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From Banking and Finance Law Daily, October 11, 2013

Former examiner sues New York Fed, says she was fired to protect Goldman Sachs

By Richard A. Roth, J.D.

A former Federal Reserve Bank of New York examiner is suing the bank and her former supervisors, alleging that she was fired from her position as Senior Bank Examiner because she refused to change her recommended examination findings about Goldman Sachs. The former employee claims that her supervisors pressured her to retract findings that Goldman Sachs did not have an adequate enterprise-wide policy to manage conflicts of interest and terminated her employment when she refused to agree (Segarra v. Federal Reserve Bank of New York).

According to the former examiner’s complaint, she was hired as a senior examiner in October 2011 and immediately put to work examining Goldman Sachs’ conflicts of interest program. Three transactions in particular had piqued the interest of the New York Fed after news media reports, and she claims she was assigned to look at those transactions.

According to the complaint, the examiner soon discovered that Goldman Sachs did not have a firm-wide conflict of interest program that met the requirements of the Federal Reserve Board’s Supervision and Regulation Letter 08-08. SR 08-08, which applies generally to risk management procedures for all large banking organizations with complex risk profiles, sets minimum standards for detecting and addressing a number of types of risk, explicitly including conflicts of interest.

The examiner claims that over the following months, she continued to seek information on Goldman Sachs’ conflict of interest policy and received contradictory answers from the company. Eventually, she recommended at a meeting of the New York Fed’s Legal and Compliance risk team that an unfavorable addition be made to the company’s report of examination, and the team agreed with her recommendation.

The examiner says she continued to seek information from Goldman Sachs, and her supervisors eventually began to obstruct her efforts. One of these individuals, who the examiner identifies as a “relationship manager” for the New York Fed’s relationship with Goldman Sachs, finally told her he had decided that the company in fact did have an adequate firm-wide policy.

At a subsequent meeting, the examiner was told she needed to change her position, but she refused to do so, she contends. Three days later—and seven months after being hired—the examiner was fired. According to her complaint, her supervisors were worried that a public revelation that Goldman Sachs had no firm-wide risk management policy would be very damaging to the company and they fired her in retaliation for her refusal to suppress the fact.

The complaint demands compensatory and punitive damages and reinstatement for what are said to be violations of 12 U.S.C. §1831j, as well as violations of New York state law and employment law.

New York Fed’s response. Citing privacy concerns, the New York Fed said it could not reply to the specifics of the complaint. The bank also said that it could not address the examiner’s claims about Goldman Sachs’ risk management policies as doing so would reveal supervisory information it is required to keep confidential.

However, the bank said that examiners have multiple ways to express concerns about the financial institutions it supervises and personnel decisions are based strictly on merit and subject to thorough review. “We categorically reject any suggestions to the contrary,” the bank said.

The case is No. 1:13-cv-07173-RA.

Attorneys: Linda J. Stengle (Stengle Law) for Carmen M. Segarra.

Companies: Goldman Sachs

MainStory: TopStory FederalReserveSystem

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