By early 2012, Carmen Segarra, then a bank examiner at the New York Federal Reserve, had gathered enough information to convince her colleagues whose job it was to keep tabs on big banks that Goldman Sachs, one of the most influential financial institutions in the world, was lacking in its conflicts of interest policies.
But, she claims in a wrongful termination case filed against the Fed this week, her conclusions ultimately led to her being fired, with more senior officials allegedly not willing to accept her findings. She refused when they pressured her to change her findings. Soon afterward, the lawsuit claims, security escorted her out of the New York Fed Building in downtown Manhattan.
The Fed, which oversees Wall Street has a close relationship with Goldman.
“There is a history of employees moving from employment at Goldman to employment at the Federal Reserve and vice versa,” says Ms Segarra’s complaint.
She joined the Fed in 2011. Her job: to work with a team of lawyers and compliance experts to ensure that major financial institutions were complying with prevailing regulations.
The first assignment that came her way centered on Goldman’s role in three transactions involving Solyndra, Capmark and the combination of energy companies El Paso and Kinder Morgan. Specifically, she was asked to look at the bank’s conflict of interest programme, according to the complaint.
What she found was troubling. The bank, it is claimed, did not have a company-wide policy on the matter on “several occasions from 8 November 2011 through to 23 May 2012”.
Following a December 2011 meeting, Michael Silva, who managed the Fed’s relationship with Goldman, allegedly called an “impromptu meeting with [Fed] employees, including Carmen” where he “expressed alarm about the implications of Goldman’s failure to properly manage conflicts of interest”. His worry? That clients and customers might pull their business from the giant bank.
Ms Segarra’s findings eventually led the regulator’s legal and compliance-risk team to agree, in March 2012, that the bank should be pushed down an internal Fed ratings table. While it is not clear if the bank’s regulatory rating was downgraded, the revelation of the vote in 2012 would in itself have sparked controversy.
As Ms Segarra completed her final report, she learnt that, despite knowing otherwise, Mr Silva was in May “considering adopting the position that Goldman had a conflict of interest policy”. She therefore emailed her preliminary findings to Mr Silva and two other Fed executives who are named as defendants in the case, Michael Koh, who was Mr Silva’s deputy, and Jonathan Kim, who was Ms Segarra’s supervisor.
Mr Kim replied to the email saying that it was “premature”. Two days later, on 13 May, Mr Silva did in fact find that Goldman had a firm-wide conflicts policy. It was two days on from that, on 15 May, that Mr Silva and Mr Kim met with Ms Segarra and, according to the lawsuit, “attempted to force her to change the findings of her examination”. She refused. On 23 May, she was led out of the Fed building, her employment terminated by her bosses.
A Goldman Sachs spokesman said it had “no knowledge of internal Fed discussions nor the matters raised by Ms Segarra” and highlighted a report describing its approach to conflicts of interest.
The New York Fed said: “Personnel decisions … are based exclusively on individual job performance and are subject to thorough review. We categorically reject any suggestions to the contrary.”