Archive for March, 2009
Treasury Department: Corruption of Oversight
Scandal at Treasury: Official Quits Amidst Fraud Scandal Darrel Dochow allowed IndyMac bank to cook its books, investigators say. The man at the center of a fraud scandal at the Treasury Department has been allowed to quietly quit and retire from his job as a government regulator, despite allegations that he allowed a bank to falsify financial records and amidst outcries from investigators who say the case shows how cozy government regulators have become with the banks and savings and loans they are supposed to be checking on. Darrel Dochow, the West Coast regional director at the Office of Thrift Supervision who investigators say allowed IndyMac to backdate its deposits to hide its ill health, quit last Friday. Prior to his leaving, Dochow was removed from his position but remained on the government payroll while the Inspector General’s Office investigates the allegations against him. Treasury Department Inspector General Eric Thorson announced in November his office would probe how Dochow allowed the IndyMac bank to essentially cook its books, making it appear in government filings that the bank had more deposits than it really did. But Thorson’s aides now say IndyMac wasn’t the only institution to get such cozy assistance from the official who should have been the cop on the beat. Investigators say Dochow, who reportedly earned $230,000 a year, allowed IndyMac to register an $18 million capital injection it received in May in a report describing the bank’s financial condition in the end of March. “They [IndyMac] were able to maintain their well-capitalized threshold and continue to use broker deposits to make loans,” said Marla Freedman, an assistant Inspector General at Treasury. “Basically, while the institution was having financial difficulty, it kept the public from knowing earlier than it otherwise should have or would have.” In at least one instance, investigators say, banking regulators actually approached the bank with the suggestion of falsifying deposit dates to satisfy banking rules – even if it disguised the bank’s health to the public. The federal government took over IndyMac in July, after the bank’s stock price plummeted to just pennies a share when it was revealed the bank had financial troubles due to defaulted mortgages and subprime loans, costing taxpayers over $9 billion. Critics Point to Cozy Relationship Between Banks and Regulators In order to backdate the filings, IndyMac sought and received permission from Dochow, according to Freedman. “That struck us as very unusual,” said Freedman. “Typically transactions are to be recorded in the period in which they occur, not afterwards. So it was very unusual.” One former regulator says Dochow’s actions illustrate the cozy relationship between banks and government regulators. “He did nothing to protect taxpayers in losses,” former federal bank regulator William Black told ABC News. “Instead of correcting it [Dochow] made it worse by increasing the accounting fraud.” Meanwhile, IndyMac customers who lost their savings have launched their own website and are demanding answers from the government. They were further infuriated after learning Dochow was also the regulator in 1989 who oversaw the failed Lincoln Savings and Loan, a scandal that sent its CEO Charles Keating to prison. “He’s the person that claimed that he looked into Charles Keating’s eyes and knew that Charles Keating was a good guy and therefore ignored all of the professional staff that told him that Keating was a fraud, and he produced the worst failure of the Savings and Loan Crisis at $3.4 billion. Now he’s managed more than triple that,” said Black, now an economics professor at the University of Missouri in Kansas City, Missouri. Following the Lincoln scandal, Dochow was demoted and placed into a relatively obscure office, but later, inexplicably was brought back into the Office of Thrift Supervision. Dochow declined to answer questions from ABC News. IndyMac Customers Furious After Ronnie Lopez was killed in Iraq, his mother Elaine invested the life insurance proceeds at IndyMac. She lost $37,000 of it. While Dochow could end up losing his job, neither he nor his colleagues are expected to go to prison. “This is criminal with the small ‘c’,” said Black. “No one within the regulatory ranks may go to jail, but they have done the worst possible disservice to the taxpayers of America.” Link to truthout.org: http://www.truthout.org/030809A
2 comments March 9, 2009
DOE’s Broken System for Nuclear Material Protection
Now, if someone will just include Hanford in these investigations…. GFS
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DOE: Broken System for Protecting Nuclear Material Could Compromise Los Alamos Operations
Link to original: http://www.pogo.org/pogo-files/alerts/nuclear-security-safety/nss-lanl-20090226.html
February 26, 2009
In the midst of trying to account for 80 missing or stolen computers, the Los Alamos National Laboratory (LANL) is now under fire for a new problem. Critical deficiencies in its system for keeping track of its huge stocks of plutonium and highly enriched uranium—enough for hundreds of nuclear weapons. According to a February 23 internal Department of Energy letter, the amount of nuclear material that LANL could not account for in January “exceeded alarm limits.” While Los Alamos says there is no suspicion of theft or diversion, if it does not know where the material is, it cannot say for certain that the material has not been stolen.
