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Goldman "Whistleblower" Sues NY Fed For Wrongful Termination

Tyler Durden's picture




 

After seven months of investigating Goldman Sachs' legal and compliance divisions, former NYFed examiner Carmen Segarra found numerous conflicts of interest and breach of client ethics (specifically related to three transactions - Solyndra, Capmark, and the El Paso / Kinder Morgan deal) that she believed warranted a downgrade of Goldman's regulatory rating. Her bosses were not happy, concerned that this action would hurt Goldman's ability to do business, and, she alleges, they urged her to change her position. She refused, and as Reuters reports, she was fired and escorted from the building. “I was just documenting what Goldman was doing,” she said. “If I was not able to push through something that obvious, the [NY Fed] certainly won’t be capable of supervising banks when even more serious issues arise.”

Via Reuters,

A former senior bank examiner at the Federal Reserve Bank of New York filed a wrongful termination lawsuit on Thursday, saying she was fired after refusing to alter a critical examination of Goldman Sachs Group Inc.

 

The former employee, Carmen Segarra, said that in her seven months of examining Goldman's legal and compliance divisions, she found the bank did not have policies to prevent conflicts of interest as required by regulation, a conclusion that might have caused a downgrade of the Wall Street bank's regulatory rating.

 

As a result of Segarra's findings, the New York Fed's Legal Compliance and Risk team voted to downgrade Goldman's annual rating pertaining to policies and procedures, according to the lawsuit filed in federal court in New York.

 

It is not clear whether the downgrade occurred, but according to the lawsuit, the threat of one startled Michael Silva, who oversees the New York Fed's relationship with Goldman, and Silva's deputy, Michael Koh. The two officials were concerned that a downgrade could cause clients to stop doing business with the Wall Street bank, the lawsuit said.

 

...

 

Segarra was assigned to Goldman's legal and compliance divisions from October 2011 until May 2012, and looked into three controversial transactions related to Solyndra, Capmark and the merger of El Paso and Kinder Morgan. At that point, Kim, Silva and Koh fired her and had her escorted from the building by security guards after weeks of disputes and pressure to change her examination findings, the lawsuit said.

Via The Washington Post,

Goldman had past problems with conflicts. A year earlier, the bank had received a drubbing from the Securities and Exchange Commission and a Senate subcommittee over conflicts related to a mortgage transaction the bank constructed called Abacus. The SEC imposed a $550 million fine on Goldman for the deal.

 

Segarra was instructed specifically to assess Goldman’s conflict-of-interest policies, including how they worked in a merger between two energy companies: El Paso Corp. and Kinder Morgan.

 

...

 

Goldman did provide documents showing 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 improper information sharing.

 

Segarra said Goldman seating charts showed 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.

 

On multiple occasions during Segarra’s examination, Goldman executives acknowledged that the bank did not have a firmwide conflict-of-interest policy, she said.

 

...

 

On March 21, 2012, Segarra presented her conclusion that Goldman lacked an acceptable policy on conflicts to her group of specialists from the other too-big-to-fail banks.

 

...

 

A summary sheet from the group’s meeting recommended downgrading Goldman from “satisfactory” to “fair” for policies and procedures, the equivalent of a “C” letter grade.

 

...

 

As the Goldman review moved up the Fed’s supervisory chain, however, Segarra said she began to get pushback.

 

...

 

“I was just documenting what Goldman was doing,” she said. “If I was not able to push through something that obvious, the Federal Reserve Bank of New York certainly won’t be capable of supervising banks when even more serious issues arise.”

Perhaps one indemnifying issue here is that whereas Goldman has indeed chronically and blatantly transgressed on numerous occasions when it comes to the abuse of its clients, and generally breaching its fiduciary duties, Segarra's description of the internal Chinese wall within the Goldman i-banking division sounds rather conventional and ordinary, and as for a conflict of interest policy - which banks actually really has one? To be sure, there are far greater misdeed for which Goldman can be held accountable, so in some ways the focal point of her complaint is not very strong.

