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New York FedWhistleblower Carmen Segarra Speaks Up Again

As a Fed-appointed examiner of Goldman Sachs, Segarra discovered they had no conflicts of interest policy. She was fired. Now, she’s making new allegations.

Carmen Segarra, a former bank examiner for the New York Federal Reserve (Nabil Rahman)
  • The Head of the New York Fed is a former Goldman Sachs partner
  • The Head of Goldman Sachs holding company is a former head of the New York Fed
  • The husband of the judge who dismissed Segarra’s whistleblower claim at trial is an advisor to Goldman Sachs
  • A Court of Appeal that found nothing wrong with all this is dismissing Segarra’s appeal

After the near-crash of 2008, Congress was aghast. Economists wrote op-ed pieces listing a dozen warning signs of flaws in the financial system, but the New York Fed had not seen a single one. As part of an effort to reform, the Fed commissioned a highly confidential report, written by Columbia professor David Beim, that identified why the regulator failed in the years leading up to the crisis, in short: regulatory capture— a mind-numbing name for the fact that the regulated, here the banks, often control the regulator, here the New York Fed. Beim provided a path forward. He urged the New York Fed to hire expert examiners who were unafraid to speak up and then encourage them to do so. It was essential, he said, to prevent the next crisis.

Congress gave the NY Fed a budget increase to do just that. One of these new hires was Carmen Segarra, then 41, an experienced lawyer with impeccable education credentials: Harvard, Columbia, and Cornell, with 12 years experience working in the financial sector — an outsider coming into the regulatory world. She was sent to Goldman Sachs.

Where There is a Conflict, Goldman Likely Has an Interest

Because these large banks have so many divisions, it’s highly likely that they could be acting for parties with opposing interests. There is a danger in this situation that the bank employees might favor one of the parties and exchange confidential information; or withhold information that they had a duty to disclose. In fact, it was a common saying about Wall Street banks, especially Goldman Sachs, “if you have a conflict, we have an interest.” Remember the Abacus scandal in which Goldman Sachs defended its position by saying that this transaction was the normal way it did business; it often acted for clients on both sides of a transaction.

To combat this conflict of interest possibility, the Fed issued an advisory opinion, SR-08–08, requiring banks to have an institution-wide conflict of interest policy. Segarra was examining a Goldman-managed merger of two energy giants: El Paso Corp and Kinder Morgan when a shareholder lawsuit alleged that lead Goldman partner on the deal, Steve Daniel, had a $340,000.00 undisclosed interest in Kinder Morgan. Segarra asked to see Goldman’s conflicts policy and the evidence that it had disclosed this conflict to the parties.

Segarra discovered that not only did Goldman did not have a bank-wide policy, but among the patchwork of policies, the one in private banking explicitly told employees not to write down conflicts “in emails or written communications”.

Segarra reported it.

Her boss pressured her to retract the report warning her that the escalator of promotion at the NY Fed was exclusive, because, as she noted at the time, “the ones who are taken most seriously are the most quiet ones”. She refused to be quiet. She was fired three days later.

Segarra sued under a whistleblower provision, but her case was dismissed because her actions didn’t merit whistleblower protection.

The New York Federal Reserve

Now, as it happened at this time the head of the New York Fed was a 21-year Goldman Sachs veteran, William Dudley. The chairman of GS Bank USA, the bank holding company of Goldman Sachs, was an ex-head of the New York Fed, E. Gerald Corrigan. The husband of the judge who was assigned to the trial was a Goldman Sachs advisor.

When Segarra’s lawyer asked the trial judge about her husband’s relationship with Goldman Sachs, the judge shut her down saying that she was “judge shopping”. The Court of Appeal found nothing wrong with all this.

Both Goldman Sachs and the New York Fed disputed Segarra’s version of events, A New York Fed spokesperson said: “We continue to categorically reject Ms. Segarra’s allegations from her brief seven-month tenure as a junior employee almost seven years ago. Ms. Segarra’s case, which she brought after having demanded a multi-million dollar settlement, was dismissed by the courts. In fact, in affirming the dismissal of her case, the federal appeals court described certain of her claims as ‘speculative, meritless and frankly quite silly.’ The staff of the New York Fed work diligently and with the utmost integrity in the fulfillment of their responsibilities.”

Breaking Silence Again

In her 2019 memoir, according to The New York Post, Segarra gives examples of bankers giving insider trading tips to regulators. When Segarra told one unnamed colleague that insider trading was illegal, he quipped, “Not if you don’t get caught.”

Shocked by the influence Wall Street had over one of the most powerful of institutions in the country, Segarra taped conversations with her superiors. Sen. Sherrod Brown, a Democrat of Ohio, who listened to the tapes, responded, “It is no wonder that Wall Street always appears to stay one step ahead of the sheriff“.

We have an answer to that question: What do we need to effectively reform the financial system? We need a hundred Carmen Segarra’s. An important book by a courageous woman: Noncompliant: A Lone Whistleblower Exposes the Giants of Wall Street, Nation Books.

With thanks to Ahmed Baba for editing suggestions.

For more on the financial system’s role in inequality follow Jan at https://medium.com/@JanWeir1 and on Twitter @JanWeirLaw




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Jan D Weir

Jan D Weir

Trial lawyer, has taught Business Law at the University of Toronto, Author, Critical Concepts Canadian Business Law @JanWeirLaw | http://jdweir.com

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