A Fed whistleblower on Goldman’s conflicts²

ProPublica excels while the NYT's DealBook slips

ProPublica’s Jake Bernstein reports on the intriguing tale of Carmen Segarra, a former Goldman Sachs bank examiner at the New York Federal Reserve who was fired for determining—and then insisting, after being told from superiors to say otherwise—that the bank’s conflict-of-interest policies were sorely lacking.

Finding conflicts of interest at Goldman Sachs, of course, is like finding gambling in the casino. Conflicts are part of its raison d’être. As Bernstein points out, the old joke on Wall Street is that the firm’s motto is “If you have a conflict, we have an interest.”

But Segarra’s was a very specific bureacratic mandate: Find out whether Goldman’s conflicts policies conformed with Fed rules issued amidst the financial crisis. They did not, according to her account.

Segarra’s notes of an initial meeting read like farce: Goldman said it didn’t have a company-wide conflicts policy. Its conflicts oversight group didn’t consider that task a “legal and compliance function.” And the group was called the Business Selection and Conflicts Resolution Group:

“Our eyes were open like saucers,” she said. “Business selection is about how you get the deal done. Conflicts of interest acknowledge that there are deals you cannot do.”

In other words, even Goldman’s conflicts-of-interest oversight had conflicts baked in! That’s a whole new dimension of conflictedness, brought to you by Goldman Sachs: conflicts squared.

Segarra says the lack of a central conflicts policy left a patchwork of rules across the bank. The private-banking group actually had a written policy of not talking about conflicts of interest in writing:

However, e-mails or other written communication should not be used for vetting conflicts because it is unrealistic to expect that all relevant information will be properly captured in written communications, particularly e-mail, and they may create a misleading record of our thought processes and deliberations.

But, ProPublica reports, the Fed pushback against Segarra began, according to her account: A Fed official working on Goldman asked to doctor her minutes of a crucial meeting. Her boss advised her it would be better to be more “quiet.” Her boss told her not to ask questions about Goldman’s conflicted-to-the-core El Paso Energy/Kinder Morgan deal. A supervisor told her to keep quiet about evidence Goldman had lied about Fed approval of a transaction with Santander “for your protection.” Her bosses told her to say that Goldman’s conflict-of-interest policy was in compliance when she insisted it was not.

Then they fired her.

On the same day ProPublica’s investigation came out, The New York Times’s DealBook ran a story that basically just rehashes Segarra’s lawsuit filings. But it also includes this sideswipe:

Within the Fed, some people who worked with Ms. Segarra echoed those concerns, according to people with knowledge of her time at the agency. Ms. Segarra, these people said, sometimes developed “conspiracy theories.”

This is really beneath the Times (and reminiscent of a 2010 stinker from DealBook boss Andrew Ross Sorkin on a Lehman whistleblower). You simply can’t give a whistleblower’s bosses or colleagues (or whoever these anonymice might be) cover to hide behind their personal criticisms of them.

If it’s worth saying, it’s worth attaching their names to. “She’s crazy, sources say,” is chickenshit.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum. Tags: , , , ,