Treasury Special Inspector General Neil Barofsky wants to know if banks committed fraud in order to qualify for TARP. “I hope we don’t find a single bank that’s cooked their books to try to get money but I don’t think that’s going to be the case,” said Mr Barofsky.
Barofsky spoke recently with the Financial Times and gave a glimpse of one of his various investigations.
From the FT:
Holed up in a corner of the Treasury with cardboard boxes stacked against a wall, Neil Barofsky is trying to keep track of $3,000bn of taxpayers’ money.
As a New York prosecutor, the 38-year-old took on drug dealers and white-collar fraudsters. His new role is making sure money given to Wall Street and the wider financial sector at the behest of the White House is not misused.
The job of special inspector-general for the troubled asset relief programme – Tarp – is as big as the title is unwieldy. Moreover, Mr Barofsky’s reputation for determination and a strong work ethic belies the fact that it is impossible to keep every Tarp dollar under observation.
Fighting fraud after a financial mess partly created by too much leverage, the strategy of the so-called “Tarp cop” is to leverage his own position – using investigations, public comments and, in the future, criminal charges to deter more fraudsters than he could hope to catch.
“Ultimately, if all we did was sit back, wait for fraud and then try to address it there would be a tsunami of fraud,” he said. The most drastic weapon is clearly primed for use: “Indictments can serve as great deterrents.”
Mr Barofsky said he was investigating whether banks had “cooked their books” to get some of the $700bn (€540bn, £475bn) in Tarp fund bailout money. He declined to go into specifics but said possible criminal offences included “securities fraud, wire fraud, false statement”.
FT 2:
The official policing the $700bn Tarp fund says he is investigating whether banks have “cooked their books” to secure bail-out money.
Neil Barofsky, special inspector-general for the troubled asset relief programme, told the Financial Times he was seeking evidence of wrongdoing on the part of banks receiving help from the fund, which was designed to ease credit conditions and support distressed industries.
“I hope we don’t find a single bank that’s cooked their books to try to get money but I don’t think that’s going to be the case,” said Mr Barofsky, who has been dubbed the “Tarp cop”.
Just how banks value mortgage-backed securities and other assets on their books has been an issue of intense debate as the financial crisis has unfolded.
Large banks from Citigroup to Goldman Sachs and hundreds of regional banks have taken billions from Tarp to rebuild balance sheets weakened by the financial crisis.
But institutions applying for Tarp money had to show they were fundamentally sound, potentially prompting them to mis-state their assets and liabilities.
Mr Barofsky also said the Treasury’s expanded term asset-backed securities loan facility (Talf) was ripe for fraud.
The former New York prosecutor said the decision to expand the Talf to encourage investors to buy distressed, or “legacy”, assets from banks could put public money behind investments that were backed by fraudulent mortgages.
“One of our strongest recommendations of the last report was do not expand the Talf to buying legacy assets. If its structure is not changed considerably it’s very, very dangerous,” he said.
“We know the triple A rating [ascribed to the securities by credit rating agencies] was a sham. We could be buying securities that are backed with assets that we know were likely riddled with fraud.”
Mr Barofsky revealed at a Congressional hearing earlier this month that he was involved with “probably more than a dozen” investigations into possible wrongdoing and fraud. He told the FT that potential fraudsters would pay attention when his team began seeking indictments. “Indictments can serve as great deterrents,” he said.