Bailout cop expands staff as TARP expires

Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, Elias Habayeb, former chief financial officer of the AIG Financial Services Group, Stephen Friedman, former chairman of the Federal Reserve Bank of New York, and Thomas Baxter, executive vice president and general counsel for the Federal Reserve Bank of New York, (L-R), on Capitol Hill, January 27, 2010.

WASHINGTON (Reuters) - The Treasury's $700 billion bailout fund officially expires in two weeks, but not for Neil Barofsky, the top cop for the Troubled Asset Relief Program.

He's hiring new staff and opening four regional branch offices to pursue TARP-related fraud cases and monitor remaining taxpayer investments for years to come.

Barofsky, the TARP Special Inspector General, said his office staff, now numbering around 140, is expected to reach a previously stated goal of 160 in coming months and may go beyond that.

"Most of the ramp-up in our numbers, the expansion in our hiring, is due to our criminal investigations," Barofsky told Reuters in an interview.

Of those investigations, a big part is focused outside of the Washington, D.C., area. So the SIGTARP, as his operation is known, is opening branch offices in New York, Atlanta, Los Angeles and San Francisco.

Much of the work done by these offices will be investigating criminal cases in which TARP applicant banks may have misrepresented their financial condition in order to qualify for bailout funds from the government.

The expansion comes as TARP is fast approaching its expiration date of October 3, after which it can make no new investments.

But the oversight role for bailout watchdog bodies, including SIGTARP, the Congressional Oversight Panel and the Government Accountability Office, is expected to continue until the last dollar of bailout investments is repaid or written off -- possibly several years from now.

Under the bailout law passed in October 2008, TARP funds could go only to banks and other financial companies deemed by their regulators and the Treasury as healthy and viable institutions. Barofsky said more evidence is now surfacing that some of these institutions may have made false statements in their earnings statements, in their TARP applications, and in communications supporting their funding requests.

"Predominantly where our resources are most deployed are where the intended victim or actual victim is the United States government," Barofsky said. "These are attempts to steal money from the taxpayer through fraudulent representation in their TARP applications."

About 707 banks received capital injections under TARP, for which they were required to pay 5 percent annual dividends. As of August 31, there were more than 120 banks that had missed quarterly dividend payments, according to Treasury data.

Five banks that received TARP funds have failed, resulting in a taxpayer loss of just under $3 billion.

PAYING ITS WAY

The SIGTARP's most celebrated case so far culminated in June with federal charges against Lee Farkas, the former head of bankrupt mortgage lender Taylor Bean & Whitaker, for his role in a fraud scheme to obtain some $553 million in TARP funds for the now-bankrupt Colonial Bancgroup. Essentially, the investigation prompted the Treasury to halt disbursement of any funds to Montgomery, Alabama-based Colonial. Farkas is scheduled to go on trial in November for the federal charges stemming from the fraud-scheme probe.

Barofsky maintains the savings from the Colonial case has paid for the SIGTARP's operations many times over, and the new hires and offices will pay for themselves through further savings and judgments from fraud investigations. He declined to discuss the probes now under way.

The regional offices also will produce cost savings because SIGTARP has been dispatching agents from Washington to investigate cases in New York, the South and the West, and has incurred hefty travel expenses, as well as a high "burnout" rate among agents working for many weeks away from their families, he said.

Barofsky, who served as an assistant U.S. attorney in Manhattan where he ran a mortgage fraud unit before his SIGTARP role commenced in December 2008, said he intends to hire as many agents as necessary to investigate TARP cases.

But if he wants to go above the stated goal of 160, he will need to seek approval of the White House's Office of Management and Budget. Such a request would likely be made in conjunction with the Obama administration's fiscal 2012 budget request, due next February.

Some observers have found it ironic that TARP oversight hiring is still ramping up as the program winds down. Between SIGTARP, the Congressional Oversight Panel and the GAO, there already are a few more people policing TARP than the Treasury Department's approximately 224 staff who administer it.

However, this excludes contractors hired by the Treasury to administer some parts of the TARP, such as work by Freddie Mac to review rejected mortgage modification requests.

Treasury spokesman Mark Paustenbach said it was not clear yet what Treasury's own TARP staffing would look like in the future: "Budget discussions are still in the early stages, but we will be making final decisions in the months ahead as TARP purchasing authority ends next month."

Apart from fraud investigations, SIGTARP and other oversight bodies also will be scrutinizing the Treasury's exit from its remaining $187 billion in TARP investments outstanding, including a planned initial public offering by General Motors Co and future stock sales in insurer American International Group.

(Reporting by David Lawder; Editing by Jan Paschal)