Treasury Dispute with Bailout Watchdog Stems from AIG Bonus Audit; Now Congressman Calls For Investigation

By Kate Barrett

Jun 19, 2009 3:22pm

ABC News’ Matt Jaffe reports from Washington: The Treasury Department’s ongoing dispute with bailout watchdog Neil Barofsky stems from the Obama administration’s refusal in April to hand over documents relating to AIG’s executive compensation structure, ABC News has learned from a source familiar with the situation.

The insurance giant, the recipient of a record $180 billion in taxpayer aid, ignited an uproar in March when the company paid out $165 million to employees as part of a retention program. The bonus mess caused a firestorm for the administration, with Treasury Secretary Tim Geithner rebuffing calls by Republican lawmakers for his resignation.

On March 19, Barofsky, as the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), announced he was launching an audit into the AIG fiasco. But when the watchdog went to Treasury to get documents on AIG, the Department initially refused to provide them.

Earlier this week Treasury revealed that this dispute with Barofsky prompted them to seek a legal opinion from the Justice Department’s Office of Legal Counsel on SIGTARP’s independence from Treasury.

In an unredacted April 7 memo released by Treasury, Barofsky, in response to an earlier Department memo, had written, “You advised that you desire OLC’s opinion about: (1) whether SIGTARP exists within the Department of the Treasury; (2) whether the Secretary of the Treasury has supervisory authority with respect to SIGTARP; and (3) assuming the answer to the first question is in the negative, whether providing Treasury’s attorney-client privileged materials to SIGTARP effectively waives the privilege.”

Argued Barofsky, “SIGTARP believes that the Emergency Economic Stability Act of 2008 (EESA)…provides that SIGTARP is an independent entity within Treasury, that SIGTARP is not subject to the Secretary’s supervision, and that attorney-client privilege is not a bar to SIGTARP’s access to Treasury’s records or information.”

Now one Treasury watchdog needs to come to another one’s aid, according to the Congressional Oversight Panel’s Jeb Hensarling.

The lone sitting Republican member of Congress on the panel today called on COP chair Elizabeth Warren to launch an immediate investigation into Treasury’s dispute with SIGTARP.

“It is my understanding that this disagreement has evolved into a debate between the Administration and SIGTARP as to whether SIGTARP is subject to the control and supervision of the Administration,” Hensarling wrote in a letter to Warren first obtained by ABC News. “Any threat or appearance of a threat to SIGTARP’s independence will undermine and corrupt its important mission. SIGTARP must be given free and open access to all TARP related documents and other materials held by or accessible to the Administration.”

“I strongly encourage the panel to promptly investigate these troubling reports and to report its findings to the American taxpayers,” he urged.

In an interview Thursday with ABC News, Hensarling had first called for a COP investigation, saying the administration’s conduct with IGs brought back shades of the Nixon regime after President Obama last week fired Gerard Walpin as IG for the Corporation for National and Community Service.

The Texas lawmaker said Barofsky had been “gagged” by Treasury in an “unprecedented”, “irregular”, and “disturbing” action.

“Such actions,” Hensarling noted in today’s letter to Warren, “also threaten the effectiveness of the Congressional Oversight Panel in its duty to promote taxpayer accountability and transparency in the Troubled Asset Relief Program.”

Last spring, the AIG bonus mess enraged taxpayers and lawmakers alike. In announcing his audit on March 19 before a House committee, Barofsky said the probe would examine who in the federal government “knew what, how, when, and why” about the insurance giant’s bonus program.

Geithner, facing questions about his knowledge of AIG’s executive compensation structure, explained to CNN in a March 19 interview that he had only found about the “full scale” of the bonuses on March 10, just days before they were paid out.

“On Tuesday I was informed about the full scale and scope of these specific bonus problems,” Geithner told CNN’s Ali Velshi. “And again, as soon as I did — but you know, it's my responsibility, I was in a position where I didn't know about those sooner. I take full responsibility for that.”

“As soon as I heard about the full scale of these things, we moved very actively to explore every possible avenue — legal avenue to address this problem, to make sure that, again, the assistance we were providing was not going to unduly benefit these people,” he said. 

Earlier this week, Sen. Chuck Grassley, R-Iowa, wrote to Geithner expressing concern about the dispute with SIGTARP.

Grassley told ABC News Thursday that on top of “a lack of accountability” for the $700 billion bailout program, “it’s added injury to hear about the Treasury Department putting up hurdles to slow down the work of the watchdog who’s supposed to track the money. One of the biggest lessons of the last year is that the public deserves more transparency and, in turn, accountability from New York and Washington.”

Treasury spokesman Andrew Williams has said that Barofsky did not object to the DOJ request and submitted his own legal analysis to the agency. Williams also said that “no documents have been withheld from the SIGTARP based on the attorney-client privilege” and that “all documents requested by the SIGTARP have been produced to date”. However, he did not say that no documents have ever been withheld from the watchdog.

“It begs the question,” Hensarling said Thursday, “what do they have to hide?”

-Matt Jaffe

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