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ABC News

Scandal at Treasury: Official Quits Amidst Fraud Scandal

Brian Ross, Justin Rood, and Joseph Rhee

Former bank regulator Darrel Dochow evades ABC News' questions about the Treasury Department Inspector General's investigation into allegations he allowed IndyMac to cook its books when he worked at the Office of Thrift Supervision. (ABC News)

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

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 are demanding answers and are 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,

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."

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