The global financial crisis which began in 2008 elevated the prosecution of crimes affecting federally insured financial institutions to near the top of the Justice Department’s priority list. Directors and officers of those institutions, already under scrutiny from the regulators and law enforcement agencies traditionally charged with examining their actions (e.g., the FDIC, Office of the Comptroller of the Currency, FBI and Secret Service) should take heed of a new player on the scene: the Office of the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”).  With abundant funding and a full staff, SIGTARP has already been involved in a number of significant financial institution investigations and appears poised to increase dramatically the scope of its activity.

Contrary to popular belief, the agency’s mandate is not confined to those crimes which relate directly to the request for or use of TARP funds.  Even in its relatively short existence, SIGTARP’s activities have made clear that it believes one and only one criterion need be met for the agency to claim jurisdiction: application for or receipt of TARP funds.  With over 160 employees and a 2012 budget of $41.8 million, SIGTARP has the resources and authority to pore over the books and records of any financial institution that applied for or received funds through the TARP program and to investigate any possible crimes affecting the institution. SIGTARP investigative agents have nationwide jurisdiction and have partnered with state and federal law enforcement agencies on a broad range of investigations across the country. Perhaps most significantly, the agency is not limiting its investigative scope to alleged wrongdoing connected with the application for or receipt of TARP funds. Recent SIGTARP investigations demonstrate the breadth of the agency’s reach:

•    Omni National Bank, Atlanta, Georgia

The charges stemming from SIGTARP’s investigation of this institution demonstrate how a seemingly tenuous connection to the alleged criminal activity can land a bank’s highest executives in the midst of a criminal investigation. The United States first filed charges related to Omni on April 24, 2009, alleging that a customer defrauded the bank when he “submitted materially false qualifying information to obtain mortgage loans, lines of credit, vehicle loans and other extensions of credit” in both his own and stolen identities. Those charges were followed by a series of Omni-related prosecutions which included allegations of kickbacks paid to influence the award of construction contracts and identity theft allegations and culminated in the indictment of Omni’s executive vice president and second largest shareholder for making “materially false entries which overvalued bank assets in the books, reports and statements of Omni National Bank.” 

The most notable element of these cases was the basis of SIGTARP’s claimed jurisdiction.  None of the cases involved the loss or even use of TARP funds.  In fact, Omni never even received TARP funds – its 2008 application was rejected.  Yet SIGTARP deemed the mere fact that the institution made that request sufficient to exert authority to investigate the bank and eventually sponsor charges against several of its employees.

•    United Commercial Bank, San Francisco, California 
 
An indictment returned in September 2011 charged UCB’s former chief credit officer and its manager of credit risk with various crimes relating to the reporting of the bank’s financial condition.  The primary accusations against the two men are tied to their alleged efforts to suppress the institution’s reported Allowance for Loan and Lease Losses (ALLL) in an effort to boost reported net assets and net income.  Once again, the mere fact that the institution received TARP funds constituted a sufficient basis for SIGTARP to claim jurisdiction.

•    The Park Avenue Bank, New York, New York

In March, 2010, the former president and CEO of the Park Avenue Bank pled guilty to a charge of “attempting to steal from the taxpayers’ investment in TARP” by falsely overstating The Park Avenue Bank’s capital position. The defendant represented that he had personally invested $6.5 million in the bank to improve its capital, when in reality the funding had come from the bank itself.  No TARP funds were affected by the transaction; again jurisdiction was founded on the bank’s application, which was ultimately denied.

Conclusion

In its most recently quarterly report to Congress, SIGTARP touts its successes and suggests that its efforts have only just begun.  The agency claims involvement in the criminal prosecution of 61 individuals, including 45 “senior officers” of financial institutions, as of December 31, 2011. All signs suggest that the agency considers itself unconstrained by the need to tie its investigations directly to TARP funds, and has no intention of slowing down. Taking full advantage of a budget that has increased each year since the agency’s creation, SIGTARP is currently active in more than 150 ongoing civil and criminal investigations.

Public statements from SIGTARP’s leadership clearly indicate that the agency has trained its sights on investigating bank loan classification and reporting processes – particularly those related to the determination of ALLL ? leading up to and during the global financial crisis. Many financial institutions have already faced civil lawsuits challenging these very processes. For those institutions that applied for TARP funding, criminal investigations tied to such conduct – and led by SIGTARP – are likely not far behind.