No Fault Corporate Crime

Holding Holder to Account
by RUSSELL MOKHIBER

Ten years ago, if you wanted to quickly find out what was going on in the world of corporate crime, you would just type in the word “fined” into a news database.

Up would come a series of penalties or fines brought against big corporations by federal law enforcement officials in Washington, D.C.

Exxon fined for pollution.

Or ADM fined for antitrust violations.

But over the past decade, corporate lobbyists have worked their will in Washington, and enforcement against corporations has been watered down to the point where now corporate crime enforcement is way down the list.

Last night I typed “fined” into Google News – and these were the top five stories that came up:

1. A french perfume executive was fined for making racist remarks.
2. Fifteen people were fined for spitting in India.
3. The NBA fined Los Angeles Clippers foward Reggie Evans $25,000 for making an obscene gesture.
4. Only twenty five dog owners in northeast Scotland have were fined in the last year for dog fouling.
5. And the Houston Dynamo soccer midfielder Colin Clark was fined for using a gay slur at a ball boy.

Story number six did have to do with corporate crime – but it was from Europe.

Last week, the EU fined 14 air-shipping companies a combined $225 million for price fixing.

Now, try typing in the phrase “corporate crime” into Google News.

The phrase has been pretty much banished from American journalism and politics.

So, when you type in the words “corporate crime” into Google News, you will primarily see reports from overseas say the Irish Times or a newspaper in Australia – or you will see a quote from Ralph Nader, or a story from Corporate Crime Reporter.

Last night, I typed in the words “corporate crime” into Google News, and much to my surprise the first thing that came up was a Reuters story about the U.S. Attorney General Eric Holder.

I have been reporting on Holder since he took office three years ago.

As far as I can tell, last month was the first time in his three years as Attorney General that he uttered the phrase “corporate crime.”

And this is what he said at a meeting of state Attorney Generals in Washington.

“We’re gonna make some news with regard to holding individuals responsible for things we tend to think of as corporate crimes,” Holder said.

Get it?

We’re going to hold individuals responsible.

Not hold corporations responsible.

Hold individuals responsible for things we tend to think of as corporate crimes.

Now, what Holder said here is important.

Because he comes from a corporate law firm – Covington & Burling – where he represented primarily corporations, not individuals.

And when he leaves office, Holder most likely will return to Covington & Burling.

Where he will represent primarily corporations – not individuals – against federal law enforcement officials, in their increasingly weakened state.

Every week in Corporate Crime Reporter, we run a question/answer format interview with someone who has something to say about corporate crime.

When we started Corporate Crime Reporter 25 years ago this month, our first ever interview – the first of now over 1,200 interviews – was with Rudy Giuliani – who at the time was the U.S. Attorney in Manhattan.

At the time, Giuliani believed that if you were to bring a case against a major American corporation, you secured a guilty plea, or took the case to trial.

Or you just didn’t bring the case.

And Giuliani’s view was the view of federal law enforcement back then.

Bring a criminal charge if you have a criminal case. And secure a guilty plea. Or don’t bring the case.

As a result, major American corporations were convicted of crimes on a regular basis.

Because they engaged in crimes on a regular basis.

And the message was sent – you commit a crime, you will be convicted and publically shamed.

Today, major American corporations are still committing crimes on a regular basis.

But the difference is today major American corporations are rarely convicted of their crimes.

It’s not that they no longer engage in corporate criminal behavior.

It’s that they have set up a system where they no longer have to plead guilty to their crimes.

Instead, they settle these major corporate crime cases with deferred and non prosecution agreements.

These are the criminal equivalents of the neither admit nor deny consent decrees used for decades by the Securities and Exchange Commission and that recently have come under fire by federal judge Jed Rakoff in New York.

And so, if you are a criminal defense attorney at Holder’s former firm of Covingon & Burling, this is how you practice corporate crime law:

1. Your client comes to you with evidence of criminal wrongdoing by the corporation.
2. You approach the Justice Department and disclose it.
3. The Justice Department offers you a deal.
4. The Justice Department says to you – if you cooperate in the criminal investigation against the individuals involved at the company, we will let you off the hook with a deferred or non prosecution agreement.
5. There will be no criminal conviction against your corporate client.
6. But you must cooperate against the individuals involved.
7. And those individuals will likely be convicted and go to jail.

