Directors and officers of banks, already under scrutiny from the regulators and law enforcement agencies traditionally charged with examining their actions, should take heed of a new player on the scene: the Office of the Special Inspector General for the Troubled Asset Relief Program. SIGTARP has already been involved in a number of significant financial institution investigations and appears poised to increase the scope of its activity.

Contrary to popular belief, the agency's mandate is not confined to those crimes which relate directly to the request for or use of Tarp funds.  Even in its relatively short existence, SIGTARP's activities have made clear that it believes only one criterion need be met for the agency to claim jurisdiction: application for Tarp funds.

SIGTARP, with over 160 employees and a 2012 budget of $41.8 million, has the resources and authority to pore over the books and records of any bank that applied for or received funds through the Tarp program and to investigate any possible crimes affecting the institution. Its investigative agents have nationwide jurisdiction and have partnered with state and federal law enforcement agencies on a broad range of investigations across the country.

The agency is not limiting its investigative scope to alleged wrongdoing connected with the application for or receipt of Tarp funds. Recent SIGTARP investigations demonstrate the breadth of the agency's reach:

  • The charges stemming from SIGTARP’s investigation of Omni National Bank in Atlanta, Georgia demonstrate how a seemingly tenuous connection to the alleged criminal activity can land a bank’s highest executives in the midst of a criminal investigation. The United States first filed charges on April 24, 2009, alleging that a customer defrauded the bank when he "submitted materially false qualifying information to obtain mortgage loans, lines of credit, vehicle loans and other extensions of credit" in both his own and stolen identities.
    Those charges were followed by a series of Omni-related prosecutions which included allegations of kickbacks paid to influence the award of construction contracts and identity theft allegations and culminated in the indictment of Omni's executive vice president and second largest shareholder for making "materially false entries which overvalued bank assets in the books, reports and statements of Omni National Bank.”
    The most notable element of these cases was the basis of the agency’s claimed jurisdiction.  None of the cases involved the loss or even use of Tarp funds. In fact, Omni never even received Tarp funds – its 2008 application was rejected. Yet SIGTARP deemed the mere fact that the institution made that request sufficient to exert authority to investigate the bank and eventually sponsor charges against several of its employees.
  • An indictment returned in September 2011 charged United Commercial Bank's (San Francisco) former chief credit officer and its manager of credit risk with various crimes relating to the reporting of the bank’s financial condition. The primary accusations against the two men are tied to their alleged efforts to suppress the institution’s reported allowance for loan and lease losses in an effort to boost reported net assets and net income. Once again, the mere fact that the institution received Tarp funds constituted a sufficient basis for the agency to claim jurisdiction.
  • In March, 2010, the former president and CEO of the Park Avenue Bank (New York) pled guilty to a charge of "attempting to steal from the taxpayers' investment in Tarp" by falsely overstating The Park Avenue Bank's capital position. The defendant represented that he had personally invested $6.5 million in the bank to improve its capital, when in reality the funding had come from the bank itself. No Tarp funds were affected by the transaction; again jurisdiction was founded on the bank's application, which was ultimately denied.

In its most recently quarterly report to Congress, the agency touts its successes and suggests that its efforts have only just begun. It claims involvement in the criminal prosecution of 61 individuals, including 45 "senior officers" of financial institutions, as of December 31, 2011. All signs suggest that the agency considers itself unconstrained by the need to tie its investigations directly to Tarp funds, and has no intention of slowing down. Taking full advantage of a budget that has increased each year since the agency's creation, SIGTARP is currently active in more than 150 ongoing civil and criminal investigations.
Public statements from the agency's leadership clearly indicate that it has trained its sights on investigating bank loan classification and reporting processes — particularly those related to the determination of ALLL — leading up to and during the global financial crisis. Many financial institutions have already faced civil lawsuits challenging these very processes. For those institutions that applied for Tarp funding, criminal investigations tied to such conduct — and led by SIGTARP — are likely not far behind.

William C. Athanas is a partner and Christopher A. Driskill is an associate at the law firm of Waller Lansden Dortch & Davis.