TARP Fraud Probes Begin

The man charged with monitoring the $700 billion financial rescue has launched more than a dozen investigations into possible misuse of the money, according to a report sent to Congress today.

In findings that are not likely to soothe agitated taxpayers who are wondering what return they are getting from the bailouts, Neil Barofsky -- Special Inspector General for the Troubled Asset Relief Program, known as TARP -- said billions of taxpayer dollars are vulnerable to fraud, waste and abuse.

Barofsky -- who detailed the bailout fund perils in a 250-page tome [pdf] -- said that the criminal probes are looking into possible public corruption, stock, tax, and corporate fraud, insider trading and mortgage fraud. There would be no details on the targets, according to the report, "until public action is taken."

Inadequate oversight and insufficient information about what companies are doing with the money leaves the program open to fraud, including "conflicts of interest facing fund managers, collusion between participants and vulnerabilities to money laundering," Barofsky told lawmakers.

His office is looking at financial institutions that may have made "intentional misrepresentations in the TARP application process or in their financial reporting to Treasury," the report noted.

A potential hot-button issue also will be his office's audit of the multi-millions in bonuses paid to executives of American International Group. The report said that his office also will look into the Treasury Department's oversight of the bonuses and other executive benefits at all the companies that took bailout money -- something that is likely to be greeted like a smelly fish by most financial firms who are indignant at anyone delving into executive compensation packages.

Barofsky's office will also audit AIG's payments to banks and other financial companies who were reimbursed for risky investments. This would not be a criminal probe but could lift the veil on why certain prominent firms such as Goldman Sachs were made whole.

The report singled out for concern the administration's $1 trillion plan to shore up bank balance sheets by buying up banks' toxic assets through partnerships between private investors and the government. The program is known as Public-Private Investment Partnership, or PPIP.

"The American people have a right to know how their tax dollars are being used," said Barofsky. He said that with the exception of Citigroup and Bank of America the Treasury Department had not tracked down the details on how TARP recipients used the funds.

On Capitol Hill, Treasury Secretary Timothy Geithner testified before the oversight panel that monitors the bailout, maintaining that the difficulty of valuing assets hinders the banks' ability to lend and borrow. He defended partnering with private investors to curb government losses.

His remarks followed on the heels of a Treasury Department statement issued to rebut Barofsky's criticisms.

"Over the last two months, we've significantly increased the amount of transparency into the programs, including actively measuring lending and requiring banks under the new capital program to report on how every dollar of government resources goes toward increasing lending to consumers and businesses," the department said in a statement.

by Elizabeth Olson