Thus, Holder’s statement – “We’re gonna make some news with regard to holding individuals responsible for things we tend to think of as corporate crimes.”

Last month, we interviewed David Uhlmann.

Uhlmann is the former head of the Environmental Crimes Section at the Justice Department.

And he’s currently a Professor of Law at the University of Michigan Law School.

When Uhlmann was head of the Environmental Crimes Section, he didn’t use deferred and non prosecution agreements in corporate crime cases.

Uhlmann says that deferred and non prosecution agreements have no place in major corporate crime cases.

These agreements were originally meant for minor street cases, not major corporate crime cases.

When the Department entered into a non-prosecution agreement last year to resolve criminal investigation into the Upper Big Branch mine disaster, Uhlmann wrote a scathing opinion article in the New York Times titled For 29 Dead Miners, No Justice.

“Twenty-nine miners died in West Virginia. They died because Massey had a history of mine safety violations,” Uhlmann told us.

“They died at a facility where the company kept a double set of books – one for internal purposes, which documented violations, and one for mine safety officials that covered up those violations.”

“To enter a non-prosecution agreement in a case where 29 people died and there is so much evidence of criminal wrongdoing reflects poorly on the Justice Department.”

Uhlmann says that the Environmental Crimes Section to this day does not settle corporate crime cases with deferred and non prosecution agreements.

Maybe that’s why Holder and his aides stripped the Environmental Crimes Section of authority over the criminal investigation into the Gulf oil spill cases and gave it to the Criminal Division.

Uhlmann believes that it will be a travesty of justice if the Department doesn’t secure guilty pleas in the Gulf oil spill cases.

But they didn’t in the Massey Energy case.

And the odds are not good that they will in the BP oil spill cases.

Not that crimes weren’t committed in the Gulf oil spill cases. They clearly were. But after all, Holder is from Covington & Burling. And he’s going back to Covington & Burling. And his top deputies came from corporate law firms and they are going back to corporate law firms.

Obviously, this practice of no fault corporate crime has taken hold at the top and been filtered right down through the entire federal enforcement system.

Last month, I caught this headline from a Canadian newspaper:

“Wal-Mart Pleads Guilty in Teen’s Death.”

The story began:

“Walmart Canada pled guilty Tuesday in the case of a teenager who was electrocuted on the job last year."

When I saw that, I went to our federal OSHA web site and searched for a similar case. And I found one also from last month where a Verizon worker was electrocuted on the job. OSHA proposed a civil fine of $140,700.

The point is that a criminal conviction sends a message that a civil fine or a deferred and non prosecution can’t.

A criminal conviction says to the corporation – what you have done is serious and we are bringing out our most serious weapon to bear – a criminal conviction.

Corporations get it.

What big corporations fear most is the reputational hit of that headline –“Wal-Mart Pleads Guilty in Teen’s Death." Corporations will do – and have done – everything in their power to avoid that headline.

So, our criminal justice system is out of whack.We must get back to the days of when you brought a case, you secured a guilty plea or you went to trial. Like Professor Uhlmann says, deferred and non prosecution agreements have no place in corporate crime practice.

And now the question becomes – how to bring back some balance to our corporate criminal justice system?

There is a clear power imbalance in Washington with the corporate law firms holding the upper hand. Young law students would much rather go for the fancy offices and big salaries of a corporate law firm than a Justice Department cubicle.

When I was a teenager, I had an uncle who would warn me about U.S. colleges being high priced tool factories for the corporations. The choice of which college or law school to go to was not nearly as important as the choice of what you did with your education.

Education for what? – was the question we were asked. And it was made clear to us that a decision to work for a corporate law firm or not was a moral choice.

And that’s what is missing. A moral code and a shaming mechanism to enforce it.

We were told, in effect, – shame on you if you decide to slave away working to undermine the criminal justice system on behalf of Wal-Mart and BP or Massey Energy.

