Financial Crisis News Center

Fraud Charges Filed Against Bank of America, Former Executives

This story appeared in Bank Digest.

The New York Attorney General has filed a civil suit alleging that Bank of American, its former CEO Kenneth Lewis and its former CFO Joseph Price, misled shareholders and the federal government in order to complete a merger with Merrill Lynch. According to the suit, Bank of America's management intentionally failed to disclose massive losses at Merrill so that shareholders would vote to approve the merger and, once the deal was approved, manipulated the government into saving the deal with billions in taxpayer funds by falsely claiming that Bank of America otherwise would back out. Special Inspector General for the Troubled Asset Relief Program Neil Barofsky has assisted in the suit. House Oversight and Government Reform Committee Domestic Policy Subcommittee Chairman Dennis Kucinich, D-Ohio, whose subcommittee held five hearings investigating the merger, called the suit “a critical step towards ending the culture of corruption on Wall Street.”

Issa: SIGTARP Report Is Recommended Reading

This story appeared in Bank Digest.

House Committee on Oversight and Government Reform Ranking Member Darrell Issa, R-Calif., has called on every member of Congress to review the quarterly report released by SIGTARP Neil Barofsky and to “take to heart what Barofsky warns will happen if policymakers continue to ignore the role that government intervention has played in contributing to and prolonging the economic crisis.” According to Issa, members of Congress who say that tax cuts and Wall Street led to the financial meltdown are ignoring the role that politics and government played in creating the housing bubble that “paved the way for our economic collapse.” Issa said “the SIGTARP report is very clear,” unless Congress takes a detour from their current path, another and much deeper financial meltdown is inevitable.

SIGTARP Releases Latest Quarterly Report

This story appeared in Bank Digest.

The Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) has released its latest quarterly report. In the report, the SIGTARP seeks to: explain the various TARP programs and how Treasury has used those programs through Dec. 31, 2009; provide a description of the federal government support of the residential mortgage market; describe what SIGTARP has done to oversee the various TARP programs since its Quarterly Report to  Congress dated Oct. 21, 2009; and provide updates on past recommendations relating to the operation of TARP.

Towns Subpoenas FRBNY for AIG Counterparty Documents

By Gregg D. Killoren, J.D., CCH State Banking Law Reporter, Bank Digest and Individual Retirement Plans Guide.

Oversight and Government Reform Committee Chairman Edolphus Towns, D-N.Y., in response to a request by Ranking Member Darrell Issa, R-Calif., has issued a subpoena to the Federal Reserve Bank of New York for documents related to AIG counterparty payments. In a statement, Towns said, “This subpoena will provide the Committee with documents that will shed light on how and why taxpayer dollars were used for a backdoor bailout.” Issa added, “The American people have a right to know the full story behind the FRBNY's decision to pay billions of dollars to AIG's counterparties and then conceal this decision from the public.”

SIGTARP Reviews CPP Exit Process

This story appeared in Bank Digest.

The Office of the Special Inspector General for the Troubled Asset Relief Program has issued an Engagement Memorandum regarding the exit process for the Capital Purchase Program. Specifically, the SIGTARP seeks to assess the process the Office of Financial Stability has established for banks to exit the CPP including the role of the federal banking regulators in the process.

Grassley Calls for More Information on TARP Fund Use

This story appeared in Bank Digest.

Senate Finance Committee Ranking Member Chuck Grassley, R-Iowa, has demanded that the Treasury Department do a better job of tracking and reporting on how recipients have been using Troubled Asset Relief Program funds. According to Grassley, an audit by the TARP Special Inspector General proved that use-of-funds reporting is “feasible and useful.”

SIGTARP Finds TARP Fund Use Information Is Available

This story appeared in Bank Digest.

In a report on six companies that received funds under the Troubled Asset Relief Program, the program's Special Inspector General (SIGTARP) found that the companies could “provide useful insight on their actual or planned use of funds notwithstanding the inherent fungibility of money.” The companies were from the automobile and insurance industries.

SIGTARP Study Reviews Government Assistance to AIG

This story appeared in Bank Digest.

At the request of Congress, the Special Inspector General for Troubled Asset Relief Program has released a study reviewing the counterparty transactions involved in the restructuring of the government’s financial support to American International Group (AIG), in which the Federal Reserve Board authorized the Federal Reserve Bank of New York (FRBNY) to lend up to $30 billion to Maiden Lane III, a newly formed limited liability company.

The report concludes that: (1) the original terms of federal assistance to AIG, including the high interest rate it adopted from the private bank’s initial term sheet, inadequately addressed AIG’s long-term liquidity concerns, thus requiring further Government support; (2) FRBNY’s negotiating strategy to pursue concessions from counterparties offered little opportunity for success, even in light of the willingness of one counterparty to agree to concessions; (3) the structure and effect of FRBNY’s assistance to AIG effectively transferred tens of billions of dollars of cash from the government to AIG’s counterparties, even though senior policy makers contend that assistance to AIG’s counterparties was not a relevant consideration in fashioning the assistance to AIG; and (4) while FRBNY may eventually be made whole on its loan to Maiden Lane III, it is difficult to assess the true costs of the Fed’s actions until there is more clarity as to AIG’s ability to repay all of its assistance from the government.

SIGTARP-10-003 at http://sigtarp.gov/reports/audit/2009/Factors_Affecting_Efforts_to_Limit_Payments_to_AIG_Counterparties.pdf

Grassley Holds Treasury Accountable for Safeguarding Bailout Funds

This story appeared in Bank Digest.

Sen. Chuck Grassley, R-Iowa, ranking member of Senate Finance, has asked Treasury Secretary Tim Geithner to account for the Treasury Department not implementing numerous recommendations to safeguard tax dollars dedicated to the Term Asset-Backed Securities Loan Facility (TALF) program. Grassley said the outstanding recommendations were detailed in the recent quarterly report to Congress made by the Special Inspector General for the Troubled Asset Relief Program. “After a little over a year, it’s pretty clear that neither the former nor the current Treasury Department has made it a priority to facilitate transparency and the accountability it helps to brings about when it comes to the massive taxpayer-sponsored bailout programs,” Grassley said. “It should be the other way around, with the Treasury Department acting as a pro-active trustee of these tax  dollars.”

http://finance.senate.gov/press/Gpress/2009/prg111309.pdf

SIGTARP to Audit PPIP Fund Manager Selection, Conflict of Interest Procedures

This story appeared in Bank Digest.

Special Inspector General for the Troubled Asset Relief Program Neil Barofsky has announced two audits. The first, an audit of the internal controls in place for the Treasury Department and the Public-Private Investment Fund, will examine the mitigation of conflicts of interest and fund managers' compliance with internal control requirements. The second, an audit of the process used by the Treasury to select PPIP fund managers, will look at the selection criteria used, the consistency with which those criteria were applied, the Treasury's compliance with appropriate regulations and its efforts to prevent conflicts of interest.