Carmen Segarra, a former senior examiner for the Federal Reserve Bank of New York was fired in the Spring of 2012 for having the audacity to document Goldman Sachs had seriously inadequate policies and procedures to deal with their compliance problems and conflicts of interest issues. She recommended Goldman Sachs be down graded from "satisfactory" to fair for their policies and procedures. She was "offered" a chance to change her report and her findings (more like "told" to change her recommendations and findings). In an all too rare example of integrity; she refused to do so.
She was subsequently fired, had her phone confiscated and she was perp walked to the door.
Well, it seems Ms. Segarra is a planner (and a lawyer). She's got her emails, personal notes and other documentation to prove her points. She filed a wrongful termination suit. It puts the Fed in poor light and they desperately wanted to make sure that documentation is kept from the public. They filed a motion to seal the documents and they have been removed from the court's website. (Kinda late, now. They're on the web elsewhere.)
The Fed's position is that the documents belong to the Fed (even the emails and Segarra's notes) and Segarra had no right to use them in her litigation against the Fed. They also portrayed the relationship between the Fed and the banks they supervise as attorney-client privileged. David Gross, Fed counsel, used some pretty strong words in his motion:
“These documents show that at the time (Segarra) left the employ of the New York Fed, she purloined property of the Board of Governors of the Federal Reserve System,” Gross wrote, citing Fed rules that prohibit disclosing supervisory information without prior approval of the Fed.How do you "purloin" your own hand written notes? Who hasn't heard of blind cc'ing a questionable email from work to your private email account in case things get ugly?
Gross argues that the Fed’s obligation to keep bank supervisory records secret outweigh the public’s right to know. “The incantation of a ‘public right to know’ cannot ever be a license to discharged employees that they may violate Federal law simply by filing a complaint in Federal court,” Gross wrote.
Yeah, well, the judge made short work of the argument that "you can't prove wrongdoing with confidential documents because they don't exist if we say they shouldn't exist" in her ruling.
U.S. District Judge Ronnie Abrams ruled today in the case by Carmen Segarra against the New York Fed and three employees. Much of the material the Fed hoped to keep off limits, including 67 paragraphs from Segarra’s complaint and multiple exhibits, can be found on ProPublica’s website and others.That's great news for those who want to see more transparency at the Federal Reserve Bank of New York. ProPublica has Carmen Segarra's complaint and the original story. It's worth the read.
“I am not convinced that anything will be accomplished to seal or redact a complaint that is publicly available,” said Abrams in the hearing held at the federal courthouse in lower Manhattan.
If you ever wondered why there's been so little action against the "too big to fail" banks, Ms. Segarra's experience will clue you into a couple problems. Chief among them is the fact that the regulators working for the Federal Reserve Bank of New York often go to work for the banks they regulate and in turn, bank employees frequently go work for the fed. A couple years later they rearrange the chairs on our Titanic banking system and no substantive regulating occurs.
The current president of the New York Fed, William Dudley, is a former Goldman partner. One of his New York Fed predecessors, E. Gerald Corrigan, is currently a top executive at Goldman. At the time of Segarra’s firing, Stephen Friedman, a former chairman of the New York Fed, was head of the risk committee for Goldman’s board of directors.It is a conflict of interest for the Federal Reserve Bank of New York to regulate Goldman Sachs. I think if you look at the investment portfolio's of all three men, you'd find they have holdings in a lot of Goldman Sachs' pies. In fact, that's the type of thing Ms. Segarra identified when she was tasked to assess Goldman’s conflict-of-interest policies. She found an inherent problem with a 2012 merger of between two energy companies, El Paso Corp. and Kinder Morgan. Goldman had a $4 billion stake in Kinder Morgan while also advising El Paso on the $23 billion deal. These are big companies and it is possible that different departments could have done this merger without triggering a lawsuit from shareholders that resulted in findings of conflicts of interest, but that's not all:
Goldman did provide documents detailing how it had divided its El Paso and Kinder Morgan bankers into “red and blue teams.” These teams were told they could not communicate with each other — what the industry calls a “Chinese Wall” — to prevent sharing information that could unduly benefit one party.As if that weren't bad enough, both Carmen Segarra's and her supervisor, Johnathon Kim were outranked by the supervising officer at Goldman's. New York Fed’s senior supervising officer at Goldman, Michael Silva, a lawyer, had been at the Fed for 20 years and previously had served as a senior vice president and chief of staff for Timothy Geithner while he was New York Fed president. As a senior vice president and senior supervisor, Silva outranked Kim in the Fed hierarchy. Interestingly, Silva originated the investigation that ultimately led to Segarra's troubles at the Fed (maybe she did too good a job).
Segarra said Goldman seating charts showed that that in one case, opposing team members had adjacent offices. She also determined that three of the El Paso team members had previously worked for Kinder Morgan in key areas.
“They would have needed a Chinese Wall in their head,” Segarra said.
Silva said he was worried that Goldman was not managing conflicts well and that if the extent of the problem became public, clients might abandon the firm and cause serious financial damage....As the investigation continued, Silva ultimately became so concerned about what would happen "if the extent of the problem became public" that he took Goldman Sachs' position that there was no problem. Nothing to see. Nothing to fix. Nothing to report.
Three days before she was fired, Segarra was summoned to a meeting with Silva and his deputy, Michael Koh, where they would not engage in a discussion of the merits of Segarra's findings, they told her she was wrong and needed to change her conclusions. Segarra acknowledged that her report would have to be ratified by Fed officials and therefore, would be subject to change, but she wasn't changing her report until the ratifying authority told her to do so. After the meeting Segarra sent an email to Silva reiterating her position. At some point Michael Silva told Segarra that the "Fed had lost confidence in her ability to follow directions and not jump to conclusions".
The Federal Reserve Bank of New York is the most secretive of the 12 regional Federal Reserve banks. This is a rare glimpse in their inner workings and the complaint show a too cozy a relationship between the Fed and the banks it supervises. I can only imagine what else will come to light as this case proceeds.