Acting with unusual speed, federal officials went from closing a prominent New York City bank (March 12, 2010) to arresting its CEO and President at his home (March 15, 2010). The president and CEO of New York's Park Avenue Bank, Charles J. Antonucci (59), this fall took a plea agreement with federal prosecutors. Antonucci admitted to taking more than $11 million illegally from TARP.

Antonucci's guilty plea was the conclusion of the first prosecution of misappropriated TARP funds.

As with TARP's national premises, Antonucci's offenses also crossed state lines...literally and figuratively. What remains shrouded, however, is the extent to which federal prosecutors will use their discretion to pursue a potential slew of unindicted co-conspirators. Count Three in the complaint gives an inkling to the potential breadth of this problem, given recent revelations into how high flying banks have cozied up with influential customers:

Antonucci accepted bribes from customers of the Bank, including but not limited to over $250,000 in cash bribes, free use of a customer's airplane, and free use of another customer's luxury automobile, in exchange for Antonucci's approval of various banking transactions. Indeed, on more than ten occasions in 2008 and 2009, Antonucci used a private plane owned by a co-conspirator ("CC-1") to fly to, among other places, Florida, Panama, Arizona (so that Antonucci could attend the Super Bowl), and Augusta, Georgia (so that Antonucci could attend the Masters Golf Tournament). All the while, Antonucci approved over $8 million in overdrafts on accounts for entities controlled by CC-1 at Park Avenue Bank.

One sophisticated and potentially aggressive component of the TARP program utilizes classic whistle blower techniques...meet the sleuth next door, SIGTARP. Though not a law enforcement agency, SITARP relies extensively on public input: and SIGTARP's inspector has shown a  willingness to confront his peers at Treasury.

But critics have argued the enabling language of TARP may be  as guilty as Antonucci. Though in Antonucci's case, obtaining a plea agreement was likely seen as being of the highest priority, subsequent prosecutions of TARP offenses may look toward fleshing out intent offenses under the legislation...making insider information, typically obtained best by whistle blowing, ever more vital. Whistle blowing for enforcing "intent" of TARP's vague regulation will complicate the tasks of those given the responsibility of managing the language. And the police powers under TARP are already vague.

"Residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Treasury Secretary determines promotes financial market stability. And any other financial instrument that the Treasury Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress."

The vagueness of TARP's language has led one important voice to attack the intention of TARP: and by implication, similar bailouts. According to Neil Barofsky, who serves as the Special Inspector General for TARP:

"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."

The Washington Post has reported (July 20, 2009) the Treasury Department refused to implement Barofsky's recommendations to Congress for TARP reform. Instead, Treasury official insist, tracking TARP funds to banks is akin to tracking "water poured into the ocean."

Source:
"TARP  and the Acronym of Trouble:  Good Rap, Bad Rap"  http://www.examiner.com/law-enforcement-in-national/tarp-fraud-uncovered-bank-ceo-pleads-guilty-new-york-city

This article is brought to you by the QTT, the epicenter for whistleblowers and people interested in the False Claims Act, Qui Tam Provisions, and Medicare and Medicaid fraud. To discuss a potential case, please call Eric Young at 1 (800) 590-4116.

According to the government's TARP watchdog, SIGTARP (Special Inspector General for the Troubled Asset Relief Program), there are several types of TARP fraud that should be reported. These include:

• Allegations of fraud, including false statements, false claims and misrepresentations affiliated with the TARP.
• Any activities that might impact the integrity of the Troubled Asset Relief Program including, but not limited to, allegations of fraud or misconduct by Federal employees and/or entities receiving TARP funds.
• Actions by persons or entities attempting to misrepresent their association with TARP by utilizing deceptive contracts or financial instruments; including, allegations of identity theft or misrepresentations.

We've blogged previously about one of the first people to get smacked by SIGTARP for committing fraud. In that case, a financial planner ripped off his retirement-ready clients by telling them that he had invested their money in non-existent "TARP-guaranteed debt." This loathsome individual took advantage of people's confidence in government-backed securities. Another potential area for TARP fraud is falsification of accounting records in order to obtain TARP funding. Testimony given before Congress by the Assistant Director of the FBI, Kevin L. Perkins, indicates that the FBI has observed a rise in this type of fraud in particular.

SIGTARP has a special hotline for reporting fraud. Of course, whistleblowers often need experienced legal representation, and the Qui Tam Team is on your side. If you believe that there is some type of fraudulent activity related to your company's receipt of TARP funds, follow your instincts.

You can read more about TARP fraud on the Qui Tam Team website.

Fast-forward to mid-November, and we now know that TARP fraud probes have tripled since April. If Barofsky were concerned by the potential for fraud back in February, he must be aghast now.  One of the few positive aspects, according to Barofsky, is that Wall Street's reputation has become somewhat clouded and people's perceptions are more objective. Barofsky believes that "we've done a good job of instilling a greater degree of skepticism that what comes from Wall Street isn't necessarily the Holy Grail."

Barofksy's office is known as SIGTARP (Office of the Special Inspector General for the Troubled Asset Relief Program), and it is required to make quarterly reports to Congress on its progress.  The most recent report was released in October 2009, and it details the general areas in which SIGTARP is conducting investigations as well as some specific investigations. The vast majority of the investigations are veiled in secrecy, however.

SIGTARP is currently conducting investigations into several different areas, including

complex issues concerning suspected TARP fraud, accounting fraud, securities fraud, insider trading, bank fraud, mortgage fraud, mortgage servicer misconduct, fraudulent advance-fee schemes, public corruption, false statements, obstruction
of justice, money laundering, and tax-related investigations.

One of the first TARP fraud casualties was a financial planner and one-time sports agent named Gordon Grigg. In classic snake-oil salesman style, Grigg lured in clients by telling them that he had invested their money in "TARP-guaranteed debt"  and other non-existent securities. Grigg defrauded his clients of almost $11 million. One man told his local news station that he had given Grigg everything he had and is now "59-years-old and crippled." Grigg plead guilty to four counts of mail fraud and four counts of wire fraud, and was sentenced to 10 years in prison.

SIGTARP is also conducting an ongoing investigation into a company called Federal Housing Modification, Inc (FHMA). The Federal Trade Commission is alleging that FHMA violated the FTC Act and telemarketing sales rules by misrepresenting itself as a government agency (it blatantly stuck "Federal" right there in its name) and falsely claiming that it could obtain mortgage modifications for customers for a $3,000 fee.

SIGTARP is conducting other ongoing investigations into the activities of Taylor, Bean & Whitaker Mortgage Corporation/Colonial Bancgroup and Bank of America. Colonial reported that it had received contingent approval from the Department of the Treasury for $553 million in TARP funding, but the funding was never made. SIGTARP, along with other offices including the New York State Attorney General's Office, is continuing its investigation of Bank of America regarding its merger with Merrill Lynch and its receipt of additional TARP funds under TIP. Bank of America recently announced that it is going to repay the money it received under TARP, which will free the bank from federal oversight on executive pay.

TARP is set to expire December 31st, 2009, and Treasury Secretary Timothy Geithner claims that the government will end TARP "as soon as we can." The New York Times reports that the program has helped some big banks bounce back, but has fallen short of many of its other goals. About $140 billion in TARP funds are uncommitted, and about $300 billion are unspent, so there are many billions of dollars that may wind up floating around out there, potentially winding up in fraudster's pockets. The government obviously has an enormous burden in monitoring what happens to all of this money, so regular citizens need to keep their eyes open for fraud. TARP will most likely continue to be a white-hot source of fraud as more money is dispersed.