Goldman Sachs, The Fed, and the US Government

From his desk in Lower Manhattan, a banker at Goldman Sachs thumbed through confidential documents — courtesy of a source inside the United States government.
The banker came to Goldman through the so-called revolving door, the symbolic portal that connects financial regulators to Wall Street. He joined in July after spending seven years as a regulator at the Federal Reserve Bank of New York, the government’s front line in overseeing the financial industry. He received the confidential information, lawyers briefed on the matter suspect, from a former colleague who was still working at the New York Fed.
The previously unreported leak, recounted in interviews with the lawyers briefed on the matter who spoke anonymously because the episode is not public, illustrates the blurred lines between Wall Street and the government — and the potential conflicts of interest that can result. When Goldman hired the former New York Fed regulator, who is 29, it assigned him to advise the same type of banks that he once policed. And the banker obtained confidential information, along with several publicly available facts, in the course of assignments from his bosses at Goldman, the lawyers said.
The information provided Goldman a window into the New York Fed’s private insights, the lawyers said, including details about at least one of Goldman’s clients, a midsize bank regulated by the Fed. Although it is unclear how Goldman bankers
used the information, if at all, the confidential details could have helped them advise the client.
The emergence of the leak comes as questions mount about a perceived coziness between the New York Fed and Wall Street banks — Goldman in particular. Revelations from a former New York Fed employee, Carmen Segarra, recently stoked that debate. Ms. Segarra released taped conversations suggesting that her supervisors went soft on Goldman, specifically over a deal that one regulator called “legal, but shady.” Senator Sherrod Brown of Ohio, a senior Democrat on the Senate Banking Committee, plans to hold a hearing on Friday about Ms. Segarra’s accusations.
On the same day in September that ProPublica and the radio program “This American Life” released excerpts from Ms. Segarra’s tapes, Goldman stopped the unrelated leak of confidential New York Fed records. Although it is unclear whether the Goldman banker or the New York Fed employee knew that sharing such information was inappropriate — and federal rules are somewhat vague about what records are confidential — Goldman promptly fired the banker. The bank also fired one of his supervisors, saying he should have caught the leak. The New York Fed then fired the employee it suspected of sharing the information.
536: The Secret Recordings of Carmen Segarra
An unprecedented look inside one of the most powerful, secretive institutions in the country. The NY Federal Reserve is supposed to monitor big banks. But when Carmen Segarra was hired, what she witnessed inside the Fed was so alarming that she got a tiny recorder and started secretly taping.
In response to the revelations, a spokesman for Goldman issued a statement to The New York Times saying that it was “reviewing our policies regarding any hiring from governmental institutions to ensure that they are appropriately effective and robust.” The spokesman, Michael DuVally, noted that “upon discovering that a new junior employee had obtained confidential supervisory information from his former employer, the Federal Reserve Bank of New York immediately began an investigation and notified the appropriate regulators, including the Federal Reserve.” He added that Goldman has “zero tolerance for improper handling of confidential information.”
Similarly, the New York Fed said in a statement that it has “zero tolerance” for employees who do not safeguard confidential information. The statement added that “we have detailed rules and controls protecting confidential information” and require employees to receive training on handling the information. But the statement acknowledged: “We also know that we are not perfect, that information today is more difficult to safeguard, and we are resolute to learn from our experiences.”
Soon after Goldman detected the leak, the bank and the Fed alerted authorities, which opened preliminary investigations, according to the lawyers briefed on the matter. The F.B.I., along with the United States attorney’s office in Manhattan, the Federal Deposit Insurance Corporation and New York State’s banking regulator, Benjamin M. Lawsky, are examining the release of records and whether it amounted to a crime. The investigations are at an early stage and there is no indication that the three men will face charges. It is unclear whether more senior individuals at Goldman or the New York Fed knew about the sharing of the information before it was stopped.
Still, the story behind their firings brings to life some of the worst fears about the revolving door.
The job hopping has long fostered a culture of coziness that, even without direct evidence of impropriety, generated a public perception that regulators and bankers form unholy alliances. But the new accounts of a regulator and a banker actually sharing confidential documents — violating a cardinal rule of the regulatory world — suggest that those impressions may no longer be purely hypothetical.
The leak strikes at the heart of questions about the ability of the New York Fed — the public’s eyes and ears on Wall Street — to maintain its independence from the banks it regulates. It also comes as a popular image of Goldman as a bank that puts profit above all has begun to fade.