Sure, every corporation deserves legal representation. But it doesn’t have to be you.

We must also shame our public officials into securing convictions when convictions are warranted. To insist on corporate criminal prosecutions in worker death cases where warranted. To do away with deferred and non prosecution agreements in corporate crime cases. To demand action where action is due.

It’s shameful that more than three years since the financial crisis crippled the American economy there has not been a single prosecution of a Wall Street firm even though fraud and financial misrepresentations played a significant role in the meltdown.

Even Sixty Minutes pointed this out in December of last year.

But still, nothing.

And before he goes back to Covington & Burling, Eric Holder has to be held to account.

It is shameful that Holder cares more about individual wrongdoing than he does about corporate wrongdoing.

Most importantly, we need to support our local corporate crime police, to bolster their enforcement budgets, to begin to level the playing field between corporate criminals and the police.

The Year in Pills

2010's Hall of Shame
By MARTHA ROSENBERG

2010 will go down as the year the diet pill Meridia and pain pill Darvon were withdrawn from the market and the heart-attack associated diabetes drug Avandia was severely restricted.

But it was also the year the Justice Department filed the first criminal, not civil, charges against a drug company executive. Lauren Stevens, a former VP and assistant general counsel at GlaxoSmithKline, hid some 1,000 instances of GSK-paid doctors illegally promoting Wellbutrin to other doctors, say authorities.

It was also the year prominent psychiatrists Charles Nemeroff and Alan Schatzberg were accused of writing an entire book for GSK called Recognition and Treatment of Psychiatric Disorders: A Psychopharmacology Handbook for Primary Care.

Here are the drugs which make 2010's Hall of Shame.

Yaz and Yasmin

Soon after Bayer launched the pill Yaz in 2006, billing it as going "beyond birth control," 18-year-olds were coming down with blood clots, gall bladder disease, heart attacks and even strokes. FDA ordered Bayer to run correction ads that detail the drugs' risks though Yaz sales are still brisk. In fact, financial analysts attribute a third quarter slump to a Yaz generic coming online, not dangerous side effects.

Lyrica, Topamax and Lamictal

In August FDA ordered a warning on the seizure drug Lamictal for aseptic meningitis (brain inflammation) but it is still the darling of military and civilian doctors for unapproved pain and migraine uses. All three drugs increase the risk of suicidal thoughts and behaviors according to their mandated labels, in addition to the memory and hair loss patients report.

Humira, Prolia and TNF Blockers

The drug industry's highly promoted biologic drugs are made from genetically engineered hamster cells and suppress the immune system, inviting tuberculosis and several cancers. Yet Humira is advertised to healthy people for "clearer skin" and Prolia is advertised to prevent osteoporosis in healthy women.

Chantix

After 397 FDA cases of possible psychosis, 227 domestic reports of suicidal behaviors and 28 actual suicides, the government banned pilots, air-traffic controllers and interstate truck and bus drivers from taking the antismoking drug Chantix in 2008. Its neuropsychiatric effects were immortalized when New Bohemians musician Carter Albrecht was shot to death in 2007 in Texas by a neighbor after acting aggressively on the Chantix.

Ambien

The sleeping pill Ambien was immortalized as the drug Tiger Woods reportedly cavorted with his consorts on and former US Rep. Patrick Kennedy crashed his Ford Mustang on, while driving to Capitol Hill in the middle of the night to "vote" in 2006. Law enforcement officials say it has increased traffic accidents from people who drive in a black out and don't even recognize arresting officers.

Tamoxifen

Is it a coincidence that Tamoxifen maker AstraZeneca founded Breast Cancer Awareness Month and makes carcinogenic agrochemicals that cause breast cancer? As a breast cancer prevention drug, an American Journal of Medicine study found the average life expectancy increase from Tamoxifen was nine day . Public Citizen says for every case of breast cancer prevented on Tamoxifen there is a life-threatening case of blood clots, stroke or endometrial cancer.

