2009 By JDVD
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
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,
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
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.
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 affairs."
In 1993, the accountant was
transferred to a lowly position in the Dallas RTC's financial
Sitting at his desk
shuffling paperwork, Battaglia discovered the TDC contract
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
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
Battaglia says he later was
instructed to keep paying the bills while an investigation was
"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
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
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.
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
"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
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.