Goldman, perhaps more than any other Wall Street bank, appears to be entwined with the New York Fed. While the firm and the Fed bristle at suggestions of coziness, they do swap the occasional employee. The New York Fed’s president, William C. Dudley, was once Goldman’s chief economist.
With the spotlight trained on the New York Fed, Mr. Dudley has come to the defense of his organization. Mr. Dudley said last month that “I don’t think anyone should question our motives or what we are attempting to accomplish.”
Under Mr. Dudley, the New York Fed has adopted a sharper tone about Wall Street misdeeds. In a speech last month, Mr. Dudley lamented “the culture problem” on Wall Street.
But the recent leak of confidential records underscores the stubborn challenges facing the New York Fed. To become less deferential to banks, it must overcome patterns that are decades in the making.
Mr. Dudley commissioned an independent report to examine the New York Fed’s culture. And in response to the findings, he has said that he adopted a number of changes, including having more senior examiners engage with top bank executives.
Goldman carried out its own image overhaul. Recently, the bank has also avoided most of the legal woes that have stung its rivals. At the same time, like its rivals, Goldman has sought out former regulators to help the bank and its clients navigate new regulations.
Rohit Bansal, the 29-year-old former New York Fed regulator, was one such hire. At the time he left the Fed, Mr. Bansal was the “central point of contact” for certain banks.
Seizing upon Mr. Bansal’s expertise, Goldman assigned him to the part of the investment bank that advises other financial institutions based in the United States. That assignment presented Mr. Bansal with an ethical quandary: He might have to advise some of the same banks he once regulated.
Before starting at Goldman, Mr. Bansal sought to clarify whether New York Fed policy prevented him from helping those banks, according to a person briefed on the matter. Initially, he presented Goldman with a notice from the New York Fed, which indicated that he might have to steer clear of certain assignments for one client, the midsize bank in New York. (While the person briefed on the matter provided the name of the bank, The Times decided to withhold the name because the bank was not aware of the leak at the time.)
The New York Fed’s guidance was apparently somewhat ambiguous. And Mr. Bansal later assured Goldman colleagues that he could work behind the scenes for that banking client, the person briefed on the matter said, so long as he did not interact with the bank’s employees.
Mr. Bansal’s lawyer, Sean Casey at Kobre & Kim, declined to comment.
Mr. Bansal was asked to help Goldman clients handle regulatory issues like the Fed’s annual stress test, which measures how a bank might fare under dire economic circumstances. Goldman also advised the banks on potential mergers and other transactions.
At the request of his bosses, Mr. Bansal gathered information about how regulators might view various issues facing Goldman’s banking clients, the lawyers briefed on the matter said. Much of what Mr. Bansal learned, the lawyers said, was fair game.
But in an email to his supervisor, Joseph Jiampietro, Mr. Bansal shared some potentially confidential supervisory information about a Goldman banking client. Mr. Jiampietro — a managing director at Goldman who was once a senior adviser to Sheila Bair, the former F.D.I.C. head — has since told colleagues he had no idea the information was subject to regulatory restrictions.
“Mr. Jiampietro never knowingly or improperly reviewed or misused” confidential supervisory information, his lawyer, Adam Ford, said in a statement. “He should not have been terminated. Any compliance failings regarding Mr. Bansal had nothing to do with Mr. Jiampietro.”
It was not until the morning of Sept. 26 that Goldman executives objected to some of Mr. Bansal’s information, the lawyers briefed on the matter said. During a conference call with Mr. Jiampietro and two higher-ranking Goldman executives, Mr. Bansal circulated an email with a spreadsheet attached. The email apparently set off alarms within Goldman. Within hours, the bank opened an internal investigation and alerted the New York Fed.
Goldman determined that the spreadsheet contained confidential bank supervisory information. Federal and state rules classify certain records, including those generated during bank exams, as confidential. Unless the Federal Reserve provides special approval, it can be a federal crime to share them outside the Fed.
But proving that someone “willfully” violated the rules, as is required for a criminal prosecution, could be difficult. The rules are vague and even contradictory about which documents must remain confidential — and when regulators are allowed to share them.
Some of Mr. Bansal’s information, the lawyers said, may have come from Jason Gross, who worked at the New York Fed at the time.
Mr. Gross’s lawyer, Bruce Barket, said, “We are cooperating with the federal investigation to the best we can.”

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