DOE’s National Nuclear Security Administration (NNSA) sent a Special Review Team earlier this month to assess Los Alamos’ Material Control and Accountability (MC&A) program. The Team found inaccuracies in accounting, a lack of adherence to requirements, and that “key personnel in critical positions lacked a basic understanding of fundamental MC&A concepts.” In fact, in light of the Team’s findings, both government and contractor officials have recently been removed from their positions. According to the letter, if identified weaknesses remain unresolved it “would impact the ability of the facility to continue operations.”
POGO met with NNSA staff yesterday, who would not talk about the issue, claiming it was classified. Yet today, Los Alamos sent out a press release on the subject. The release misleadingly states that the problem was first reported to NNSA in January, yet MC&A concerns was an issue for a greater part of last year. According to the internal DOE letter, there were MC&A “issues identified during assessments over the last year,” including an on-site review in June 2008. Also, POGO had raised concerns about these MC&A problems in a September 2008 press alert.
Despite being aware of MC&A problems during the 2007-2008 performance period, DOE still granted LANL the full $1.43 million performance award fee for security, which includes “Material Control and Accountability,” as one of the areas of performance evaluated.
“This letter shows that DOE is not afraid to use vigorous inspections for identifying potential security problems. Unfortunately, DOE did not use its power of the purse to get its contractor to quickly resolve the problem,” says Peter Stockton, POGO Senior Investigator. “A sharply worded letter is a good step, but without financial penalties, improvement is much less likely.”
DOE and LANL have tried to downplay the risk of stolen bomb-making material by pointing to LANL’s “strong and effective physical security.” However, based on the results of security tests throughout the weapons complex, including last year’s debacle at Livermore Lab, POGO is concerned that the weak MC&A program at Los Alamos could be exploited by an insider and pose a serious security threat.
DOE appears focused on preventing this latest bad news from becoming publicized and sent out messages to staff warning them not to release critical information to the public. If the information was sensitive enough to pose a security concern, there is a process in place at DOE to classify the information. However, the letter is stamped “Official Use Only,” which is not a classification marking but is generally used to prevent internal documents from seeing the light of day. POGO finds this objectionable, as taxpayers have a right to know what they are getting for their $2.7 billion tax dollars spent at LANL.
Founded in 1981, the Project On Government Oversight (POGO) is an independent nonprofit that investigates and exposes corruption and other misconduct in order to achieve a more effective, accountable, open, and honest federal government.
Add comment March 9, 2009
ICO Prevails Against Boeing: Justice at Last
This has been a long and ugly struggle. Good to know that the whistleblowers involved are finally vindicated, although terrorized, if they still work for Boeing.
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L.A. Court Reaches Final Judgement Amount in Boeing, ICO Case
March 3, 2009
[Satellite Today 03-03-09] A Los Angeles Superior Court overseeing litigation by ICO Global Communications against Boeing Co. and its satellite subsidiary has denied nearly all of Boeing’s post-trial motions, ICO announced Mar. 2.
The court’s final rulings denied six of seven Boeing motions and granted one motion regarding pricing fraud, reducing the judgment amount of $631 million, previously entered against Boeing in January, by approximately $28 million. As a result of the rulings, a judgment amount of $603 million is now final.
The rulings complete a trial court process that began in 2004. In October, a Los Angeles Superior Court jury ruled that Boeing had breached its contract with ICO and engaged in fraud, and that Boeing had tortiously interfered with ICO’s contract. The jury further found that in dealing with ICO, Boeing acted with malice, oppression or fraud. The verdicts totaled $371 million in compensatory damages and $236 million in punitive damages.
“If Boeing appeals and posts the nearly $1 billion bond necessary to prevent immediate efforts to collect the judgment, we will continue to vigorously pursue ICO’s rights. In the meantime, post-judgment interest will accrue on the judgment in the amount of 10 percent, over $60 million, per year,” said John Flynn, executive vice president and general counsel for ICO, in a statement.
Add comment March 8, 2009
POGO Cheers Obama’s Fed. Contracting Reform
For Immediate Release
Contact: Danielle Brian, 202-347-1122
The president’s statement today on reforming government contracting was welcome news to the Project On Government Oversight. His recommendations go to the heart of the systemic failures of how the federal government currently spends hundreds of billions of taxpayer dollars.
“This is great news coming from the White House. By giving this speech, President Obama has highlighted the culture of corruption in contracting in Washington , and is embracing the necessary changes to fix it,” said Danielle Brian, Executive Director, POGO . “The hard part will be to reach down into the incestuous government contracting world and change how Washington does business.”
Last October, POGO sent the Presidential transition teams a set of recommendations addressing the federal contracting system. http://www.pogo.org/pogo-files/reports/good-government/pogos-recommended-good-government-reforms/gg-ptp-20081016.html
Founded in 1981, POGO is an independent non-profit that investigates and exposes corruption and other misconduct in order to achieve a more effective, accountable, open, and honest federal government.
Add comment March 8, 2009