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Suit over Fed firing revives Goldman conflict issue

  • Article by: SUSANNE CRAIG and JESSICA SILVER-GREENBERG
  • New York Times
  • October 10, 2013 - 9:14 PM

At a March 2012 meeting, a group of examiners at the Federal Reserve Bank of New York agreed that Goldman Sachs had inadequate procedures to guard against conflicts of interest — guidelines aimed at stopping firms from putting their pursuit of profit ahead of their clients’ best interests.

The examiners voted to downgrade a confidential rating assigned by the New York Fed that could have spurred costly enforcement actions and other regulatory penalties. It is not known whether the vote in fact led to a rating change. The former examiner who pushed for a downgrade, Carmen Segarra, contends in a lawsuit filed Thursday that just weeks after the vote, her superiors asked her to change her findings on Goldman and fired her after she refused.

The vote to downgrade, which has not been previously reported, could have been a big blow for Goldman.

“Goldman Sachs does not have a conflicts-of-interest policy, not firmwide, and not for any divisions,” the examiner wrote to Michael Silva, a senior executive at the New York Fed. “I would go so far as to say they have never had a policy on conflicts.”

The lawsuit, along with a review by the New York Times of confidential government documents and internal e-mails, raises questions about the success of Goldman’s efforts to police potential conflicts.

The bank has been buffeted by accusations that it has put its own interests ahead of its clients, a contention it denies. Goldman, for instance, faced accusations that in the run-up to the financial crisis it sold billions of dollars in souring real estate assets to unsuspecting clients. Just weeks before the examiners’ vote last year, the bank had been publicly excor­iated by a federal judge who found that Goldman had conflicts in a huge energy deal.

In the lawsuit, which was filed in federal court in New York, Segarra contends she was wrongfully terminated in violation of a federal law that affords protections to bank examiners who find wrongdoing in the course of doing their jobs. Silva, who is chief of staff for the executive group at the New York Fed, is among the defendants named in the suit.

In an interview, Segarra said that when she was fired, her bosses told her they had lost confidence in her judgment.

Within the Fed, some people who worked with Segarra echoed those concerns, according to people familiar with her time at the agency but not authorized to speak on the record. Segarra, these people said, sometimes developed “conspiracy theories.”

Segarra landed the job at the New York Fed in October 2011 after a career on Wall Street that included jobs at Citigroup and Bank of America.

She was assigned to assess Goldman’s conflict-of-interest program to determine whether it complied with Fed standards.

After Segarra joined the New York Fed, she said she examined several potentially controversial Goldman deals. For instance, in 2012 Goldman advised El Paso, an energy company, on its decision to sell itself to Kinder Morgan. Goldman owned a big stake in Kinder Morgan, which angered a number of El Paso shareholders, who argued this gave Goldman an incentive to undervalue El Paso.

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