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First Whistleblower Case Filed Concerning TARP Related Fraud

May 21, 2011

It was revealed on Friday that two San Diego activists have filed a lawsuit in the Federal District Court for the Southern District of California that names A.I.G, Goldman Sachs and Deutsche Bank as defendants.

The lawsuit alleges that all three entities engaged in fraudulent and speculative transactions that ran up losses that were well into the billions of dollars. They allege that taxpayers were defrauded when the federal government bailed out the group.

The Federal Reserve Bank of New York gave A.I.G. two rescue loans totaling about $44 million dollars, which were used to unwind trades of hundreds of failed mortgage-linked securities. Goldman Sachs and Deutsche Bank underwrote some of these securities.

The Fed simply extended loans then bought up the failing securities and put them aside into two holding groups until everything settled down. What the Fed did not do when giving these loans is to get a pledge of high-quality collateral in return for the money. It is said that the Fed sold some of those securities earlier this year.

The whistleblower lawsuit alleges that the Fed bailed out a non-bank, which is questionable due to murky legislation, and it should have secured the loan with the same, high-quality collateral that it requires on loans it makes to troubled banks.

Under the False Claims Act, private citizens are allowed to sue on behalf of government agencies if they believe they have knowledge of fraud. This is also known as the "Whistleblower " statute. The law allows people a chance to recover money that has been defrauded from the government and taxpayers. The couple in San Diego, as the plaintiffs in the lawsuit will be entitled to a percentage of any recovery.

The TARP program, otherwise known as the Troubled Asset Relief Program, was a program put into place in October of 2008 by George Bush for the U.S. government to purchase assets and equity from financial institutions to strengthen its financial sector. It was part of the government's measures to address the sub-prime mortgage crisis.

Sigtarp, an acronym for special investigator general for the TARP program, is an office that was also established in 2008 that was put in place to police the actions of the U.S Treasury and make sure that the money being allocated by the TARP program was being monitored and paid back. This organization essentially helps to protect the taxpayers by finding out about and prosecuting any fraud that is related to funds allocated through the TARP program.

The special inspector general for the TARP program, Neil M. Barofsky, did criticize the bank-friendly terms of the rescue in 2008 of the American International Group. Timothy F. Geithner, the current Treasury Secretary, who at the time was president of the Federal Reserve Bank of New York, led the deal. Mr. Barofsky has spoken continuously about the problems posed by too-big-to-fail financial institutions.

Currently, there are at 153 continuing investigations into possible accounting fraud, securities fraud, insider trading, mortgage service improprieties, obstruction of justice and other improper conduct that are being conducted by Sigtarp.

There have been a serious number of miscreants that have abused the system and the money. Some of the too big corporations remain big and have become even bigger and more interconnected. In the long run these corporations can become an even bigger danger to this country's financial system. There is still roughly $160 billion outstanding among different TARP recipients.

If the couple who filed suit in California can prove that the defendant corporations, either individually or together, made false statements to the FHA during 2008, resulting in the federal government issuing them TARP funds that covered losses of $84 billion, then it may help bring some of the biggest abusers of the system to justice. The couple in San Diego could, in effect, help save the government and taxpayers billions of dollars. When a lawsuit like this is filed, the complaint is initially filed under seal and provided to the government. The claim is not disclosed to anyone else. The government then has time to investigate the claim. They can then intervene in the action or choose to let the citizen proceed, and the citizen is entitled to their share of the recovery either way. For these plaintiffs to be compensated under the False Claims Act, complex procedures must be followed.

At Montlick and Associates, Attorneys at Law, we understand the vital role that whistleblowers play in protecting public funds. Our Georgia whistleblower attorneys also know that an employee with knowledge that their employer is defrauding the government with false billings may fear reprisals from their employer, but a free no obligation consultation with Montlick & Associates can provide a safe way for you to learn about your rights and options. Call Montlick & Associates today to see how we can help. We are available to assist clients throughout all of Georgia, including but not limited to Albany, Athens, Atlanta, Augusta, Columbus, Gainesville, Macon, Marietta, Rome, Roswell, Savannah, Smyrna, Valdosta, Warner Robins and all smaller cities and rural areas in the state. Call us today for your free consultation at 1-800-LAW-NEED (1-800-529-6333), or visit us on the web at No matter where you are in Georgia, we are just a phone call away and we will even come to you.

Category: Personal Injury

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All information provided by our blogs is general in nature and should not be relied upon as legal advice. Consult a Montlick attorney for details about your unique situation.