Still, as everyone knows, both Bill Dudley and Stephen Friedman used to be at Goldman, and as we noted Dudley and Goldman chief economist Jan Hatzius periodically did and still meet to discuss "events" at the Pound and Pense.  

So while her allegations may be non-definitive, and her wrongfful termination suit is ultimately dropped, there is hope this opens up an inquiry into the close relationship between Goldman and the NY Fed. Alas, since the judicial branch is also under the control of the two abovementioned entities, we very much doubt it.

Full suit below:

 

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Thu, 10/10/2013 - 21:22 | 4043561 Dear Infinity
Dear Infinity's picture

Do The Bernank ...... the Ben Bernank!! Do the Bernank.....

 

 

 

THE BEN BERNANK!

Sub-$1300 gold , baby it's time to buy

Sitting fly in my 22 karat ride

Janet Yellen dripping FRNs like

That Fat Tower in Dubai

www.CompareGoldPrices.com

Thu, 10/10/2013 - 21:28 | 4043597 Anusocracy
Anusocracy's picture

Too bad she can't sue in a Russian court.

Thu, 10/10/2013 - 21:36 | 4043613 SafelyGraze
SafelyGraze's picture

she is a shoe-in as fed chair now that sumners is out of the running

Thu, 10/10/2013 - 21:40 | 4043628 SMG
SMG's picture

Thank you Carmen for risking everything to make the world a better place.  

Thu, 10/10/2013 - 21:45 | 4043640 HardAssets
HardAssets's picture

Her intelligence, courage and integrity are a fine example. We need millions more like her.

Thu, 10/10/2013 - 22:00 | 4043683 Anusocracy
Anusocracy's picture

Sibel Edmonds and Carmen Segarra times a million.

Thu, 10/10/2013 - 22:06 | 4043701 economics9698
economics9698's picture

She must be the only one at the Fed that does not know Goldman owns the Fed, kinda funny when you think about it.

Thu, 10/10/2013 - 22:22 | 4043745 NoDebt
NoDebt's picture

Oh, my God, she is so screwed.  What was she thinking??  Blow the whistle and the cavalry comes riding in?  

This could be the stupidest woman in the history of the Earth.

What you found is called LEVERAGE, honey.  You use it to your personal advantage, you don't piss it away blowing the whistle to people who report directly to your masters.  

 

Thu, 10/10/2013 - 22:34 | 4043783 g'kar
g'kar's picture

Thank you Carmen for being hot and not another Yellen type.

Fri, 10/11/2013 - 01:30 | 4044031 James_Cole
James_Cole's picture

“They would have needed a Chinese wall in their head,” Segarra said.

Lol

Fri, 10/11/2013 - 06:32 | 4044181 GetZeeGold
GetZeeGold's picture

 

 

Damn, you can hardly walk without tripping over another GS whistleblower.

 

It's getting so bad Blankfein will have to answer the phones himself.

Thu, 10/10/2013 - 23:28 | 4043888 DeadFred
DeadFred's picture

I had this discussion with my son just yesterday. His position was that such conflicts are unlikely to be resolved with extreme prejudice while I thought the opposite. This is an excellent test case. Does she die? Does her case get thrown out as without merit? Does she get a hush money settlement?

Fri, 10/11/2013 - 06:39 | 4044184 GetZeeGold
GetZeeGold's picture

 

 

She's dead......Fred.

 

Of course.....she could always go to Russia and hang with Eric Snowden.

Fri, 10/11/2013 - 05:01 | 4044138 Doña K
Doña K's picture

@ No debt:  <<<What you found is called LEVERAGE, honey. You use it to your personal advantage>>>

You need to read Nicomachean ethics to appreciate what's important in life dude

Fri, 10/11/2013 - 06:09 | 4044170 NoDebt
NoDebt's picture

I don't use /sarc tags.  You get it or you don't.

