The Big Fish Seen Escaping an Agency Pursuing Bank Fraud

WASHINGTON — United Commercial Bank in San Francisco had the dubious distinction of being the first bank to fail in 2009 after receiving nearly $300 million in bailout funds from the federal government.

After an investigation by an obscure law enforcement agency that focuses on rooting out financial crimes, the bank’s chief operating officer was tried and convicted last year in a Northern California federal court, and is now serving an eight-year sentence for failing to properly write down troubled loans ahead of the financial crisis. Two other bank officers have been convicted and are awaiting sentencing.

Since it was created in 2008, that agency, the office of the Special Inspector General for the Troubled Asset Relief Program, or Sigtarp, has charged 102 bankers, including 22 chief executives and presidents, for criminal and civil misdeeds leading up to and during the crisis.

The effort, conducted largely out of the limelight, comes at a time of public outrage over the failure of regulators and prosecutors to punish individuals for actions that contributed to the mortgage collapse.

The question, at least according to its critics, is Sigtarp’s relevance. The agency has recovered more than $10 billion through its investigations and has charged a total of 357 people with a crime, including 80 bankers. Of the bankers criminally charged, 58 have been convicted and 35 have gone to prison, according to the agency’s latest quarterly report to Congress on Wednesday.

Critics point out, however, that most of these cases involve small-time community and regional bankers. Prominent Wall Street executives have escaped largely unscathed.

Christy Goldsmith Romero, the special inspector general, said in an interview that bank fraud at all levels of the industry still needed to be addressed. “If you have a banker, who when times were tough, was willing to cook the books and commit a crime to do that — maybe for the first time in their life or maybe they’ve been committing a crime and they haven’t been caught — we do not want that person not only in banking, we don’t want them on the streets,” she said.

The agency employs 140 people, including 85 special agents who are permitted to carry badges and guns. It operates on an annual budget of nearly $50 million, including nearly $41 million appropriated from Congress and another $6 million to $8 million appropriated when the office was created.

For its critics, the charges against community and regional bankers fudging their accounts and defrauding the bailout fund are in some ways beside the point.

“Yes, if you break the law, you commit fraud, you should go to jail,” said Edward Mills, a policy analyst at FBR Capital Markets. “But to the extent that the only folks who get in trouble are the smallest guys that you’ve generally never heard of, that doesn’t help the narrative.”

Authorized by Congress during the heat of the financial crisis, the Troubled Asset Relief Program — the official name of the bank industry bailout — was initially granted $700 billion. Ultimately, the government used closer to $500 billion to stabilize the banking system, including injecting capital into troubled banks.

Along with this program, lawmakers called for the creation of two new oversight bodies, the Congressional Oversight Panel, led by Elizabeth Warren, then a professor, and Sigtarp, which was to be the fund’s inspector general, and gave existing agencies added duties. The congressional panel was dissolved in 2011.

United Commercial Bank found itself stretched after nearly doubling in size during the mid-2000s. Executives, under pressure to help the company avoid reporting a third-quarter loss in 2008, delayed writing down the value of numerous loans on the bank’s books. Then United Commercial took the federal bailout money before ultimately failing.

Sigtarp was intended to stamp out cases like these where bailout funds were misused.

Ms. Romero previously worked under Neil Barofsky, who earned a tough-cop reputation as the office’s first special inspector general. She took over for Mr. Barofsky officially after being confirmed in 2012. Sigtarp’s mission was to root out fraud and refer cases to prosecutors.

“When we built Sigtarp back in 2008-9, it was kind of a dream come true for a couple of federal prosecutors, to get to build a law enforcement agency from scratch that would only focus on complex white-collar investigations, and Sigtarp was built with that focus in mind,” Mr. Barofsky said in an email. “Christy, who was of course an important part of building that model as our chief of staff, has successfully built upon it, maintained its focus, and it has been a pleasure to watch the agency grow, thrive and succeed under her leadership.”

Ms. Romero conceded that proving guilt at the highest levels of Wall Street banks has been difficult, though she noted that Sigtarp had been involved in the investigations that led to some of the largest civil actions against the likes of Goldman Sachs, Morgan Stanley and Bank of America.

“Criminal intent is very hard to prove and if you have a very large institution, a lot of the information is going to be kept from those people, making it very, very difficult to prove criminal intent,” she said.

As for the cases involving senior managers at small and regional financial companies, “What happened to these banks had a profound and painful impact on not only individual victims, like employees of the bank or local businesses, but on communities — and those communities roll up to local economies and regional economies,” she said. “All of that hits public confidence.”

It’s unclear what the agency’s future might hold, as the Treasury’s crisis-era relief program winds down. Just 23 of the 707 banks that received help through TARP’s capital purchase program are still repaying their loans, and the fund’s other programs are set to wind down in coming years.

For her part, Ms. Romero says the mission remains the same: rooting out bank fraud and other crimes. Sigtarp indicted 92 people last year, including bankers and others, up from 55 in 2014. It has already charged 30 more people with a crime this year, as of June.

“For us, it doesn’t matter if a bank pays TARP, because you can’t pay to get out of jail,” she said. “Our focus is no different. We are not in any way scaling down.”