New Allegations from Fired Examiner Describe Chaotic Workplace at New York Fed
The Fed has denied allegations by Carmen Segarra, who says she was wrongly terminated after refusing to back off findings that were critical of Goldman Sachs.
An amended lawsuit by fired bank examiner Carmen Segarra describes a chaotic work environment at her old employer, the Federal Reserve Bank of New York, alleging that lines of authority were unclear and bad behavior by a supervised bank went unexamined.
A spokeswoman for the New York Fed said the bank was reviewing the new allegations from Segarra, who was dismissed seven months after being hired in late 2011 as part of a push to beef up supervision of so-called Too-Big-to-Fail financial institutions.
Segarra claims she was terminated for refusing to change her finding that Goldman Sachs did not have appropriate policies for handling conflicts of interest in its business dealings. Her complaint alleges that the senior supervising officer for the Fed at Goldman, Michael Silva, and his deputy, Michael Koh, obstructed her examination of Goldman on several occasions.
Silva, who had worked at the New York Fed since 1992, left last month to take a job as the chief regulatory officer and compliance leader of GE Capital. That firm is one of the Too-Big-to-Fail financial institutions regulated by the New York Fed. Silva did not respond to a request for comment.
A Fed official said Silva’s departure had nothing to do with Segarra’s lawsuit, which was filed in October.
The New York Fed, which has jurisdiction over many of these complex firms, recruited experts like Segarra to act as “risk specialists” to review different aspects of bank operations. Segarra, an Ivy League-trained lawyer with work experience at some of the nation’s top banks, was tasked with examining the legal and compliance policies at Goldman.
Segarra’s lawsuit alleges that she was never given a complete job description and describes tensions that existed between Segarra and Fed staff embedded at Goldman who had previously performed aspects of her job. Some of the embedded staff, including Silva, did not agree with Segarra’s interpretations of Goldman’s activities regarding conflicts, according to the complaint.
In legal papers, the Federal Reserve has said Segarra was an at-will employee who was legally terminated. Goldman, which is not a defendant in Segarra’s lawsuit, has told ProPublica that it has the required conflict-of-interest policy.
Both Silva and Koh are named as defendants in the lawsuit along with the NY Fed. According to her complaint, their job was to “manage the relationship” between Goldman and the Fed, not to perform examinations.
While at the New York Fed, Segarra had a direct supervisor, Jonathon Kim, who oversaw legal and compliance specialist examiners stationed at several banks. According to the amended complaint, Kim, also a defendant, told Segarra that the Fed “had failed to clearly articulate the different roles of [the relationship managers] and bank examiners.”
When Segarra complained about the obstruction, the complaint says, Kim told her she needed to learn “the critical skills of ‘absorbing and diffusing.’”
“They allowed this lack of clarity to interfere with Carmen’s bank examining activity,” said Segarra’s attorney, Linda Steagle. “In fact we are saying that this amorphous structure exists, in large part, so they can do exactly that.”
The New York Fed’s website broadly describes how the supervisory structure is supposed to work. Oversight of large, complex institutions is "led by a senior supervisory officer" who leads "the development and execution of the supervisory program for the firm" and "is responsible for interactions with the board of directors and senior management."
Additionally, team specialists "interact directly with members of the firm's management across various business lines and control functions, including the control functions responsible for managing credit risk, market risk, liquidity risk, operational risk, and legal and compliance risk."
In an addition to the amended complaint, the parties this week filed a joint letter detailing a trial schedule that is expected to stretch into next year. The letter discloses that Segarra possesses "audio recordings of several meeting with defendants" and suggests that they might assist the Court if there are disputes over facts in the case.
The New York Fed is one of 12 regional reserve banks that form the Federal Reserve System. It is the largest such bank in terms of assets and volume of activity, according to its website. While the New York Fed is a private bank, the Federal Reserve’s Board of Governors in Washington, D.C., delegates a public regulatory function to it.