To catch a thief
John Battaglia was riffling through some billing invoices on his desk three years ago when he noticed something odd.
A certified public accountant, Battaglia was among the troops assembled by the Resolution Trust Corporation to pick through the wreckage of the country's savings and loan disaster.
Three years in the RTC's Dallas office had already left the ex-Marine disillusioned with the agency's dedication to its task. But the invoices that crossed his desk in 1993 from Texas Data Control--a major contractor hired to keep records for the RTC--were the most troubling Battaglia had yet seen.
TDC appeared to be billing the agency hundreds of thousands of dollars for work that should have only cost a fraction of what the RTC was paying for it, the accountant believed.
"I took it apart and found what appeared to be fraudulent activity," Battaglia recalls. "We were paying [TDC] $500,000 a month to basically print paper reports."
The irony of the situation was not lost on Battaglia. The RTC was specifically formed to recover some of the taxpayer money looted during the savings and loan scandals. But it appeared the agency was allowing its own pocket to be picked.
Battaglia shared his concerns with his bosses, but got little response. Their indifference marked the beginning of a three-year quest by Battaglia to prove that TDC illegally siphoned off millions from the RTC.
The RTC, its work supposedly done, has since been dissolved by an act of Congress. Battaglia is still fighting.
TDC officials have denied any improprieties. But Battaglia has managed to convince the U.S. Attorney's office and the Office of the Inspector General that his allegations may be true.
Last year, just months before the RTC ceased to exist, the accountant sued Texas Data Control, using an obscure federal statute known as qui tam.
A provision of the False Claims Act, qui tam allows federal employees and others to act as private whistle blowers, filing suit and recovering money that the U.S. government has lost because of false claims. (The name, according to Black's Law Dictionary, is short for "qui tam pro domino rege quam pro sic ipso in hoc parte sequitur," or, "Who as well for the king as for himself sues in this matter.")
Simply put, citizens like Battaglia can sue on behalf of the government, and keep a cut of the money if they win. Since September 1995, more than 245 qui tam cases have been filed in the United States, recovering more than $1 billion. People who have initially brought the suits have received more than $150 million as their share.
If Battaglia triumphs in his quest to prove the RTC was defrauded by TDC, he could walk away a rich man himself, keeping up to 30 percent of any money recouped by the government.
It would be a sweet victory for a man who was long a thorn in the side of his RTC superiors.
A former U.S. Marine, Battaglia eagerly transferred from the Federal Deposit Insurance Corporation to the RTC in 1990. He was excited by the challenge of helping the RTC liquidate billions of dollars in assets to recover some of the taxpayer money used to bail out the savings and loan industry.
Battaglia supervised 11 employees, trying to figure out how much government money would be needed to save failed thrifts in Texas, Mississippi, and Louisiana.
From the beginning, the accountant had concerns about how the agency went about its business. He questioned the way some accounting firms landed contracts. He worried about accountability:The Dallas RTC office oversaw $10 billion worth of assets--including $400 million in cash--but, he says, it had no centralized cash-management system.
Early on, Battaglia was optimistic that the problems would be resolved. "I thought they were systematic problems of an organization being created out of thin air, and they would start to get in shape after management took control," he says.
An earnest, amiable fellow, Battaglia was vocal about his concerns, pointing out areas that had the potential for abuse. But he says his concerns were met with either resistance or apathy.
"There would be a guy next to me who was responsible for inventorying all the collateral of the loans to see if they match what our books say," Battaglia says. "And he would just sit and play one of those computer golf games all day."
Battaglia soon found himself unpopular. Before long, the CPA was enmeshed in office imbroglios. A female worker filed sexual harassment charges against Battaglia, and Battaglia filed sexual harassment charges against two supervisors.
"I intended to use my skills to help my country resolve what I perceived to be a national crisis," Battaglia wrote in a complaint to the Office of the Inspector General in 1993. "Part of resolving the crisis was controlling the cost of the crisis to the American taxpayers as well as ensuring that the events were conducted fairly and evenly...But there is growing perception within this organization that individuals are not held accountable for their actions and that deviation from both the letter and the intent of the law is part of how this organization is to conduct its affairs."
In 1993, the accountant was transferred to a lowly position in the Dallas RTC's financial operations office.
