Bailout Fraud Cases Emerge

In the first major disclosure of corruption and fraud in the $750 billion federal bailout program, investigators said Monday that they have opened 20 criminal probes into possible securities fraud, tax law violations, insider trading and mortgage modification fraud.

Neal Barofsky, the special inspector general overseeing the bailout program, said in an interview that the investigations are just the first wave of cases by his office. He expects the first criminal indictments to occur later this year.

Ultimately, fraud could run into the tens of billions of dollars, according to Barofsky. The risk of those kinds of criminal activities is growing as the bailout becomes bigger and more complicated.

A 247-page report released by Barofsky’s office said that the very character of the bailout program makes it “inherently vulnerable to fraud, waste and abuse, including significant issues relating to conflicts of interest facing fund managers, collusion between participants and vulnerabilities to money laundering.” In a series of recommendations, Barofsky asked the Treasury Department for greater transparency and better protections against fraud.

“You don’t need an entirely corrupt institution to pull one of these schemes off,” he said. “You only need a few corrupt managers whose compensation may be tied to the performance of these assets in order to effectively pull off collusion or a kickback scheme.”

If you are witnessing fraud on the government, contact us by calling 800-377-1812 for strictly confidential advice from experienced counsel, with no fee obligation.

Source: Baltimore Sun, April 29, 2009