Lipitor and Crestor

Why is Lipitor the best selling drug in the world? Because every adult with high LDL or fear of high LDL is on it. And also 2.8 million children, says Consumer Reports. All statins can cause muscle breakdown called rhabdomyolysis. And Crestor is so linked to the side effect, Public Citizen calls it a Do Not Use and the FDA's David Graham named it one of the five most dangerous drugs before at a Congressional hearing.

Boniva

Boniva and other bisphosphonate bone drugs are a good example of FDA approving once unapprovable drugs by transferring risk onto the public's shoulders. The list of dangers on the label includes waiting 60 minutes before eating or drinking anything except plain water, never taking the drug with mineral water, sparkling water, coffee, tea, milk, juice or other oral medicine, including calcium, antacids, or vitamins and not lying down after you take it.
Prempro

Pfizer's hormone drug Prempro is linked to a 26 percent increase in breast cancer, 41 percent increase in strokes, 29 percent increase in heart attacks, 22 percent increase in cardiovascular disease and double the rate of blood clots. But its cognitive and cardiovascular "benefits" are being tested right now at major universities to debut an HT "Light," hoping the public has a short memory.

Prozac, Paxil, Zoloft, SSRIs

Selective serotonin reuptake inhibitor (SSRIs) antidepressants like Prozac, Paxil, Zoloft and Lexapro probably did more to inflate drug industry profits than Viagra. But many say the drugs have also inflated police blotters. In addition to 4,200 published reports of SSRI-related violence, including the Columbine, Red Lake and NIU shootings, SSRIs can cause serotonin syndrome and gastrointestinal bleeding when taken with certain drugs. Paxil is linked to birth defects.

Effexor, Cymbalta, Pristiq, SNRIs

Selective norepinephrine reuptake inhibitors (SNRIs) are like their SSRIs chemical cousins except their norepinephrine effects can modulate pain, which has ushered in your-depression-is-really-pain, your-pain-is-really-depression and other crossover marketing. SNRI's are also harder to quit than SSRIs. 739,000 web sites address "Effexor" and "withdrawal."
Seroquel, Zyprexa, Geodon, atypical antipsychotics

The antipsychotic Seroquel tops 71 drugs on the FDA's January 2010 adverse event report and is linked to unexplained troop deaths and many research scandals. But it's the fifth biggest-selling drug in the world. Atypical antipsychotics cause weight gain and diabetes, the tardive dyskinesia they are marketed to prevent and death in the demented elderly. Yet FDA approved Zyprexa and Seroquel for children last year and the new atypical antipsychotic, Latuda this year. Maybe the FDA is bipolar.

Ritalin, Concerta, Strattera, Adderall and ADHD Drugs

ADHD drugs rob "kids of their right to be kids, their right to grow, their right to experience their full range of emotions, and their right to experience the world in its full hue of colors," says Anatomy of an Epidemic author Robert Whitaker. But they are a gold mine for the drug industry. During an August conference call with financial analysts, Shire specialty pharmaceuticals president Mike Cola lauded the "very dynamic ADHD market," and the "co-administration market" (in which kids don't need one drug but several.

Gardasil and Cervarix Vaccines

A pharma-government plot to inoculate the public with dangerous vaccines? Maybe not but why are governors like Texas' Rick Perry mandating vaccination of girls for HPV? And why was University of Queensland lecturer Andrew Gunn silenced when he questioned the Gardasil vaccine? The HPV vaccine doesn't work for all viral strains, requires a boo$ter and is linked to 56 US girls' deaths as of September, according to the CDC.

Foradil Aerolizer, Serevent Diskus, Advair and Symbicort

Unlike drugs that look safe in trials and develop "safety signals" postmarketing, the long-acting beta agonists (LABA), salmeterol and formoterol, found in many asthma drugs, never looked safe. Studies link them to an increase in asthma deaths, especially in African-Americans and children. They may have contributed to 5,000 deaths said Dr. David Graham at FDA hearings about the controversial asthma drugs.

