Bailout cop busy on the beat
Neil Barofsky, who is overseeing the $700 billion TARP, says he has 20 criminal probes and calls for changes to prevent fraud.
WASHINGTON (CNNMoney.com) -- The top cop tracking the government's $700 billion bailout program said Tuesday that he has opened 20 criminal investigations and six audits into whether tax dollars are being pilfered or wasted.
Neil Barofsky, the special inspector general overseeing the Troubled Asset Relief Program, released a 250-page report detailing a long list of concerns about government efforts to prop up hundreds of banks, Wall Street firms and auto companies.
Barofsky, whose investigations could lead to criminal charges, told CNNMoney.com in an interview that he wants taxpayers to understand where their money is going. At the same time, he wants to alert officials to weaknesses in TARP that could invite corruption or fraud.
"Our recommendations are forward looking and there are no vulnerabilities that can't be addressed," Barofsky said. "The balance of what we're trying to do is to inform, bring transparency and make appropriate recommendations."
The report reveals that Barofsky is looking into whether bailout decisions were influenced by those who stood to benefit from them and whether companies receiving bailout dollars are adhering to caps on executive pay. (Read the full report.)
Barofsky's report also makes several recommendations to Treasury Secretary Tim Geithner and other officials charged with implementing the bailout. Among them: Require all TARP recipients to detail how they use bailout dollars and safeguard a new mortgage rescue effort against scams.
The report comes as public outcry over government bailouts is mounting. The Treasury Department is under increasing pressure to protect tax dollars even as it attempts to repair the financial markets - agendas that are often at odds with each other.
Geithner appeared Tuesday before a separate congressional watchdog group, the five-member Congressional Oversight Panel, which released its own oversight report two weeks ago.
The overall bailout scrutiny is wearing on the financial sector and, one expert said, has caused confusion over the government's unprecedented entanglement with the private sector.
"It's become chic to demand more oversight of how the government is spending money to stabilize the financial system, yet we already have so many oversight entities in place, that it's hard to say who's responsible for ensuring how the money is spent," said Jaret Seiberg, policy analyst at Concept Capital's Washington Research Group.
Barofsky, in the interview, insisted his goal is to inform the public that someone is minding the store and that bailout programs are not a "black hole."
"It's not trillions of dollars going out the door without anyone keeping tabs on it," said Barofsky, who will testify before Congress on Thursday about his findings.
As an inspector general, Barofsky has legal firepower. He can use subpoenas to compel disclosure and is tasked by federal law to track the details of how banks are spending taxpayer dollars.
Barofsky, appointed by then-President Bush last November, has so far hired 35 members of a staff he expects to grow to 150. Currently working out of the main Treasury compound next to the White House, Barofsky and his staff are securing their own offices in the same building in downtown Washington that houses the Treasury staffers that administer TARP.
Barofsky, 38, is a former federal prosecutor from New York who spent years chasing after white-collar criminals, organized crime figures and drug traffickers. In one recent high-profile case, he prosecuted a trading firm that filed for bankruptcy a few months after raising millions in its initial public offering. The chief financial officer of that company, Refco, pled guilty to fraud and money laundering last year.
Barofsky told CNNMoney.com that he believes one of his report's most urgent recommendations is that Treasury develop a system to better figure out the value of the different types of shares it now owns in financial institutions.
The Treasury has invested hundreds of billions in companies in exchange for shares of preferred stock.
He said the need to better understand the value of the government shares is even more important now that the administration is considering a plan to convert preferred shares into common shares, which is the kind of stock that consumers usually hold.
"There needs to be asset valuation strategy so the Treasury can make the most informed decisions," Barofsky said. "I don't think anything bad has happened, but it's time for them to do that."
The report also warns federal officials, in great detail, against expanding a Federal Reserve-run program to allow investors to use cheap government financing to purchase questionable mortgage-backed securities. The program poses "significant fraud risks," according to the report.
In addition, Barofsky also warns federal officials to create safeguards barring conflicts of interest among banks and investors participating in the new Public- Private Investment Program to prevent "collusion between participants, and vulnerabilities to money laundering."
Finally, he said he is concerned about the Obama administration's nascent mortgage rescue program, which aims to help millions of homeowners get affordable loans. He's worried that the program could spur a wave of real estate fraud and suggests officials take steps to confirm the identities of participants and make sure homeowners know that they aren't required to pay fees to take part.
Barofsky's report did not detail the 20 criminal investigations, which it said "vary widely" and include securities fraud, tax, insider trading and public corruption matters. He has previously reported working with New York Attorney General Andrew Cuomo to investigate how bonuses were given to high-ranking employees of American International Group (AIG, Fortune 500).
The report also says that the $182 billion AIG bailout is the subject of two separate audits. One is looking at federal oversight of the bonuses. The other is probing bailout disbursements to AIG counterparties who had purchased insurance-like products from AIG.