TARP Fraud

August 28, 2015

The Troubled Asset Relief Program (“TARP”), also commonly referred to as “the bailout,” came amidst perhaps the most serious banking and mortgage crisis in the country’s history.  While the debate continues over the success and wisdom of the measures taken by the government to prevent the collapse of the financial industry, one thing is clear: those who received TARP funds must be held accountable for how they use taxpayer money.

Many commentators have noted that TARP, as a direct transfer of funds to financial institutions, carries a high risk of fraud.  This fraud may take many forms.  For example, a financial institution might misrepresent its liabilities in order to meet the requirements to qualify for TARP funds.  Alternatively, a mortgage lender might misstate the value and status of the mortgages it holds.  Large corporations and lenders might also agree to shift assets in order to obtain TARP funding.

While few TARP fraud cases have been brought thus far, the SEC announced a major indictment on June 16, 2010.  Federal prosecutors arrested Lee Farkas, CEO of Taylor, Bean & Whitaker Mortgage Corp., formerly one of the largest independent mortgage companies in the United States.  According to the Securities and Exchange Commission (“SEC”), Farkas – among many acts of fraud on investors – represented to a creditor, Colonial Bank, that he had obtained $300 million in capital.  This capital infusion allowed Colonial Bank and its parent, Colonial BancCorp, to qualify for TARP funding, and the government approved $550 million in TARP funds for Colonial Bank.  In fact, as the government and Colonial BancCorp later learned, Farkas had never obtained the $300 million, and Colonial, therefore, should not have received the TARP funds.

If you believe that your company has defrauded the federal government in order to receive TARP funds, or is misusing TARP funds, you may be able to bring a qui tam suit under the False Claims Act. The False Claims Act applies to most federally funded contracts or programs, including TARP.  If the government recovers funds based on the information you provide, you are eligible to receive between 15 and 30% of the recovery.

If you are thinking about reporting concerns about TARP fraud or other economic stimulus fraud. If you already have reported fraud and are facing retaliation, contact the experienced whistleblower lawyers at Katz Banks Kumin for an evaluation of your whistleblower case with no further obligation.