2009 By JDVD
John Battaglia was riffling through
some billing invoices on his desk three years ago when he noticed
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
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
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
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
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
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
"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.
Battaglia began to believe his
supervisors were quietly blaming him for problems. Ultimately, he was
stripped of job responsibilities, and his enthusiasm turned to despair.
"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
In 1993, the accountant was
transferred to a lowly position in the Dallas RTC's financial operations
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
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
It was a year into the project when
Battaglia began looking at the company's billing records. What he found
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