Neil Barofsky, special inspector general for the $700 billion federal purse formerly known as the Troubled Asset Relief Program (TARP), told congressional leaders on Tuesday that the government’s bank rescue efforts could be vulnerable to fraud, potentially stripping taxpayers of tens, maybe hundreds of billions of dollars.
In testimony to a House subcommittee, Barofsky said, “History teaches us that an outlay of so much money in such a short period of time will inevitably draw those seeking to profit criminally.”
Barofsky didn’t stipulate exactly what types of financial fraud the program could be exposed to. But according to a “Wall Street Journal”:http://www.wsj.com report, federal officials have already alleged TARP-related fraud. The _Journal _cited a Securities and Exchange Commission (SEC) case just last month, in which the agency charged a Nashville, Tennessee-based firm with defrauding investors of at least $6.5 million by illegally trading on the TARP name and other non-existent securities. Barofsky said that he and the Government Accountability Office (GAO) have been working alongside the SEC on the case.

Barofsky also told lawmakers that only a very small percentage of institutions that received government funding have volunteered details about how they’ve spent the bailout money – fewer than five percent, he said. Full transparency on how banks are using the funds to increase consumer lending is a stipulation bank regulators say they will vehemently enforce and something President Barack Obama demanded in his primetime address to Congress Tuesday night. Barofsky told House leaders that full reports have been requested from 350 banks and are due in March.
Earlier this week, Democratic lawmakers publicly chastised Chicago’s Northern Trust for bankrolling millions to sponsor a PGA golf event and parties that, according to “Moneynews.com”:http://www.moneynews.com, included top musical acts, expensive hotel stays, and even Tiffany jewelry for some of the female guests. Members of Congress, led by chairman of the House Financial Services Committee, Rep. Barney Frank (D-Massachusetts), are now demanding that Northern Trust, who received $1.6 billion in TARP funding, pay back “the equivalent of what Northern Trust frittered away on these lavish events.”
In a letter to Northern Trust, Frank and other members of his House committee wrote, “At a time when millions of homeowners are facing foreclosure, businesses and consumers are in dire need of credit, and the government is trying to keep financial institutions — including yours — alive with billions in taxpayer funds, this behavior demonstrates extraordinary levels of irresponsibility and arrogance.”
Barofsky’s testimony about the potential for fraud and the program’s deficient transparency comes just as the administration pledges to pump more money into the U.S financial system and the Treasury releases plans for its Capital Assistance Program (CAP), a core element of the government’s Financial Stability Plan.