(Recasts with added detail on criticism of capital injection)

WASHINGTON, Feb 5 (Reuters) - The U.S. Treasury looks to have overpaid financial institutions to the tune of $78 billion in carrying out capital injections last year, the head of a congressional oversight panel for the government’s $700 billion bailout program told lawmakers on Thursday.

Elizabeth Warren, a Harvard law professor, said her group estimated the Treasury paid $254 billion in 2008 in return for stocks and warrants worth about $176 billion under the Troubled Asset Relief Program, or TARP.

Warren said the Treasury, under then-Secretary Henry Paulson, misled the public about how it would price them.

“Treasury simply did not do what it said it was doing ... They described the program one way, and they priced it another,” Warren said at a hearing before the Senate Banking Committee. She added that Paulson “was not entirely candid” in describing TARP’s bank capital injection program.

Members of the committee condemned management of the TARP program, which is barely four months old.

“Implementation ... proceeded in a chaotic, unorganized and ad hoc manner,” said Democratic Sen. Daniel Akaka of Hawaii.

Warren said Treasury may have had a reason for paying more for investments than they appear to have been worth at the time of the transaction. “Once again, Treasury needs clear goals, methods, and measurement,” she said.

Warren will release a report Friday on TARP.

Neil Barofsky, another watchdog for the TARP program, told the Senate committee his office is turning to criminal investigations. “That’s going to be a large focus of my office,” he said.

Barofsky, the inspector general for TARP within Treasury, told the Los Angeles Times in an interview Wednesday that misrepresentations in applications for TARP funds would be grounds for criminal prosecution.

OVERHAULING TARP

The Obama administration plans to unveil a new strategy on Monday aimed at reviving paralyzed credit markets, helping struggling homeowners, and lifting the economy out of recession.

Tighter TARP management is expected to be a part of that package. A preview of that came on Wednesday when the White House announced a $500,000 annual cap on executive pay at companies receiving TARP money.

On projections by some analysts that the TARP program may need more money soon, Indiana Democratic Sen. Evan Bayh said, “There will be no additional funding for this program without airtight assurances that it will be better managed.”

The TARP was launched last year by the Bush administration in response to an alarming slowdown in global capital markets triggered by a housing slump that undermined mortgage-backed bonds carried on the books of major financial institutions.

Congress approved the $700 billion program after Paulson said it would be used to buy broken bonds and clean off banks’ balance sheets. But days after that approval, Paulson changed the focus to buying preferred shares in banks.

Warren told the banking committee that after three months on the job, her panel is still not getting enough answers from Treasury. She described the bailout as “an opaque process at best.”

Barofsky raised concerns about potential fraud in one of several programs funded by bailout money -- the Federal Reserve’s Term Asset-Backed Loan Facility (TALF).

“Treasury should consider requiring that some baseline fraud prevention standards be imposed,” Barofsky said in his first report to Congress.

He told the committee the government has collected more than $271 million in dividends from its TARP-financed bank shares and said the department needs a strategy for administering its holdings.

A Treasury spokesman said the department would adopt many of Barofsky’s recommendations.

Treasury holds $279.2 billion in preferred shares from 319 financial institutions, paying dividends of between 5 and 10 percent, according to Barofsky’s report.

The government also received common stock warrants from 230 institutions, most of which are now out of the money. The largest positions in warrants include AIG AIG.N, Bank of America BAC.N, Citigroup C.N and General Motors GM.N.

Yet another watchdog group -- Congress’s Government Accountability Office -- told the committee Treasury needs to keep closer track of TARP money disbursed and that the program needs internal controls and “a clearly articulated vision.”

Barofsky's report was posted on the Webhere . (Additional reporting by John Poirier, Julie Vorman; Editing by Tim Dobbyn)