Yow!

Bloomberg Markets breaks some major news today in a magazine profile of TARP Special Inspector General Neil Barofsky, who says his investigation of the New York Federal Reserve, then headed by Tim Geithner, “could result in criminal or civil charges” in Bloomberg’s words:

The TARP watchdog has also criticized Treasury Secretary Timothy F. Geithner in reports and in congressional testimony for his handling of the process by which insurance giant American International Group Inc. was saved from insolvency in 2008, when Geithner was head of the Federal Reserve Bank of New York.

The secrecy that enveloped the deal was unwarranted, Barofsky says, adding that his probe of an alleged New York Fed coverup in the AIG case could result in criminal or civil charges.

In Senate Finance Committee testimony on April 20, Barofsky said SIGTARP would investigate seven AIG-linked mortgage-related securities similar to Abacus 2007-AC1, the instrument underwritten by Goldman Sachs Group Inc. that is at the center of a U.S. Securities and Exchange Commission lawsuit filed against the investment bank on April 16.

“I’ve been in contact with the SEC,” he told the committee. “We’re going to coordinate with them, but we’re going to lead the charge. We’re going to review these transactions.”

This would be a blockbuster, needless to say, and probably would force Geithner’s resignation. There’s no doubt his NY Fed covered this stuff up. Recall Bloomberg’s excellent reporting on this (An Aside: Hey, Bloomberg. Everybody, including me, is going to quit linking to your old stories until you stop redirecting links to your home page). Even if Geithner didn’t know about it, he was captain of that ship.

But there’s even more potentially big stuff here:

Barofsky, a former federal prosecutor who was once the target of a kidnapping plot by Colombian drug traffickers, says he’s also looking into possible insider trading connected to TARP. He says his agency would want to know if bankers bought stock in their companies before it was made public that their institutions would get TARP money, for example.

“There was a time when, if you got that word the stock price would go up, and if you were to trade on that information prior to the public announcement, that would be classic insider trading,” Barofsky says.

In other words, look out, Stephen Friedman. He’s the Goldman Sachs board member who chaired the New York Fed during the taxpayer bailout of AIG, which was really an egregious backdoor bailout of Goldman (an Audit funder) and some French banks. The Wall Street Journal, superbly, broke the story that Friedman bought a big hunk of Goldman shares after the bailout, but before the details became public (and while the Fed was covering them up. See above). Friedman made at least a few million dollars on his purchase, the Journal reported.

How has that guy not been charged with insider trading yet? Perhaps it’s because, as SIGAUDIT Dean Starkman wrote a few months ago, the press hasn’t blanketed the story as well as it should have.

Betcha it’ll be revisiting it soon enough.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.