TARP Watchdog: Bank 'Cooked Books' to the Tune of $11 Million Worth of Fraud

This is a rush transcript from "Your World With Neil Cavuto," March 15, 2010. This copy may not be in its final form and may be updated.

NEIL CAVUTO, ANCHOR: All right, this is a Fox News Alert: the feds right now charging the former CEO of one Park Avenue Bank with fraud. Charles Antonucci accused of attempting to rip off $11 million from the bank bailout fund, better known as TARP — federal regulators seizing the Park Avenue Bank last week to protect half-a-billion bucks in assets.

Neil Barofsky is the inspector general for the Troubled Asset Relief Program.

This is the same guy, Neil, who had said, I think, a year or so ago, we don’t want TARP. We don’t want the money. So, what happened?

NEIL BAROFSKY, TARP INSPECTOR GENERAL: Well, as the complaint makes clear, the criminal charges that were filed against him, after he was stopped in his tracks from his attempt to steal the TARP money, more than $11 million, and was told that he wasn’t getting the TARP money, he went out and lied to the market, and basically said: Oh, I never wanted the TARP money. I didn’t need the TARP money — which was completely untrue.

CAVUTO: So, what did he do?

BAROFSKY: Well, among the other things charged in the complaint, he basically cooked his books. He engaged in one of the classic accounting frauds, called the round-trip transaction, where he made it look like he was investing money in the bank to support its capital ratios, which is one of the requirements for getting TARP money, but it was not his money. It was just the — the bank’s money that he was recycling in a round-trip transaction.

CAVUTO: How do you know others aren’t or weren’t doing the same thing when it comes to TARP? That, what, $700 billion-plus that’s been — gone out.

BAROFSKY: Well, others are doing the same thing.

CAVUTO: So, you suspect there will be more cases like that?

BAROFSKY: There will be more cases, both against applicants and TARP recipients. That’s what we were charged by Congress to do, and that’s what we’re doing, is uncovering those frauds.

CAVUTO: I remember, a year or so ago, you had talked to the folks at Time magazine, maybe not that long ago, where you were saying that the $700 billion that was committed to these financial rescues, might end up costing U.S. taxpayers in excess, I think, $23 trillion. How did you arrive at that? A lot of people were saying, oh, my God, you know?

BAROFSKY: Well, that number, it was in our quarterly report that we put out over the summer.

What we did is, in the sake of transparency, we took each of the different government bailout programs, each of the supports, not just with the TARP, but all the other different agencies, whether it’s FDIC and the Federal Reserve.

And what we did is, we set forth what the maximum the government had committed to under each of those programs. And when you added them all up, it came to about...


CAVUTO: Oh, I see. So, it wasn’t a bank rescue, per se, but, in other words, if you backed up the FDIC, or you gave more money to Fannie Mae and Freddie Mac, the big originator, then that’s how you arrived at that.

BAROFSKY: Exactly.


Now a lot of people are going to look at this, and you have got some people who are getting a little upset at Treasury, who you’re more or less saying have botched this job. Have they botched this job?

BAROFSKY: Well, when it comes to fraud, I mean, fraud in a government program of this size and scope is — is inevitable. And we had some early criticisms of the way the money was originally put out.

When the original TARP money went out, at the time that Antonucci applied, there were very little restrictions on the money, very little controls, very little fraud controls.

CAVUTO: In fact, some were just given the money, right? I mean, just take the money and don’t ask any questions.

BAROFSKY: It was — and there was very little circumstance or controls or reporting requirements on how they were using the money.

You know, we have been hammering this issue for more than a year. And it has improved. There are some more controls. Banks are now required to report on how they are using the money. So, we’re getting better.

CAVUTO: But how do you know they’re using the money as they say they are – we’re trying to improve either our balance sheet, or we might be doing more scrupulous lending now, what?

BAROFSKY: Well, one of the things that we do is that, if they lie to us, that’s a separate crime. And that’s a crime that we would investigate. And we see red flags, we see indications that they are lying, we will go after them.

CAVUTO: All right. So, a lie or an alleged lie, as in this fellow’s case, would be, what, just shuffling assets and saying you’re doing something with money that you’re not?

BAROFSKY: This guy just completely flat-out lied about how much money, how much capital the bank had, which is the key indicator for a bank applying for TARP funds. He just made up the number. He cooked his books, did an accounting gimmick, and lied to try to get $11 million.

CAVUTO: All right. I’m going to play devil’s advocate here, because I don’t know the details of the situation. But what if he accidentally did that? What if he thought he had it?

BAROFSKY: Well, that could be, but this guy, Antonucci, he did it through a series of shell corporations. So, he went out of his way to disguise the source of this money.

CAVUTO: Oh, so he had an elaborate setup?

BAROFSKY: He went from one company to another company to another company, and then back into the bank...

CAVUTO: I see.


BAROFSKY: ... and then had a letter sent to the TARP and to the FDIC, saying, hey, look at me, I just invested this money into the bank. It’s my personal money.

CAVUTO: Not that you would have a judgment one way or the other, but do you think there are much bigger fish to fry, I mean, that a big institution, along, let’s say, the ilk of an AIG or a Bank of America, that there, we might see something like that down the road?

BAROFSKY: Well, we’re definitely looking into that.

It’s been disclosed that we’re working on a criminal investigation into Bank of America and some of their disclosures. It’s been disclosed that we have had an investigation into Colonial Bank down in Alabama and Florida. They applied for $553 million of TARP funds.

CAVUTO: But, if you’re right, and if criminal suits were to follow as a result, people would never, ever do middle-of-the-night financial, too- big-to-fail rescues ever again, right?

BAROFSKY: Well, that might be a good thing.

CAVUTO: Really? So, you think this whole rescue thing started with proper intentions, but just went amok?

BAROFSKY: I think that a lot of the problems from this bailout, such as increased moral hazard, increased concentration in the industry, has set us up for potentially a more dangerous position than even we were a little bit more than a year ago.

CAVUTO: I have talked to a lot people on this same set, Neil, who have said that, if we didn’t do what we did then through TARP, however questionable the means, we would be in a deeper pile of trouble.

BAROFSKY: No, and I think that’s true. And the TARP did help bring us back from the brink, along with the other...

CAVUTO: But we will never know for sure.

BAROFSKY: We can’t know for sure, but I think it does indicate that the TARP, along with the other programs, did help prevent the financial crisis.

The problem is, is that, unless there’s significant regulatory reform, what happened with the TARP increases a lot of the dangers that existed...


CAVUTO: Well, that’s what Chris Dodd wants to do, proposing today this whole new reform, but a lot of people say it lacks teeth. What do you say?

BAROFSKY: I haven’t seen Senator Dodd’s new proposals, but it is essential that we have some degree of reform. Otherwise, we’re going to..


CAVUTO: Yes, but the reform is going to be at — really, the Fed running the show, and the Fed was what got us into this mess. So, they’re the fox guarding the henhouse.

BAROFSKY: As I said, I haven’t seen this set of proposals. But something has to be done.


CAVUTO: You can feel free to trash any of these guys if you want, while you’re here.

BAROFSKY: You know, I’m not here to trash anyone, but I think that what would be deserving of trashing is if nothing gets done, because there’s — it’s sort of the definition of insanity is repeating the same acts and expecting a different result. That’s what we’re headed to for the next financial crisis...


CAVUTO: Real quickly, with health care, could we be doing that, a trillion dollars-plus?

BAROFSKY: That’s way outside my lane.


CAVUTO: Astutely pointed out.

Neil Barofsky, thank you very, very much.

BAROFSKY: Thank you.

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