Carmen Segarra outside the Federal Reserve Bank of New York, on Oct. 10, 2013. In a wrongful termination lawsuit, Segarra says she was fired by the Fed after she refused to change a finding that Goldman Sachs had inadequate controls over conflicts of interest. (Nabil Rahman/For ProPublica)

In the spring of 2012, a senior examiner with the Federal Reserve Bank of New York determined that Goldman Sachs had a problem.

Under a Fed mandate, the investment banking behemoth was expected to have a company-wide policy to address conflicts of interest in how its phalanxes of dealmakers handled clients. Although Goldman had a patchwork of policies, the examiner concluded that they fell short of the Fed’s requirements.

That finding by the examiner, Carmen Segarra, potentially had serious implications for Goldman, which was already under fire for advising clients on both sides of several multibillion-dollar deals and allegedly putting the bank’s own interests above those of its customers. It could have led to closer scrutiny of Goldman by regulators or changes to its business practices.

Before she could formalize her findings, Segarra said, the senior New York Fed official who oversees Goldman pressured her to change her view. When she refused, Segarra said she was called to a meeting where bosses told her they no longer trusted her judgment. Her phone was confiscated and security officers marched her out of the Fed’s fortress-like building in lower Manhattan just seven months after being hired.

“They wanted me to falsify my findings,” Segarra said in a recent interview, “and when I wouldn’t, they fired me.”

On Thursday, Segarra filed a wrongful termination lawsuit against the New York Fed in the federal court in Manhattan seeking reinstatement and damages. The case provides a detailed look at a key aspect of the post-2008 financial reforms: the work of Fed bank examiners sent to more closely scrutinize the nation’s “too-big-to-fail” institutions.

Her case comes as the New York Fed wrestles with mandates for tougher regulation amid criticism it is too cozy with the Wall Street mega-banks it oversees.

Goldman is known for having close ties with the New York Fed, its primary regulator. The current leader of the New York Fed, William Dudley, is a former Goldman partner. At the time of Segarra’s firing, a former chairman of the New York Fed, Stephen Friedman, led the Goldman board’s risk committee.

In an e-mail, spokesman Jack Gutt said the New York Fed could not respond to detailed questions out of privacy considerations and because supervisory matters are confidential. Gutt said the Fed provides “multiple venues and layers of recourse for employees to freely express concerns about the institutions it supervises.”

“Such concerns are treated seriously and investigated appropriately with a high degree of independence,” he said. “Personnel decisions at the New York Fed are based exclusively on individual job performance and are subject to thorough review. We categorically reject any suggestions to the contrary.”

Dudley would not have been involved in the firing, although he might have been informed after the fact, according to a Fed spokesman.

Goldman also declined to respond to detailed questions about Segarra. A spokesman said the bank cannot discuss confidential supervisory matters. He said Goldman “has a comprehensive approach to addressing conflicts through firm-wide and divisional policies and infrastructure” and pointed to a bank document that says Goldman took recent steps to improve management of conflicts.

Segarra’s termination has not previously been disclosed. In hours of interviews with ProPublica, the 41-year-old lawyer gave a detailed account of the events that preceded her dismissal and provided numerous documents to support her claims.

An experienced legal and compliance expert, Segarra was hired in October 2011 as part of a wave of new examiners recruited to monitor systemically important banks. These “risk specialists” joined other Fed staffers, dubbed “business line specialists,” many of whom were already embedded inside the banks.

Segarra’s team included examiners at nine other too-big-to-fail institutions, including Citigroup, JPMorgan Chase, Deutsche Bank and Barclays.

As part of their first assignment, New York Fed officials told Segarra’s group to examine how their banks complied with a Fed regulation issued in 2008 that requires firmwide conflict-of-interest policies and other programs to manage risk.

Goldman had past problems with conflicts. A year earlier, the bank had received a drubbing from the Securities and Exchange Commission and a Senate subcommittee over conflicts related to a mortgage transaction the bank constructed called Abacus. The SEC imposed a $550 million fine on Goldman for the deal.

Segarra was instructed specifically to assess Goldman’s conflict-of-interest policies, including how they worked in a merger between two energy companies: El Paso Corp. and Kinder Morgan.

Goldman had a $4 billion stake in Kinder Morgan while also advising El Paso on the $23 billion deal, which was embroiled in a shareholder lawsuit.

Initial meetings between the New York Fed and Goldman executives to examine the bank’s compliance policies did not go well, Segarra said.

When the examiners asked to see the bank’s global conflict-of-interest policy, they were told one didn’t exist, according to Segarra’s meeting minutes. Discussion turned to the name of the team that oversaw conflicts at Goldman: the Business Selection and Conflicts Resolution Group.

The Fed’s 2008 regulation requires that staffers who police conflicts must be “appropriately” independent of business staff. But when Segarra’s immediate supervisor, Johnathon Kim, asked if business selection and conflicts were two different groups, he was told they were not, Segarra’s minutes show.