Singulair and Accolate, leukotriene receptor antagonists

Leukotriene receptor antagonists also never looked safe. Original FDA reviewers said asthma control "deteriorates" on Singulair and it may not be safe in children. Last month, Fox TV reported Singulair, Merck's top selling drug, is suspected of producing aggression, hostility, irritability, anxiety, hallucinations and night-terrors in kids, symptoms that are being diagnosed as ADHD. It is huckstered to parents by the trusted educational service Scholastic, Inc. and the American Academy of Pediatrics.

War on Google

Battling Big Brother
By BINOY KAMPMARK

Google is being cheeky. In fact, according to the London-based pressure group Privacy International, it may well have behaved in a criminal way. The bone of contention here is that the search company has been accumulating Wi-Fi data for its Street View mapping project using a system that ‘intentionally separated out unencrypted content (payload data) of communications and systematically wrote this data to hard drives’ (BBC, Jun 9). Material including personal emails was captured ‘in error’.

According to PI, such activity was the equivalent of ‘placing a hard tap and digital recorder into a phone wire without consent or authorization.’ The result: Google is possibly violating interception laws in as many as 30 countries.

The Germans have been one of the first to express an interest in chasing Google on the road of thorny litigation for their accumulation of this data. German laws allow for the imposition of sentences anywhere up to two years imprisonment. In May, a court in Hamburg opened a criminal investigation into the giant’s activities, arguing that the company had been securing data from unsecured Wi-Fi networks. The German Information Commissioner has demanded that a hard-disk be handed over for a proper examination of what exactly has been collected.

The Australian government has also been brooding over Google’s conduct. The Communications Minister Stephen Conroy referred the case to the federal police and the privacy commissioner once he was made privy to the illicit collection of 600 gigabytes by Google. His words were strong, even hyperbolic – Google had intentionally engineered the ‘single greatest breach in the history of privacy’.

In the United States, the head of the House Judiciary Committee, Representative John Conyers Jr of Michigan has urged Google and Facebook to cooperate with government inquiries into privacy.

What will be Google’s list of desperate defenses? One is lack of intent – a few cyber enthusiasts remain to be convinced that such a gathering of information was based on a concerted, calculated effort to tap the information. It’s either the politicians making populist mileage out of corporate delinquency or Google being sinister or indifferent to privacy. The results are the same either way: Corporate Big Brother is eagerly gathering and making use of personal data. Governments who have done something similar will be jealous at their corporate rivals.

Another stock-in-trade excuse is coming to the fore: it was the work of an errant individual beavering away in a haze of technological wizardry. In this case, it was an engineer who implemented an experimental program called gslite that was never intended to be used for the Street View project. The attempt by Google to extricate themselves from the situation has been farcical, though this should not surprise students of the corporate sector. Individuals such as this suspect engineer could hardly have devised such a system, let alone seen its implementation, without company endorsement (money and the like).

Whether the conduct of the internet giant was actuated by intention or negligence remains to be seen. The very fact that such behaviour exists will worry the public. They have every reason to be. Cyberspace was always going to be the borderless world of informational nihilism, and the recent revelations reveal who those nihilistic practitioners are.

Criminal Charges Possible in AIG Coverup

Barofsky Says Criminal Charges Possible in Alleged AIG Coverup
By Richard Teitelbaum

April 28 (Bloomberg) -- Neil Barofsky was unpacking boxes in December 2008 when the stench of sewage wafted through the hallways at the 168-year-old Main Treasury Building. The space assigned to him as head of the Office of the Special Inspector General for the Troubled Asset Relief Program, or SIGTARP, was shoehorned into the basement, three floors below U.S. Treasury Secretary Henry Paulson’s offices.

“They eventually discovered a broken sewer main beneath the floor,” says Barofsky, 40, adding that he doesn’t think any slight was intended by relegating him to the malodorous quarters. Still, he says with a smile, “I wasn’t given the prime real estate in Treasury.”

The incident was noted by Beltway insiders, Bloomberg Markets magazine reports in its June issue.

“It became an apt metaphor for the foul relations between Treasury and SIGTARP,” says Michael Smallberg, an investigator at the Project on Government Oversight, a Washington watchdog group.

