It’s one of those storylines that was too good for the news media to pass up: A former examiner for the Federal Reserve Bank of New York claims she was fired because she refused to change her unflattering findings about Goldman Sachs Group Inc. And now she is suing her former employer.
As if that narrative lacked for intrigue, the New York Fed asked a judge to seal some records from the lawsuit, including internal Fed e-mails and parts of the complaint, even though they already had been posted on multiple websites after the case was filed. The plaintiff, Carmen Segarra, had disclosed “confidential supervisory information” that the public wasn’t supposed to see, according to lawyers for the compulsively secretive New York Fed. But the judge declined its request, saying there would be no point to sealing them now.
Much of the news coverage Segarra has received has been favorable. Yet something is amiss here. What I found most striking about her complaint was its poor construction. Some of what she has asserted is just plain bananas.
One of her core allegations -- that Goldman Sachs lacked a companywide policy on conflicts of interest -- is undercut by an exhibit she filed with the court that shows it did. Some of her assertions don’t seem credible, such as the notion that other Fed officials worried that public disclosure about the lack of a proper conflicts policy could cause Goldman Sachs to explode. Nobody in their right mind would believe such a thing, and it’s difficult to believe anyone at the New York Fed did.
In addition to the New York Fed, Segarra named three individuals as defendants. One was Michael Silva, whom Segarra said was the New York Fed’s relationship manager for Goldman Sachs during the relevant period. Another was Michael Koh, Silva’s deputy. Segarra’s complaint described a December 2011 meeting in which they discussed Goldman Sachs.
“Defendant Silva said he believed defendant Federal Reserve Bank of New York possessed information about Goldman that could cause Goldman to ‘explode,’” her suit says. Now note the uninformed use of the word “consumer” in the next few sentences:
“Defendant Silva expressed concern that Goldman would suffer significant financial harm if consumers and clients learned the extent of Goldman’s noncompliance with rules on conflict of interest. Defendants Silva and Koh realized an examination of Goldman’s conflict of interest program might result in findings that could cause a consumer ‘run off.’ Defendant Silva became concerned large numbers of consumers and clients would discontinue use of Goldman’s services if they knew Goldman had no effective way of managing conflicts of interest in financial transactions.”
Yeah, right. First off, Goldman Sachs isn’t selling chocolate bars on the street corner. It’s a top-end broker-dealer and investment bank. It has clients, counterparties and even customers, but not consumers. Ordinary consumers tend not to care about Goldman Sachs. Goldman Sachs clients know that it has lots of conflicting interests, as do all investment banks. Some of these conflicts are stinky and have led to embarrassing results. But it’s ridiculous to think anyone at the Fed was worried that consumers could cause a run on Goldman Sachs because of revelations about the company’s conflicts-of-interest policy, or lack thereof.
Segarra alleges that Silva and Koh in May 2012 “attempted to force her to change the findings of her examination of Goldman,” because “they said they did not believe her finding that Goldman had no conflict of interest policy was ‘credible.’” She says that she was fired soon after she refused.
A May 2012 e-mail exchange that Segarra filed with her complaint shows why they had trouble accepting what she said. The first e-mail, sent by her, shows she told Silva and others: “Just to confirm, Goldman Sachs does not have a conflicts of interest policy, not firmwide, and not for any divisions.”
Silva replied two days later that he had said the same thing at a recent meeting, relying in part on her statements, only to be proven wrong. He said it was pointed out to him after the meeting that Goldman Sachs, in fact, had a written code of conduct that included a conflicts-of-interest section, which he pasted into his e-mail back to Segarra. He also sent her links to the code of conduct and a separate report released by Goldman Sachs’s business-standards committee, which included a 10-page section on conflicts of interest.
Now, it’s possible that Goldman Sachs’s policies on conflicts didn’t comply with the Fed’s requirements. (Segarra’s lawsuit says they didn’t.) It’s also true that Segarra’s court filing shows she described the problem she saw at the company in a way that was overly broad. “In light of these documents, repeated statements that you have made to me that GS does not have a COI policy AT ALL are debatable at best, or alternatively, plainly incorrect,” Silva wrote back to her.
Maybe she has a winning case anyway. That will be for the court to sort out. But let’s be careful not to lionize Segarra as a whistle-blower just yet. Important parts of what her lawsuit says don’t make sense.
(Jonathan Weil is a Bloomberg View columnist.)
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