Fri, 10/11/2013 - 07:35 | 4044236 Doña K
Doña K's picture

Apparently not too many got it since you already have 24 down arrows. Do you think collectively ZHedgers are morons?

Fri, 10/11/2013 - 07:39 | 4044244 NoDebt
NoDebt's picture

No, they just don't get my twisted sense of humor sometimes.  I don't pay attention to down arrows anway (a little trick I learned from the BLS).  This isn't the first time I've gotten hammered and probably won't be the last.

Fri, 10/11/2013 - 07:43 | 4044251 mvsjcl
mvsjcl's picture

I got it. It just wasn't that witty.

Fri, 10/11/2013 - 08:18 | 4044331 NoDebt
NoDebt's picture

I'll try harder next time.

Fri, 10/11/2013 - 10:20 | 4044965 Bucket Boy
Bucket Boy's picture

You found all the mental midgets lurking this morning.

Thu, 10/10/2013 - 22:34 | 4043775 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

Sibel Edmonds and Carmen Segarra times a million.

You'll want to include Brooksley Born and Lan Pham in that group as well.

Fri, 10/11/2013 - 00:10 | 4043943 fencejumper
fencejumper's picture

Thanks for Lan link, Stooge - missed it first time around - and definitely agree about BB....everyone who hasn't seen it must watch this about her travails and mix up w/ Greenspan, Rubin, Summers:

 

http://www.pbs.org/wgbh/pages/frontline/warning/view/

Fri, 10/11/2013 - 01:31 | 4044035 James_Cole
James_Cole's picture

I'm in the minority here for thinking this way, but I think most people want to do the right thing. All you need is a few bad apples in key positions and it sours everything. 

Fri, 10/11/2013 - 07:48 | 4044260 mvsjcl
mvsjcl's picture

A few bad apples? I think you're being a tad generous.

Fri, 10/11/2013 - 09:34 | 4044698 RaceToTheBottom
RaceToTheBottom's picture

"a few bad apples".

I think the breed of apple tree is the problem.  Some things cannot be solved except by ruthless trimming or removal of the tree and replacement with another apple tree more suited to the space where you are planting.

Fri, 10/11/2013 - 10:09 | 4044893 Henry Hub
Henry Hub's picture

"There are a thousand hacking at the branches of evil to one who is striking at the root."

Henry David Thoreau

Thu, 10/10/2013 - 22:01 | 4043688 AlaricBalth
AlaricBalth's picture

The Muppet Master had received "a drubbing" from the Securities and Exchange Commission a year earlier. A drubbing? Ouch.

I am sure that Lloyd B. was shaking in his Prada's after that and immediately ordered all minions under his charge to change their evil ways.

Fri, 10/11/2013 - 01:30 | 4044030 U4 eee aaa
U4 eee aaa's picture

More like a dribbling

Fri, 10/11/2013 - 06:51 | 4044192 Urban Redneck
Urban Redneck's picture

I see no evidence of any intelligence on her part, courage and integrity, yes, but not intelligence. However, I see plenty of arrogance, incompetence and stupidity on the part of GS management. There are real Chinese walls that do exist in banking, not between IB or analysts and prop or client trading, but between the actual work that the bank does and any outside "observation" and critical evaluation. Banking regulators and auditors are generally not that bright to begin with and they operate from truly JUVENILE handbooks and frameworks. A banking regulator walking into a bank is supposed to be like a health inspector walking into a mob front restaurant, perhaps they are cited for a cockroaches and can't peddle pasta or Peking duck for a few days, but the [real] spice trade remains out of sight and out of mind... This a stupid amateur hour sloppiness, and if private sector lawyers can't inflict consequences on G/S or the Fed, then I wouldn't hold out any hope for corrective action that doesn't involve lampposts and rope (or a contemporary substitute).

Thu, 10/10/2013 - 22:11 | 4043708 booboo
booboo's picture

She better not get in to a hot tub............without me.

