Suspected crimes in bailout plan add to US Treasury Department's woes

21 April 2009

If the financial collapse last October was not bad enough now comes the news that the US government's bailout programme may be riddled with all kinds of irregularities including fraud, tax violations, insider trading and other crimes. The special inspector general overseeing the program, Neil Barofsky has said that the Troubled Asset Relief Program (TARP) is 'inherently vulnerable to fraud, waste and abuse.'

Federal investigators have initiated probes into possible securities fraud, tax violations, insider trading and other crimes in the $750-billion financial bailout programme. They said they have opened 20 criminal probes which may be only the first wave of investigations and the total could ultimately reach into tens of billions of dollars according to Barofsky.

The disclosures add to fears that the bailout programme could end up funding fraud on the taxpayers while doing nothing to stabilising the financial system.

Though the reports prepared by Barofsky do not provide details of parties that have been placed under investigation, investigators have already started bracing for a long list of potential scams that might come to light. Such schemes might involve obtaining bailout funds under false claims, mortgage irregularities, cheating on taxes with fraudulent filings.

According to Barofsky entire institutions need not be corrupt to pull off such schemes only a few corrupt managers with their compensation tied to the performance of the assets may be able to pull off a collusion or a kickback scheme.

Barofsky, 38, appointed by President Bush is a former New York federal prosecutor with a proven track record of busting white collar-crime. In a recent case high profile case he prosecuted a trading firm that filed for bankruptcy months after raising millions in its initial public offering. The chief financial officer of the company pleaded to fraud and money laundering last year.