Financial institutions and other companies receiving federal assistance as part of the broader US government bailout should expect intense scrutiny and aggressive federal oversight of the use of federal funds.
On April 21, 2009, former federal prosecutor and Special Inspector General for the Troubled Asset Relief Program ("SIGTARP"), Neil M. Barofsky, discussed his office's intense focus on criminal fraud investigations by Troubled Asset Relief Program ("TARP") recipients in an interview with The Hill newspaper. Barofsky emphasized that his office's role is not only to seek justice, but also to act quickly in pressing criminal charges because of its "important role" in deterring future criminal conduct.
Barofsky acknowledged the tension between understanding the litany of new federal programs and the need to act rapidly. Barofsky said,
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.1
The recently passed "Special Inspector General for the Troubled Asset Relief Program Act of 2009," signed by the President on April 24, amended the Emergency Economic Stabilization Act of 2008 and confirmed that the SIGTARP can undertake law enforcement functions without first obtaining Attorney General approval and also granted Barofsky immediate access to US$50 million in funds. Barofsky intends to use these funds to add 100 new employees to his staff.
As discussed in SIGTARP's second quarterly report to Congress issued in April, the current SIGTARP staff is engaged in 20 preliminary and full criminal investigations into the misuse of TARP funds including securities and tax fraud, insider trading, and public corruption. SIGTARP is also conducting a review of all TARP recipients' use of government funds and six large-scale audits of TARP programs including an examination into TARP recipients' compliance with executive compensation limitations.
Earlier last month at the ABA's National Institute on White Collar Crime, Barofsky noted that the FBI expects to investigate approximately US$300 billion in potential criminal schemes related to TARP funding, stating that "copycats of the same old mortgage fraud" are being "reinvigorated by this influx of government money." Barofsky warned those participating in fraudulent behavior that "any lie, any accounting fraud, any misrepresentation to the Treasury to get that money—that's securities fraud. It's also probably mail fraud, wire fraud, and theft of government funds."
Because of the "huge potential for fraud in these programs," Barofsky said that "criminal investigations are obviously a very, very important focus." To achieve these criminal enforcement goals, SIGTARP is establishing close relationships with the Department of Justice, the "reinvigorated SEC," and with State Attorneys General. Barofsky reflected, "I think we're going to be around for a long time."
Recipients of TARP funds would be well advised to take SIGTARP's expansive authority into account with regard to their use of TARP funds. Organizations considering whether to request TARP funding should factor SIGTARP's current position into their decision making process.