TARP Financial Fraud Qui Tam Cases

The Troubled Asset Relief Program (TARP) is a government program that sought to purchase “troubled assets” in an attempt to stabilize the U.S. economy.1 Since its inception in 2008, the program has grown to include banks, insurance companies, mutual fund and investment companies, and automakers and their related enterprises.2 The selection criteria is largely unknown, but likely involves some evaluation by the Treasury as to a company’s likelihood of survival, or what impact a company’s failure would have on the economy. There seems to be a high risk of fraud as the selection criteria are unclear, the goals of the program are vague, and federal oversight is limited.3

If you have knowledge that a company or financial institution has fraudulently obtained TARP money, or used the money contrary to the rules and regulations, you may have a qui tam claim that would allow you to recoup money for the taxpayers, and a financial reward for your information.

Under the TARP umbrella, there are several different programs extending government money, each with its own purpose.

  1. Capital Purchase Program (CPP): This is the largest program within TARP. The program is designed to provide capital for “qualifying financial institutions”4 (QFI) to ensure their stability and promote lending through the government’s purchase of securities and warrants, which can later be “repurchased” by the QFI. Each QFI is required to sign a contract with the government. The contract provides little detail on how the monies are to be used except for terms limiting executive compensation. Over 500 institutions have received funding, with Wells Fargo ($25B), Bank of America ($25B), Citigroup ($12.5B), PNC Financial Services ($7.5B), and SunTrust Banks ($3.5B) receiving the most funds.5
  2. Making Home Affordable Program: The goal of this program is to reduce the amount homeowners owe each month to prevent foreclosures and help stabilize communities. This is done by providing financial assistance and guarantees by the government to encourage loan refinancing. Additionally, several incentives are in place whereby the mortgage holder and/or the mortgage servicer will receive additional payments for finding alternatives to foreclosure, making beneficial loan modifications, and ensuring the borrower stays current. The program is overseen by Freddie Mac and Fannie Mae, who rely on the mortgage servicers to provide accurate program updates. Participants include: Bank of America, Chase Home Finance, Countrywide, GMAC Mortgage, and Wells Fargo.
  3. Targeted Investment Program, and “Systematically Significant” Failing Institutions:6 These programs are meant to insure the stability of corporations whose failure would have a detrimental impact on other financial entities and the economy as a whole. Presently, only Citigroup ($20B) and Bank of America ($20B) are in the Targeted Investment Program, and only American International Group (AIG) ($69.8B) is a “Systematically Significant” Failing Institution. However, the terms and conditions for participants, other than limitations on executive compensation, are vague. The contracts largely mirror the CPP contracts.
  4. Automotive Industry Financing Program and Auto Supplier Support Program: Collectively, these two programs proved over $85 billion dollars to automotive builders, suppliers, and financial companies in the hopes of ensuring financial stability.7 In return, the companies are required to limit executive compensation, limit expenditures and meet certain milestones, including significant corporate restructure of Chrysler and General Motors.

Looking ahead, the U.S. Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) has identified and initiated several audit areas: Executive Compensation by TARP recipients; the influence of outside parties on Treasury or Bank Regulators when considering bank applications; the Treasury’s approval and review process relating to Bank of America funding decisions; AIG’s bonus structure; and AIG expenditures to other financial institutions, U.S. and foreign, and whether AIG made a good faith effort to control costs in accord with their government contracts.

For more information and case citations, please see “Federal False Claims Act and Qui Tam Litigation,” published by Law Journal Press (2010).

For more information, email quitam@bafirm.com

ENDNOTES

  1. A “troubled asset” was defined as, “(A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages . . . the purchase of which the Secretary [of the Treasury] determines promotes financial market stability; and (B) any other financial instrument that the Secretary, after consultation . . . determines the purchase of which is necessary to promote financial market stability . . . .”
  2. The Emergency Economic Stabilization Act of 2008 set aside $700 billion in TARP Funding. As of March 31, $590.4 billion has been committed.
  3. According to the Treasury Department’s TARP website, oversight is handled largely by the Office of the Special Inspector General For the Troubled Asset Relief Program (SIGTARP). The program has a budget of $65 million, but only has investigative and subpoena authority. To commence civil or criminal proceedings, it must do through a separate agency. To facilitate this, SIGTARP has partnered with the FBI, and the Inspector Generals of the Treasury Department, Federal Reserve, SEC, FDIC, HUD, IRS, and U.S. Comptroller General. While the Treasury Department is ultimately responsible for oversight, it has admitted this is difficult without additional funding and manpower.
  4. A QFI is defined as “(i) Any U.S. bank or U.S. savings institution not controlled by a Bank Holding Company or Savings and Loan Company; (ii) any top-tier U.S. Bank Holding Company; and (iii) any top-tier U.S. Savings and Loan Company which engages solely or predominately in activities that are permitted for financial holding companies under relevant law.”
  5. In addition, JP Morgan, Goldman Sachs, Morgan Stanley, and others have received large amounts but have repaid the Government. Please see back pages for partial list of all recipients and the amount received.
  6. Please see final pages for funding categories, participants, and amounted received.
  7. Of these monies, all went to General Motors, Chrysler, or Fiat, and their subsidiaries.

Notice

This website is designed to provide general information only. This information is not and should not be construed to be legal advice. The transmission of the information found on this website also does not result in the formation of a lawyer-client relationship.

You should be aware that qui tam and financial fraud claims are subject to Statutes of Limitations. The area of limitations periods is complex. There are also first to file rules, public disclosure bars, original source issues, and varying limitations in pursuing retaliation claims. If you wish to pursue your claims, you should promptly seek the opinion of an attorney regarding the merits of your qui tam or financial fraud claim and the applicable statute of limitations.