“Business selection is about how you get the deal done,” Segarra said in an interview. “Conflicts of interest acknowledge that there are deals you cannot do.”

At one of the meetings, the New York Fed’s senior supervising officer at Goldman, Michael Silva, worried that the firm was not managing conflicts well and that clients might leave if it became public, according to Segarra’s notes.

At the regulators’ request, Goldman produced documents on the El Paso deal and the firm’s policies. Goldman had told the regulators its conflict-of-interest procedures worked well in the merger, saying executives had “exhaustively” briefed the board of directors about Goldman’s conflicts, according to minutes.

Yet Goldman did not provide any board presentations in response to document requests, Segarra said. Despite months of pressing Goldman executives for details about the merger, Segarra said she and other examiners learned only through news reports that the lead Goldman banker for El Paso, Steve Daniel, also had a $340,000 personal investment in Kinder Morgan.

Goldman did provide documents showing how it had divided its El Paso and Kinder Morgan bankers into “red and blue teams.” These teams were told they could not communicate with each other — what the industry calls a “Chinese wall” to prevent improper information sharing.

Segarra said Goldman seating charts showed that in one case, opposing team members had adjacent offices. She also determined that three of the El Paso team members had previously worked for Kinder Morgan in key areas.

“They would have needed a Chinese wall in their head,” Segarra said.

On multiple occasions during Segarra’s examination, Goldman executives acknowledged that the bank did not have a firmwide conflict-of-interest policy, she said. Instead, they provided copies of policies and procedures for some of the bank’s divisions. One policy, for the private banking group, stated that employees shouldn’t write down their conflicts in “emails or written communications.”

The Fed’s policy, known as SR 08-08, emphasizes the importance of having company-wide programs to manage risk at huge firms like Goldman that engage in diverse lines of business, from wealth management and trading to guiding mergers and acquisitions.

The programs are supposed to be monitored and tested by bank compliance employees to make sure they are working as intended.

“The Fed recognized that financial conglomerates should act like truly combined entities rather than separate divisions or entities where one group has no idea what the other group is doing,” said Christopher Laursen, an economic consultant who helped draft SR 08-08 while at the Federal Reserve.

On March 21, 2012, Segarra presented her conclusion that Goldman lacked an acceptable policy on conflicts to her group of specialists from the other too-big-to-fail banks. They agreed with her findings, according to Segarra and another examiner who was present and requested anonymity.

Possible sanctions against the bank were also discussed, but the final decision was up to senior Fed staff. A summary sheet from the group’s meeting recommended downgrading Goldman from “satisfactory” to “fair” for policies and procedures, the equivalent of a “C” letter grade.

Segarra presented her findings a week later to Kim, Silva and his deputy, Michael Koh, and they didn’t object, she said. All three are defendants in the lawsuit.

Silva and Kim did not respond to requests for comment. Reached by ProPublica, Koh declined to comment.

As the Goldman review moved up the Fed’s supervisory chain, however, Segarra said she began to get pushback. According to her lawsuit, a colleague told Segarra in May that Silva was considering taking the position that Goldman had an acceptable firmwide conflict-of-interest policy.

Segarra quickly sent an e-mail to her bosses to remind them that wasn’t the case, and that her team of risk specialists was preparing enforcement recommendations.

In response, Kim sent an e-mail saying Segarra was trying to “front-run the supervisory process.” Two days later, a longer e-mail arrived from Silva stating that “repeated statements that you have made to me that [Goldman] does not have a [conflict of interest] policy AT ALL are debatable at best, or alternatively, plainly incorrect.”

As evidence, Silva cited a year-old Goldman report that called for revamping its conflict-of-interest rules and the company’s code of conduct — neither of which Segarra believed met the Fed’s requirements.

Before Segarra could respond to Silva’s e-mail, Koh summoned her to a meeting. For more than 30 minutes, he and Silva repeated that they did not agree with her findings, she said. While Segarra detailed all the evidence that backed up her conclusion, she said, Silva and Koh kept asking her to change her mind.

Afterward, Segarra said she sent an e-mail to Silva detailing why she believed her findings were correct and stating that she could not change them. Three business days later, she was fired.

Segarra has no evidence that Goldman was involved. Silva told her he had lost confidence in her ability to take direction and not jump to conclusions, she said.

Today, Segarra works at another financial institution at a lower level than she feels her qualifications merit. She worries about the New York Fed’s ability to stop the next financial crisis.

“I was just documenting what Goldman was doing,” she said. “If I was not able to push through something that obvious, the Federal Reserve Bank of New York certainly won’t be capable of supervising banks when even more serious issues arise.”


ProPublica research director Liz Day contributed to this story.

ProPublica is an independent, nonprofit newsroom that produces investigative journalism in the public interest.