TARP Oversight Agency Promises Vigorous Civil and Criminal Enforcement, Raising Risk of False Claims Act Liability for Claimants of Federal "Bailout" Funds

On December 22, 2008, Morgan Lewis released a Litigation LawFlash discussing the risk of False Claims Act (FCA) liability for claimants of federal "bailout" funds under the recently enacted Emergency Economic Stabilization Act of 2008 (EESA). That LawFlash discussed the recent congressional efforts spearheaded by Senator Chuck Grassley (R-Iowa), ranking member of the Senate Committee on Finance, urging the U.S. Department of Justice (DOJ) to use the FCA to prosecute entities who use false or fraudulent submissions to obtain federal "bailout" funds through the Troubled Assets Relief Program (TARP) or the Capital Purchase Program (CPP), and strongly encouraging whistleblowers to report any fraud with respect to such funds.

Although Senator Grassley had suggested several potential situations that may be actionable under the FCA, it was unclear how the FCA would apply to recipients of "bailout" funds because there were no explicit rules, conditions, or restrictions on a recipient's use of TARP funds at that time. However, in its February 6, 2009 Initial Report to the U.S. Congress, the Office of the Special Inspector General for the Troubled Assets Relief Program (SIGTARP) stated its intention not only to impose conditions on future recipients of TARP funds, but also to seek information and require certifications concerning the use of TARP funds by prior recipients. The U.S. Department of the Treasury also recently issued an Interim Rule requiring recipients of TARP funds to disclose and mitigate any organizational and personal conflicts of interest that may impair the proper administration and execution of TARP. Both of these developments may increase the risk of FCA liability and the propensity of qui tam actions for recipients of TARP funds.

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