By David Lawder

WASHINGTON(Reuters) - The U.S. Treasury's $700
billion bailout fund officially expires in two weeks, but not
for Neil Barofsky, the top cop for the Troubled Asset Relief
Program.

He's hiring new staff and opening four regional branch
offices to pursue TARP-related fraud cases and monitor
remaining taxpayer investments for years to come.

Barofsky, the TARP Special Inspector General, said his
office staff, now numbering around 140, is expected to reach a
previously stated goal of 160 in coming months and may go
beyond that.

"Most of the ramp-up in our numbers, the expansion in our
hiring, is due to our criminal investigations," Barofsky told
Reuters in an interview.

Of those investigations, a big part is focused outside of
the Washington, D.C., area. So the SIGTARP, as his operation is
known, is opening branch offices in New York, Atlanta, Los
Angeles and San Francisco.

Much of the work done by these offices will be
investigating criminal cases in which TARP applicant banks may
have misrepresented their financial condition in order to
qualify for bailout funds from the government.

The expansion comes as TARP is fast approaching its
expiration date of Oct. 3, after which it can make no new
investments.

But the oversight role for bailout watchdog bodies,
including SIGTARP, the Congressional Oversight Panel and the
Government Accountability Office, is expected to continue until
the last dollar of bailout investments is repaid or written off
-- possibly several years from now.

Under the bailout law passed in October 2008, TARP funds
could go only to banks and other financial companies deemed by
their regulators and the Treasury as healthy and viable
institutions. Barofsky said more evidence is now surfacing that
some of these institutions may have made false statements in
their earnings statements, in their TARP applications, and in
communications supporting their funding requests.

"Predominantly where our resources are most deployed are
where the intended victim or actual victim is the United States
government," Barofsky said. "These are attempts to steal money
from the taxpayer through fraudulent representation in their
TARP applications."

About 707 banks received capital injections under TARP, for
which they were required to pay 5 percent annual dividends. As
of Aug. 31, there were more than 120 banks that had missed
quarterly dividend payments, according to Treasury data.

Five banks that received TARP funds have failed, resulting
in a taxpayer loss of just under $3 billion.

PAYING ITS WAY

The SIGTARP's most celebrated case so far culminated in
June with federal charges against Lee Farkas, the former head
of bankrupt mortgage lender Taylor Bean & Whitaker, for his
role in a fraud scheme to obtain some $553 million in TARP
funds for the now-bankrupt Colonial Bancgroup .
Essentially, the investigation prompted the Treasury to halt
disbursement of any funds to Montgomery, Alabama-based
Colonial. Farkas is scheduled to go on trial in November for
the federal charges stemming from the fraud-scheme probe.

Barofsky maintains the savings from the Colonial case has
paid for the SIGTARP's operations many times over, and the new
hires and offices will pay for themselves through further
savings and judgments from fraud investigations. He declined to
discuss the probes now under way.

The regional offices also will produce cost savings because
SIGTARP has been dispatching agents from Washington to
investigate cases in New York, the South and the West, and has
incurred hefty travel expenses, as well as a high "burnout"
rate among agents working for many weeks away from their
families, he said.

Barofsky, who served as an assistant U.S. attorney in
Manhattan where he ran a mortgage fraud unit before his SIGTARP
role commenced in December 2008, said he intends to hire as
many agents as necessary to investigate TARP cases.

But if he wants to go above the stated goal of 160, he will
need to seek approval of the White House's Office of Management
and Budget. Such a request would likely be made in conjunction
with the Obama administration's fiscal 2012 budget request, due
next February.

Some observers have found it ironic that TARP oversight
hiring is still ramping up as the program winds down. Between
SIGTARP, the Congressional Oversight Panel and the GAO, there
already are a few more people policing TARP than the Treasury
Department's approximately 224 staff who administer it.

However, this excludes contractors hired by the Treasury to
administer some parts of the TARP, such as work by Freddie Mac
to review rejected mortgage modification requests.

Treasury spokesman Mark Paustenbach said it was not clear
yet what Treasury's own TARP staffing would look like in the
future: "Budget discussions are still in the early stages, but
we will be making final decisions in the months ahead as TARP
purchasing authority ends next month."

Apart from fraud investigations, SIGTARP and other
oversight bodies also will be scrutinizing the Treasury's exit
from its remaining $187 billion in TARP investments
outstanding, including a planned initial public offering by
General Motors Co and future stock sales in insurer
American International Group .
(Reporting by David Lawder; Editing by Jan Paschal)