: “Deterrence works.”

Barofsky and his team have daily contact and meet weekly with Neel Kashkari, who has led the TARP program under both President Bush and President Obama. (Herb Allison, who has headed Fannie Mae since the government takeover last year, was nominated on Friday to succeed Kashkari.). Barofsky is looking to increase the staff size to 150.

As the government expands programs to support consumer credit in a variety of markets and draw in private investors to price and purchase the toxic assets weighing down banks, Barofsky is warning of a potential for widespread fraud. The Term Asset-Backed Securities Loan Facility (TALF) and Public Private Investment Program (PPIP) are two of the government’s newest efforts to stem the financial crisis.

“There is huge potential for fraud in these programs, huge potential,” Barofsky said. “These new programs in particular, there are great potential fraud vulnerabilities.”

He is working with the FBI, the Securities and Exchange Commission and other federal agencies to set up a TALF task force to root out fraud. He said he is looking into a similar effort on the PPIP program. “Once a fraud like this takes root, it can really spread very quickly and then all you’re doing is reacting,” he said.

Barofsky has moved to Washington full time and, considering that some of the programs will be around for five or more years, he knows he is in for the long haul.

“I think we’re going to be around for a long time,” he said.