A former senior examiner at the Federal Reserve Bank of New York filed a wrongful termination lawsuit Thursday, alleging that she was fired after refusing to alter a critical examination of multinational investment-banking firm Goldman Sachs.
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 in place 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.
According to ProPublica, Segarra was one of many risk specialists hired by the Fed after the passage of the Dodd-Frank financial reform bill — legislation which aims to bolster regulation of the financial system. She was part of a broader effort to minimize what was seen as undue risk taken on by leading banks in the lead up to 2008's financial crisis.
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 his 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.
In a statement, New York Fed spokesman Jack Gutt said the regulator could not speak about individual employees or about supervised institutions, because the information was private.
"The New York Fed provides multiple venues and layers of recourse for its employees to freely express concerns about the institutions it supervises," said Gutt. "Such concerns are treated seriously and investigated appropriately with a high degree of independence. Personnel decisions at the New York Fed are based exclusively on individual job performance and are subject to thorough review. We categorically reject any suggestions to the contrary."
Goldman spokesman Michael DuVally said the bank did not have knowledge of internal Fed discussions or the matters raised by Segarra. He also pointed to a Business Standards Committee report that Goldman produced in January 2011, that’s full implementation was announced in May of this year.
"Goldman Sachs has a comprehensive approach to addressing conflicts through firm-wide and divisional policies and infrastructure," DuVally said.
Segarra was assigned to Goldman's legal and compliance divisions from October 2011 until May 2012, and looked into suspect company transactions. At that point, she was fired and escorted from the building by security guards after weeks of disputes and pressure to change her examination findings, the lawsuit said.
Segarra's lawyer, Linda Stengle, said in an interview that Goldman's committees and standards represented "a paper policy that didn't really have any weight." Stengle said that Goldman executives in charge of conflicts told Segarra and other Fed examiners that they did not have a conflicts policy, and also gave inconsistent statements about the conflicts board's duties and findings.
"Bank examiners should be able to operate without fear of retaliation against the banks that they're examining," said Stengle. Instead, she said her client was "cornered" by supervisors who "tried to force her or persuade her very heavily to change her findings."
Al Jazeera and Reuters