Fri, 10/11/2013 - 07:20 | 4044226 Nothing but the...
Nothing but the truth.'s picture

America needs a whole bunch more of these good women and men like Ed Snowden. Those that will put intergrity and morality above the get rich quick and corruptly, mentality. These  citizens are the bedrock of a healthy nation .

Thu, 10/10/2013 - 21:37 | 4043626 williambanzai7
williambanzai7's picture

NO BUSINESS PRINCIPLES LIKE SQUID BUSINESS PRINCIPLES

Thu, 10/10/2013 - 21:57 | 4043662 ghengis86
ghengis86's picture

What, no 14? Something about that beak perhaps?

Thu, 10/10/2013 - 22:07 | 4043702 LetThemEatRand
LetThemEatRand's picture

14.  When all else fails, release the ink.

Fri, 10/11/2013 - 01:00 | 4043998 JohnnyBriefcase
JohnnyBriefcase's picture

Fucking perfect! masterfully done! Bravo!

 

Fuck yeah! Cheers! Kudos!

 

Huzzah!

Thu, 10/10/2013 - 22:29 | 4043764 I_Am_
I_Am_'s picture

14. we are doing god's work

Thu, 10/10/2013 - 22:50 | 4043821 g'kar
g&#039;kar's picture

Thats a nine legged octopod. It's crooked.

Fri, 10/11/2013 - 08:46 | 4044424 Translational Lift
Translational Lift's picture

Now..... if she just spent her days surfing porn sites like the other a-hole Fed employees she would be promoted to the next level......

Fri, 10/11/2013 - 11:08 | 4045135 TeMpTeK
TeMpTeK's picture

Maybe Queen Latifa will hire her....

Thu, 10/10/2013 - 21:21 | 4043565 varnelius
Thu, 10/10/2013 - 21:29 | 4043590 smlbizman
smlbizman's picture

she is obviously not a democrat....

Fri, 10/11/2013 - 01:14 | 4044010 merizobeach
merizobeach's picture

I'm sorry, gentlemen, but those of you who think she's hot need to visit Asia more often.

Thu, 10/10/2013 - 21:19 | 4043566 U4 eee aaa
U4 eee aaa's picture

Cue the car 'accident' in 5....4.....3....

Fri, 10/11/2013 - 01:32 | 4043993 tom a taxpayer
tom a taxpayer's picture

Breaking News - Goldman hired more ex-cons than MBAs. 

So far in 2013 ex-cons beat out MBAs for new jobs at Goldman. Like other Wall Street firms, Goldman has found it more efficient to hire ex-cons experienced in fraud and bank robbery.  

"MBAs often require 1 to 3 years of on-the-job training before they can overcome their conscience and lose the last shred of human decency.  That's a 1 to 3 year drag on performance that we do not suffer with ex-cons. And the ex-cons are happy to start for less pay", according to a top Goldman executive interviewed while recruiting at Leavenworth Federal Penitentiary.

 

Fri, 10/11/2013 - 02:34 | 4044074 sessinpo
sessinpo's picture

Ex?

Thu, 10/10/2013 - 21:21 | 4043568 LetThemEatRand
LetThemEatRand's picture

Sell your explode-on-impact Mercedes.  Now.

Thu, 10/10/2013 - 21:25 | 4043582 Croesus
Croesus's picture

Goldman Sachs couldn't possibly be involved in any wrongdoing...it's just impossible...

</hot, steaming pile of sarc>

Thu, 10/10/2013 - 21:29 | 4043589 LetThemEatRand
LetThemEatRand's picture

Every-man's whistleblower is Gold-man's terrorist.

Thu, 10/10/2013 - 21:38 | 4043625 e_goldstein
e_goldstein's picture

Not to mention her hot tub.

Thu, 10/10/2013 - 21:20 | 4043573 Charles Nelson ...
Charles Nelson Reilly's picture

I guess the Jewish lawyers at the big firms didn't want to turn on their own and represent her?

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