Sitting at his desk shuffling paperwork, Battaglia discovered the TDC contract discrepancies.
A year earlier, the RTC had awarded Texas Data Control one of the agency's single largest contracts, basically a mammoth records-keeping job.
In exchange for $39.7 million, TDC would document the closing out of $7.5 billion in bad loans from failed thrifts in Louisiana, Texas, and Mississippi. The company leased offices in Exchange Park on Harry Hines Boulevard until it dissolved earlier this year.
Texas Data Control was a consortium of mortgage, financial, and data-processing firms from Texas, California, and Arizona. A privately funded Latino community action group from California, the East Los Angeles Community Union, or TELACU, owned a majority 25-percent interest in the joint venture, which qualified TDC as a minority-owned business.
Under the multimillion-dollar agreement, TDC was to keep records on mortgages, student loans, and commercial and consumer loans held by failed thrifts. The RTC required TDC to submit reports on its progress. TDC billed the federal government monthly.
It was a year into the project when Battaglia began looking at the company's billing records. What he found disturbed him.
Suspecting the TDC was overbilling the government, Battaglia says, he went to his supervisor, Amber Harrell. According to Battaglia, Harrell told him she would alert Jim Messec, head of the financial operations office.
Battaglia says he later was instructed to keep paying the bills while an investigation was under way.
"They went through some motions," he says. "They moved some secretaries around to placate me, but they were still paying TDC."
When his supervisors continued to pay TDC, Battaglia notified the U.S. Office of the Inspector General of his findings. The OIG responded by performing an audit of TDC's billing procedures, and substantially confirmed Battaglia's suspicions.
The resulting 1994 inspector general's report stated that, of $4.34 million TDC billed the RTC, "we question $4.01 million of it."
According to the OIG audit, monthly bills to RTC were grossly inflated. For instance, in October 1993, the OIG calculated that the actual cost of work done by TDC was $24,757. But TDC billed the government $339,747. The company also inflated mailing costs, officials say, to the tune of at least $900,000.
When the OIG presented its findings, Dallas RTC supervisors said they knew about the overbilling, but had not raised the issue because a complaint might reopen contract negotiations between the contractor and the RTC.
Dallas officials acknowledged that they knew "since receipt of the first invoice...that a significant problem existed with the report billings." The inspector general's office recommended that the Dallas RTC office seek a refund of $5.6 million from TDC, but the money was never recovered.
Even as his suspicions were being confirmed, Battaglia happened upon an article about a government employee who had sued a defense contractor under the qui tam statutes, recouping hundreds of thousands of dollars in federal monies. "He basically got all these defense contractors to cough up all their dirty profits," Battaglia says. "I saw the qui tam as a way to corroborate what I had been saying [about the Dallas RTC office]."
On March 23, 1995, Battaglia filed his own qui tam action against TDC in U.S. District Court in Dallas, and sent a copy to U.S. Attorney General Janet Reno. In December 1995, Battaglia lost his job when the RTC disbanded, but his lawsuit caught the interest of the U.S. Attorney's office.
After federal prosecutors looked into Battaglia's allegations, they decided the U.S. government should intervene in the case and act as prosecutor. The False Claims Act allows the U.S. Attorney's office to sue for triple damages, and seek a $10,000 civil fine for each violation of the statute.
In court filings, prosecutors are alleging that, in some cases, TDC effectively billed the government for reports that it never actually produced.
"TDC knew or should have known that its methodology falsely inflated the number of reports produced and that each invoice...was false," federal prosecutors allege. The overcharging, the prosecutors allege, was the result of a computer program code inserted into the software used by TDC.
After the OIG audit, prosecutors allege, TDC disguised its overbilling by changing the way it submitted reports to the RTC. And, prosecutors contend, TDC billed the RTC more than once for work TDC had performed.
Dallas attorney Gaynell Methvin, a spokesman for all of the companies that made up TDC, says TDC disputes the federal charges. "The government is taking a routine contract dispute and trying to make it into a court action," Methvin says. TDC has filed a $5 million counter suit against the United States, saying the RTC owes the contractor money.
As federal prosecutors continue building their case against TDC, Battaglia has gone back to college. But the persistent accountant is waiting to see if he will have the last laugh in the closing act of one of the nation's worst financial debacles.
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