Dispute grows over TARP chief’s powers

WASHINGTON —  He was appointed with fanfare in December as public watchdog over the government’s multibillion-dollar bailout of the nation’s financial system. But now Neil Barofsky, inspector general of the Troubled Asset Relief Program, is embroiled in a dispute with the Obama administration that delayed one recent inquiry and sparked questions about his ability to investigate without interference.

The Treasury Department contends that Barofsky does not have a completely independent role. That claim prompted a stern letter from a Republican senator, who warns that Obama administration officials are encroaching on the integrity of an office created to protect taxpayers.

Sen. Charles E. Grassley (R-Iowa) wrote to Treasury Secretary Timothy F. Geithner on Wednesday, demanding information about a “dispute over certain Treasury documents” that he said were being “withheld” from Barofsky on a “specious claim of attorney-client privilege.”

The dispute comes as Grassley, ranking Republican on the Senate Finance Committee, is looking into the abrupt firings of two other inspectors general -- one by the White House, the other by the chairwoman of the International Trade Commission.

Both had investigated sensitive subjects. One, Gerald Walpin, had investigated a nonprofit founded by Sacramento Mayor Kevin Johnson, a supporter of President Obama. Walpin’s case has become a cause celebre in conservative circles.

But the Treasury dispute is especially sensitive because Barofsky had been hailed for his credentials -- an experienced former prosecutor whose presence would reassure the public that TARP money would not be wasted. Obama has pledged transparency as his administration monitors the flow of money.

But TARP critics accuse some recipients, including American International Group Inc., of using the money improperly -- such as on lavish compensation packages.

It was not clear from Grassley’s letter what specific inquiry was delayed by Barofsky’s dispute with Treasury.

The senator included an April memo from the inspector general containing blacked-out sections. In that memo, Barofsky resisted what he viewed as an overreach by Treasury officials. Congress had a “clear intention to preserve [the inspector general’s] independence and not subject us to the [Treasury] secretary’s ability to shut down an audit or investigation,” Barofsky wrote.

Eventually, Barofsky received all the documents he had requested, according to a person familiar with the dispute who requested anonymity so that he could speak without authorization. But the larger dispute over Barofsky’s power has not been resolved, the source said.

A White House spokesman declined to comment, referring questions to the Treasury. Department spokesman Andrew Williams said late Wednesday that the agency would read Grassley’s letter and respond to the senator before commenting publicly.

Grassley is concerned about whether the independence of government watchdogs is at risk. Their jobs exist to find waste, fraud and abuse, he notes.

Last week, the White House terminated Walpin, inspector general of the Corporation for National and Community Service, which includes AmeriCorps. Walpin’s office investigated Johnson’s nonprofit education program, the St. HOPE Academy, and determined that it had misused federal funds.

Johnson and the academy agreed to repay nearly $424,000 in federal grants to settle the matter. The U.S. attorney declined to file charges.

Grassley complained in a letter late Wednesday to the Obama administration that White House lawyer Norman Eisen “refused to answer several direct questions” from Grassley’s staff about the reasoning behind the dismissal.

Eisen told lawmakers in a brief letter this week that Walpin had been fired after a May 20 meeting in which he was “confused, disoriented [and] unable to answer questions.” The letter accused Walpin of working from his New York home and said he was “engaged in other troubling and inappropriate conduct.”

Walpin denies the allegations and blames politics for his firing.

Grassley, in his letter, laid out a series of questions, such as how many witnesses were interviewed as part of the White House review, whether Walpin’s staff was consulted, and whether Walpin was asked directly about the allegations during the May 20 meeting.

Separately, this week, the International Trade Commission told its acting inspector general that her contract would not be renewed. The trade agency is not subject to White House authority.

Grassley had become concerned about Judith Gwynn’s independence because of a report this year that an agency employee had forcibly taken documents away from her as she tried to conduct an audit.

“It is difficult to understand why the ITC would not have taken action to ensure that the ITC inspector general had the information necessary to do the job,” Grassley wrote on Tuesday.

Less than three hours after Grassley’s letter was e-mailed to the agency, Gwynn was told that her contract would not be renewed. The contract is due to expire next month.

The chairwoman of the trade commission, a Democrat appointed by President George W. Bush, did not comment. Calls to the agency’s representative were not returned.

Gwynn was named acting inspector general in early 2008, and her six-month contract had been extended two times.

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tom.hamburger@latimes.com

peter.wallsten@latimes.com