That tense relationship has grown out of Barofsky’s mandate to monitor and root out fraud and waste in the management of TARP, the $700 billion program passed in October 2008 to remove toxic debt from the banks. The special inspector general, in a series of reports, interviews and congressional hearings, has heaped criticism on the Treasury Department’s operation of the program.

Barofsky’s most recent broadside came on April 20, when a SIGTARP report labeled a housing-loan modification program funded with $50 billion of TARP money as ineffectual.

230,000 Homeowners

Treasury spokesman Andrew Williams counters that the program has resulted in modifications for more than 230,000 homeowners.

The TARP watchdog has also criticized Treasury Secretary Timothy F. Geithner in reports and in congressional testimony for his handling of the process by which insurance giant American International Group Inc. was saved from insolvency in 2008, when Geithner was head of the Federal Reserve Bank of New York.

The secrecy that enveloped the deal was unwarranted, Barofsky says, adding that his probe of an alleged New York Fed coverup in the AIG case could result in criminal or civil charges.

In Senate Finance Committee testimony on April 20, Barofsky said SIGTARP would investigate seven AIG-linked mortgage-related securities similar to Abacus 2007-AC1, the instrument underwritten by Goldman Sachs Group Inc. that is at the center of a U.S. Securities and Exchange Commission lawsuit filed against the investment bank on April 16.

Leading the Charge

“I’ve been in contact with the SEC,” he told the committee. “We’re going to coordinate with them, but we’re going to lead the charge. We’re going to review these transactions.”

Barofsky and Geithner’s offices have gone toe-to-toe over AIG, alleged lax oversight of TARP funds and even over the question of whom Barofsky reports to.

Barofsky, a former federal prosecutor who was once the target of a kidnapping plot by Colombian drug traffickers, says he’s also looking into possible insider trading connected to TARP. He says his agency would want to know if bankers bought stock in their companies before it was made public that their institutions would get TARP money, for example.

“There was a time when, if you got that word the stock price would go up, and if you were to trade on that information prior to the public announcement, that would be classic insider trading,” Barofsky says.

‘Tea Partiers’

A Democrat named by a Republican president, Barofsky says missteps by both the George W. Bush and Barack Obama administrations are to blame for TARP’s failures.

“There’s a reason there are Tea Partiers out there, and when you look at it, anger at the bailout is one of the first things they talk about,” says Barofsky, referring to the anti- Obama political movement. “This Treasury Department and the previous Treasury Department bear some of the responsibility for not being straightforward with the American people.”

Barofsky criticized Geithner’s predecessor, Paulson, in an October 2009 report, saying Paulson publicly described the initial nine TARP bank recipients as healthy when he knew that at least one of them risked failure.

In a letter responding to Barofsky, Assistant Treasury Secretary Herbert Allison wrote: “Any review of such announcements must be considered in light of the unprecedented circumstances in which they were made.”

Geithner and Paulson both declined to comment for this story.

Praise from Grassley

Barofsky, who has thinning jet-black hair and favors dark- gray suits, has won praise from both sides of the aisle in Congress.

“The special inspector general for TARP hit the ground running,” says Senator Charles Grassley, an Iowa Republican who helped draft the legislation creating SIGTARP. “He’s the kind of watchdog taxpayers need and deserve.”

From the day Congress created it, TARP has been troubled. Paulson crafted it as an initiative to buy the toxic assets that were then threatening to capsize the world’s banking system. Since then, the Treasury and Congress have transformed it into a hydra-headed beast encompassing 13 financial aid plans.

TARP had invested $204.9 billion in 707 banks, thrifts and credit unions through its Capital Purchase Program as of March 31; $69.1 billion remained to be paid back. It has committed to paying out $39.9 billion to modify mortgages, though it has disbursed only $91 million.

Hydra-Headed TARP

The Treasury Department has pledged to dole out tens of billions more to programs as varied as the Unlocking Credit for Small Business initiative and the Automotive Industry Financing Program, through which it owns 60.8 percent of General Motors Co. and 9.9 percent of Chrysler Group LLC.

Says Representative Jeb Hensarling, a Republican from Texas and former member of the Congressional Oversight Panel that guides TARP policy, “It’s almost a program that defies oversight.”

