Since 2008, the Office of the Special Inspector General for the Troubled Asset Relief Program has pursued criminal charges against 107 senior bank officers, most of whom have been sentenced to prison. Created to supervise the government bailout of the auto and financial industries, the agency has found dozens of cases of bank executives who misused bailout funds.
SIGTARP has a staff of 170, a budget of $41 million and an enforcement track record that rivals agencies twice its size. The agency’s work has resulted in $4.7 billion in restitution paid to the government and victims. Lawmakers are holding SIGTARP up as a model and questioning why other agencies are not producing similar results.
In October, Sen. Elizabeth Warren (D-Mass.) lauded the work of the inspector general in a letter asking financial regulators to disclose the extent of their efforts to pursue cases against individuals.
Although Warren credited the Office of the Comptroller of the Currency, the Federal Reserve and the Securities and Exchange Commission for achieving “landmark settlements” with banks for crisis-era misdeeds, she said that “a great deal of work remains to be done” at the agencies.
SIGTARP has a strong record, but the office has mainly taken down community bankers, not Wall Street titans, for brazen acts of fraud, some observers say. “The amount of direct evidence of banker wrongdoing in these smaller bank cases is easier to show,” said Mark Williams, a former bank examiner who teaches finance at Boston University.
Still, he said, “these SIGTARP cases set an important precedence that bad banker behavior will not be tolerated and [will be ] aggressively prosecuted.”
SIGTARP’s success is in part due to the criminal authority it received from Congress. Unlike regulators, the inspector general can issue search warrants, seize property and make arrests, much like the FBI.
It is ultimately up to the Justice Department to determine whether to pursue criminal charges, but the inspector general can move a case along faster, said Michael J. Rivera, a former chief counsel with the inspector general and now an attorney at Venable law firm.
The agency is largely charged with ensuring that the 763 financial institutions that received funds from the $700 billion TARP program use the money properly.
Tricks and false statements
Cases pursued by SIGTARP tend to fall into several categories, including bankers using accounting tricks to hide losses on loans, enriching themselves at the expense of the institution and making false statements about the condition of the bank, said Christy L. Romero, who heads the agency.
“Essentially, we’re looking for lies and greed,” she said. “Usually, people have gone to such great lengths to try to hide the schemes that we find that they end up violating several laws, which leads to long sentences.”
That was the case for Mark A. Conner, the president of FirstCity Bank in Georgia, who received a 12-year sentence last year after pleading guilty to approving loans to borrowers who, without the bank’s knowledge, used the money to purchase property he owned.
Catherine Kissick of Orlando, a former senior vice president at Alabama-based Colonial Bank, pleaded guilty and was sentenced to eight years in federal prison for misleading the Treasury Department about $300 million in funding the bank had to raise to obtain a $553 million bailout. Kissick conspired with Lee Farkas, majority owner of the Florida-based wholesale mortgage lender Taylor, Bean & Whitaker, to conceal that the money had been diverted from one of TB&W’s subsidiaries, rather than sourced from private investors.
SIGTARP said it found several violations at the Bank of the Commonwealth in Hampton Roads, where top brass used doctored records to apply for a $28 million bailout in 2008, according to court records. The $985 million bank was in such poor health that its regulator, the Federal Reserve, told bank officials to withdraw its application. It had lost $250 million on bad loans by the time the bank collapsed in 2011, becoming Virginia’s largest bank failure of the crisis, according to the Federal Deposit Insurance Corp.
Investigators accused the bank’s chief executive, Edward J. Woodard, of masking the bank’s deteriorating condition through an elaborate scheme with a group of real estate developers. The developers bought bank-owned property, Woodard’s personal condominium and his son’s failed investment properties using loans from the Bank of the Commonwealth, according to court documents. In exchange, the developers received loans to make interest payments on other loans.
At one point, Woodard approved $11 million in loans, without board approval, to a bankrupt borrower who was under federal investigation, court record show. He later falsified bank records to hide the transactions.
Last month, Woodard was sentenced to 23 years in federal prison and ordered to pay $333 million in restitution to the FDIC. Ten individuals, including Woodard’s son and the developers, also were convicted. Woodard’s attorney, Andrew Sacks, said his client maintains his innocence and is appealing the conviction.
To pull off the multifarious probe, the inspector general worked with agents from the FBI, IRS, FDIC and the Fed. Romero said her team often coordinates and assists other agencies, especially as a members of President Obama’s financial fraud task force.
Romero noted that the average prison sentence imposed by courts for crimes investigated by SIGTARP is five years and nine months — nearly twice the national average for white-collar fraud.
“With each one of these investigations, we gain greater knowledge of how some of these criminal schemes are executed,” she said. “We’ve developed expertise that allows us to find and combat white collar crime that’s gone undetected for years, in some cases.”
The inspector general’s office has 150 ongoing criminal and civil investigations and is looking for more case referrals. “All of the banking regulators need to do a much better job of making criminal referrals, even if they don’t know whether there is a crime,” Romero said.
Officials at the OCC, the FDIC and the Fed declined to comment on their referral process. But in a response to Warren’s information request, Comptroller of the Currency Thomas Curry defended his agencies’s collaboration with law enforcement.
“The OCC works closely with law enforcement in criminal cases, meets with them regularly and provides them with documents, information and expertise that is relevant to potential criminal violations,” Curry wrote on Nov. 20.
He said, “The OCC’s enforcement actions are not a stand-alone function, but rather, operate as an extension of, and in support of, the supervisory process.”
Curry echoed the sentiments of other regulators, including Federal Reserve Gov. Dan Tarullo, who have stressed the importance of encouraging institutions to change their behavior through supervision — rather than prosecution. That can come in the form of consent orders calling for bank’s to toughen their financial controls or multimillion dollar fines that punish misdeeds.