- The Washington Times - Sunday, July 19, 2009

Neil Barofsky is one of the most important figures in Washington you’ve never heard of.

As the government’s independent watchdog for the $700 billion Wall Street bailout program, this former prosecutor a few months shy of his 40th birthday has the mammoth responsibility of ensuring the integrity of one of the largest, most controversial and most closely scrutinized federal programs in decades.

But for a man who once risked his life to prosecute members of one of the most violent revolutionary groups in South America, career challenges are nothing new.

“When you take a [government] job the point is public service, and this is an opportunity to serve that I never imagined I would ever get — to serve our country in a way in such an important moment in our history and to protect all that money from fraud,” said Mr. Barofsky, the special inspector general for the Treasury Department’s Troubled Asset Relief Program (TARP).

Congress, with the Bush administration’s prodding, created TARP last autumn as an emergency stopgap to stabilize the nation’s wobbly economy in the midst of the worst recession since the 1930s. Because so much money was doled out in a hurry to banks, credit-card companies and other financial institutions — with limited oversight and conditions — the potential for fraud was huge.

To safeguard this unprecedented investment of taxpayer money, the bailout law established an inspector general’s office to monitor how the taxpayers’ TARP money was spent, invested and — it was hoped — paid back.

Meanwhile, Mr. Barofsky, a magna cum laude graduate of the New York University School of Law, was enjoying a skyrocketing legal career, leading several high-profile cases as a prosecutor for the U.S. Attorney’s Office for the Southern District of New York for more than eight years starting in 2000.

He helped spearhead an investigation that resulted in the indictment of the top 50 leaders of the Revolutionary Armed Forces of Colombia — better known by its Spanish acronym, FARC — on narcotics charges. The case was described as the largest narcotics indictment filed in U.S. history at the time.

“I think we redefined the FARC, which was one of our goals,” Mr. Barofsky said in an interview with The Washington Times. “The press stopped calling them freedom fighters and started recognizing them for what they are, which is one of the most thuggish, violent narcotics cartels that’s ever existed.”

He also gained extensive experience as a prosecutor of white-collar crime during his time with the Securities and Commodities Fraud Unit, including the successful prosecution of Refco Inc., a former New York financial services company. The high-profile case led to the conviction of former Refco President Tone Grant for his role in a $2.4 billion fraud that involved hiding huge trading losses from clients.

Mr. Barofsky received the attorney general’s John Marshall Award for his work on the Refco case.

When the U.S. Attorney’s Office created a new unit to investigate and prosecute those accused of mortgage fraud in southern New York, Mr. Barofsky was named to head the group. One of the cases he supervised was a broad investigation into the $55 trillion credit default swap market — whose collapse was key to the global credit market freeze last year.

But after serving less than two years with the mortgage unit, Mr. Barofsky was nominated by President Bush in November to become the federal government’s TARP watchdog. It’s a job he initially hesitated to take until his former boss, then U.S. Attorney Michael Garcia, convinced him otherwise in what he called an inspirational “God and country” speech.

“He said [the Wall Street meltdown of 2008] was the economic equivalent of 9/11 … and just like everyone stepped up at that point, this is the time for you to step up,” Mr. Barofsky recalled. “He said, ‘This is a time to serve your country.’”

Despite preparing for his wedding to fiancee Karen Lutwin that was only weeks away — and postponing his honeymoon — Mr. Barofsky agreed to take the job and was confirmed by Congress in December.

With a budget of $65 million and staff of more than 60 (though he hopes to have 100 more on board by early next year), Mr. Barofsky’s office has already initiated more than 20 criminal and civil investigations and at least eight audits of TARP deals.

His office has taken particular pains to scrutinize the controversial $165 million in bonuses paid to troubled insurance giant American International Group (AIG) after it was bailed out with taxpayer funds — bonuses that sparked a political firestorm on Capitol Hill.

The inspector general, while prohibited from commenting directly on the investigations, said his office was making “very significant progress” on several cases and that “almost certainly we are going to be seeing a number of [criminal] indictments.”

While Mr. Barofsky said that his office has a good professional relationship with the Treasury Department, which oversees TARP, Treasury officials made it clear early on they were not thrilled with an IG looking over their shoulder.

“When I interviewed here and since, not really so much now but with the [George W. Bush] administration, they were very upfront and said, ‘We didn’t want you, we don’t think we need you, but you’re here and we’re going to work with you,’” he said.

Treasury has occasionally butted heads with the special inspector general’s office, contending that Mr. Barofsky doesn’t have a completely independent role and that Treasury has the right to refuse certain requests by the watchdog due to “attorney-client privileges.”

The dispute led Iowa Sen. Charles E. Grassley, ranking Republican on the Senate Finance Committee, to fire off an angry letter to Treasury Secretary Timothy F. Geithner demanding an explanation on why his department had withheld documents from Mr. Barofsky on a “specious claim.”

But Mr. Barofsky said the controversy was overplayed in the media, and noted that his office has received every document and interview they’ve requested from Treasury, albeit at times a bit late.

“We were able to cover every topic we wanted to cover,” he said.

While the issue of independence hasn’t been fully resolved, Mr. Barofsky said he wouldn’t hesitate to immediately notify Congress if Treasury refused “on any ground” to turn over documents he requested.

“It’s not just something I would do, it’s my statutory obligation,” he said. “Congress intended us to be an independent agency.”

Until every TARP loan is repaid and accounted for, the special inspector general’s office will continue monitoring the program. And despite the difficulties of a job that often keeps him away from his wife, who remains in New York, Mr. Barofsky said he isn’t looking ahead to his next career challenge.

“I serve at the pleasure of the president, and I certainly have no plans of going anywhere,” he said. “I never thought I’d get an opportunity to serve in this way.”

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