Of the $700 billion in TARP funding authorized by Congress in October 2008, the Treasury has planned for $545.1 billion in investments, committed $489.8 billion and disbursed $380.3 billion as of March 31. Institutions had repaid $180.8 billion.

SIGTARP has more than 40 agents, including former Secret Service, Federal Bureau of Investigation and Internal Revenue Service investigators, who sport blue windbreakers emblazoned with the SIGTARP seal.

They are authorized by Congress to carry guns -- Barofsky does not -- make arrests, and subpoena and seize records.

Still Too Big

In its late-January report, SIGTARP said that the banks rescued by TARP remained “too big to fail.” They still have an incentive to make risky wagers in order to generate the profits that will reward their executives, the report says.

“The definition of insanity is repeating the same actions over and over again and expecting a different result,” Barofsky says. “If the goal of TARP was to make sure we don’t have another financial collapse, well, obviously it’s made the likelihood of that much, much greater.”

Neil Michael Barofsky’s background prepared him well for a job that involves law enforcement, economics and political diplomacy. Born in Abington, Pennsylvania, a suburb of Philadelphia, he simultaneously earned degrees in economics and international relations from the University of Pennsylvania. He graduated magna cum laude from New York University Law School in 1995.

He soon landed at what is now Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer P.C., a New York-based firm filled with former prosecutors.

Dream Job

It was Barofsky’s ticket to what he says was his dream job, as a lawyer for the U.S. Attorney’s Office for the Southern District of New York, where he started in 2000.

Toiling in the criminal division’s offices at 1 St. Andrews Plaza in Manhattan, Barofsky acquired a reputation as someone who worked prodigiously to build cases.

“My impression was, Neil was always working,” says his former boss, ex-Southern District U.S. Attorney Michael Garcia.

Beginning in 2004, Barofsky worked on “Tango Chaser,” an investigation into the Revolutionary Armed Forces of Colombia, or FARC, a rebel army that funds its operations partly through narcotics trafficking. The still-ongoing probe has resulted in the indictments of 50 traffickers.

In 2005, Barofsky learned he had been the target of a kidnapping plot during one of his visits to Colombia. A female informant who was planning to set him up relented and later told him of the plan. Barofsky keeps a FARC bayonet on his office windowsill as a memento of the case.

Refco Prosecutor

Barofsky’s most prominent white-collar case was the successful prosecution of Refco Group Ltd. President Tone Grant, who was found guilty of conspiracy, fraud and money laundering in April 2008.

Barofsky was running a mortgage fraud enforcement program for the Southern District in November 2008 when Garcia took a call from the White House personnel office, which was looking for a special inspector general for TARP.

“The most qualified person for this job is you,” Garcia recalls telling Barofsky. “This is the crisis of the hour.” Then Garcia warned him: “People will not like you.”

Barofsky wasn’t intimidated.

“Neil is not deterred by the prospect of powerful people or his supervisors coming down on him,” says Anthony Barkow, executive director of the Center on the Administration of Criminal Law at New York University, who worked with Barofsky in the U.S. Attorney’s Office. “He is an independent thinker and not afraid to ruffle feathers.”

Against the Grain

David Kotz, inspector general of the SEC, says, “Neil Barofsky has done a laudable job of taking aggressive positions where necessary. Inspector generals at one time or another must be prepared to go against the institutional grain.”

Geithner’s Treasury Department disputes the assertion that it has not been open about TARP.

“This is frankly one of the most transparent programs in the government,” says Tim Massad, chief counsel of Treasury’s Office of Financial Stability. “We’ve probably had 200 meetings with Neil and his staff.”

In April 2009, Treasury asked the Justice Department for a ruling on whether Barofsky and SIGTARP reported to Secretary Geithner. In a letter to Justice, Barofsky argued that he reported only to the president.

“We are absolutely an independent agency,” he says.

Treasury withdrew its request.

TARP’s Small Business

In February of this year, the department moved to exclude the Small Business Lending Fund from Barofsky’s oversight. The program is funded with $30 billion of TARP money.

