Bank Regulator Out Amid Fraud Probe

A probe into fraudulent reporting by financial institutions has led to the suspension of a top Treasury Department regulator.

The Office of Thrift Supervision announced Thursday its acting director, Scott M. Polakoff, was on leave pending the findings by the Treasury Department’s Inspector General Eric Thorson, expected in the coming weeks.  Polakoff was elevated to director last month, from his post as senior deputy director.

Thorson’s office has been probing how OTS regulators may have allowed failed lending giant IndyMac and others to falsify financial records that should have shown their ill health.

"Basically, while the institution was having financial difficulty, it kept the public from knowing earlier than it otherwise should have or would have," assistant Treasury Inspector General Marla Freedman told ABC News in an interview broadcast earlier this month.

Thorson's office released a report three weeks ago criticizing OTS regulators for failing to heed warning signs of IndyMac's collapse in 2008. At the time, Polakoff reportedly emailed his subordinates encouraging them to read the report and learn its lessons.

"It is critical for all of us to understand the factors that contribute to any bank failure so that we can constantly improve our examination techniques," Polakoff wrote, according to an account in the Wall Street Journal.

Polakoff 's predecessor, John Reich, retired last month amid the same probe.

The regulator who directly oversaw IndyMac, Darrel Dochow, also resigned from his job this month.

Treasury Secretary Timothy Geithner named OTS deputy director and chief counsel John E. Bowman to replace Polakoff.

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