The Treasury Department paid out more than $25 million under the $700 billion Wall Street bailout plan to law firms that gave vague or no descriptions of their work, charged for undocumented expenses and claimed administrative charges that were not allowed, a watchdog said Thursday.
Christy L. Romero, acting special inspector general for the Troubled Asset Relief Program (TARP), said in a report that the lack of detail in the legal bills and the lack of support for the expenses claimed in many instances would have made it impossible for Treasury's Office of Financial Stability (OFS) "to assess adequately the reasonableness of individual hourly charges and expenses."
The 43-page report, covering an extensive audit of the bills submitted by four law firms between May 2010 and May 2011, found "weaknesses in Treasury's contracts and payment for legal services and OFS policies for reviewing and paying legal bills."
The report said that overall, the OFS should determine the allowability of $7.98 million in unsupported legal fees and expenses to the four firms, and seek recovery from one firm, Simpson Thacher & Bartlett LLP, for $91,482 in ineligible fees and expenses paid that were not allowed under the contract.
It also said Simpson Thacher billed for staff in unapproved counsel and senior counsel labor categories not included in the contract and that OFS sometimes reimbursed the charges at partner rates and other times at associate rates.
The OFS practices created "an unacceptable risk that Treasury, and therefore the American taxpayer, was overpaying for legal services," the inspector general's report concluded.
Simpson Thacher "provided no detail of work performed in its fee bills, and did not provide receipts or proper documentation for expenses," the report said.
The other law firms reviewed were Cadwalader Wickersham & Taft LLP, Locke Lord Bissell & Liddell LLP, and Bingham McCutchen LLP. The inspector general's office said there was insufficient detail determined as to whether some of the payments to these firms were reasonable as well.
Timothy G. Massad, Treasury Department assistant secretary for financial stability, defended the payments, noting that, at the time the firms were hired, "our entire economy was on the verge of a catastrophic collapse, markets had ceased to function, and almost every major financial institution was at risk of failure."
He said outside legal counsel provided "invaluable advice regarding complex financial transactions and the country's efforts to restructure the U.S. automobile industry and other TARP programs." He said Treasury's banking programs provided assistance to more than 700 institutions, helped to stabilize the financial system and is expected to return approximately $20 billion to taxpayers.
"We appreciate the important role that our outside legal advisors played in achieving these results," he said, adding that the department was "well-positioned to judge the quality and value of their assistance and to ensure that taxpayer funds were used wisely."
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