“On its face, it looks like Treasury is trying to supersede SIGTARP’s position by having the program operate outside TARP,” says Smallberg of the Project on Government Oversight. “Barofsky is certainly a thorn in the side of Geithner.”

Meanwhile, Barofsky’s investigators continue to lay into TARP. In a January report, SIGTARP cited an unnamed money manager in TARP’s Public-Private Investment Program, which buys toxic assets, saying the person sold a recently downgraded mortgage-backed bond from a company fund, then promptly purchased the same security in the same amount at a higher price for a fund backed by TARP money.

Allison responded in a letter to Barofsky that the suspicious trade was referred to SIGTARP by Treasury compliance officers in the first place.

Insurance Banks

In a December report, Barofsky showed how insurance giants Hartford Financial Services Group Inc. and Lincoln National Corp. bought tiny thrifts -- one with just $7 million in assets -- to qualify for the TARP Capital Protection Program, which is designed to encourage bank lending. Hartford and Lincoln used the more than $4.3 billion in TARP funds they received almost entirely to finance insurance operations, according to the report.

“Treasury didn’t have to approve that,” Barofsky says.

Allison wrote SIGTARP that buying troubled assets from insurance companies was part of TARP.

Janet Tavakoli, founder of Chicago-based Tavakoli Structured Finance Inc., says Barofsky hasn’t been aggressive enough. She says SIGTARP should be running criminal probes of the bankers who underwrote and managed the collateralized debt obligations that were at the center of the financial meltdown.

CDOs are bundles of mortgage-backed bonds and other debt sold to investors.

Tavakoli says the CDO managers sometimes replaced relatively high-quality securities with new ones that were more likely to default.

‘Phony Labels’

“It is securities fraud if you take securities and package them and knowingly pass them off with phony labels,” she says.

Barofsky says investigations related to the underwriting and sale of CDOs are ongoing.

Barofsky is no longer confined to a fetid basement office. SIGTARP is now in a brown-granite building on L Street, nine blocks away from the Treasury. Sitting in his office, the investigator says he was at first surprised by the resistance he got from the Treasury to his inquiries.

“When I took the job, it wasn’t like I had really contemplated for a millisecond the political aspects,” says the lawman, sipping from a can of Diet Coke.

Barofsky says he’s battling an entrenched culture of secrecy in the Treasury and elsewhere.

“One of the important lessons that I hope will be learned from this entire financial crisis is that the reflexive reaction against transparency, that disclosure will bring terrible things, has not been proven true,” he says.

Culture of Secrecy

He offers the AIG bailout as an example. For more than a year, the New York Fed kept key aspects of the AIG bailout secret, including details of its own involvement and its decision to have AIG pay the insurer’s bank counterparties 100 cents on the dollar on the credit protection they’d bought against about $62 billion in CDOs.

In a November report, SIGTARP criticized Geithner’s failed efforts to obtain discounts from the banks.

After the banks had been paid in late 2008, a lawyer from the New York Fed sought to have AIG keep the banks’ identities under wraps, as well as data about the CDOs that would have revealed which firms had underwritten the toxic bonds and which ones had managed them.

“There’s a lot of things about AIG that were not disclosed, based on the assumption that the sky would fall,” Barofsky says. “Transparency does a lot more good than bad.”

TARP Police

Barofsky says the question of whether the New York Fed engaged in a coverup will result in some sort of action.

“We’re either going to have criminal or civil charges against individuals or we’re going to have a report,” Barofsky says. “This is too important for us not to share our findings.”

He won’t say whether the investigation is targeting Geithner personally.

In a statement, the New York Fed said: “Allegations that the New York Fed engaged in a coverup of its intervention in AIG are not true. The New York Fed has fully cooperated with the Special Inspector General.”

Barofsky’s to-do list grows. SIGTARP now has 120 employees, has initiated 20 audits and was involved with 84 investigations as of March 31. In January, it opened a New York office, with San Francisco and Los Angeles branches scheduled for later this year.

As long as the Treasury Department continues throwing money at the financial crisis, Barofsky’s TARP police will be watching.