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New York Fed, Goldman in Criminal Investigation for Sharing Confidential Information

A New York Times story manages to bury the lead, even given the salacious material, in an important story that provides more evidence of the overly-cozy relationship between the New York Fed and its favored large banks, particularly Goldman. The issue is sensitive in the wake of former New York Fed staffer Carmen Segarra releasing hours of tape recordings that show undue deference by the Fed employees towards Goldman. One particularly troubling incident was the Fed allowing Goldman to pretend it had gotten Fed approval for a derivatives deal designed to snooker Spanish banking regulators. Another was Goldman’s lack of a conflicts of interest policy (see former regulator Justin Fox’s discussion of why this is a serious matter).

What is striking about the New York Times expose is how tortuous the writing is, and how it takes (and I am not exaggerating) three times as many words as necessary to finally describe what happened. For instance, it isn’t until the 9th paragraph that the article mentions that this sharing of confidential information can be a crime and the authorities are giving a serious look into that very question.

The overview: a former New York Fed employee who had been assigned to work with banks obtained confidential information about a bank client that amounted to impermissible sharing of privileged regulatory information. As the Times states at the very end of the story:

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 [Goldman employee] Mr. [Rohit] 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.”

The Times story finesses the damning part: the significance fact that Goldman and the Fed took action on September 26, firing Bansal and his supervisor, Joseph Jiampietro, and the New York Fed terminating Jason Gross.

ProPublica released its story on Carmen Segarra officially at 4 AM of that day.

In fairness, the New York Times article mentions at the start of paragraph 6 that:

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.

But at this point in the story, the reader is struggling to figure out what the (at that point) vague allegations of misconduct amount to. In a rambling, poorly focused presentation, authors Jessica Silver-Greenberg, Ben Protess, and Peter Eavis go a full 19 paragraphs before they name Bansal and describe, even then in very general terms, the conduct at issue. The start of the story is remarkably oblique, that the at that point nameless Goldman banker to be a subject of a controversy, by getting confidential information from “inside the government.” It also seeks to defuse whether this really matters:

Although it is unclear how Goldman bankers used the information, if at all, the confidential details could have helped them advise the client.

All the Times mentions early on is a leak of confidential information from the New York Fed involving a Goldman bank client, and then it moves away to talk about general concerns about the Fed’s overly-cozy relationship with banks, in particular the Carmen Segarra revelations. The beating-around-the-bushness, the excessive caution of the write-up, feels designed to deter reader interest. So the mention of the timing doesn’t have the impact that it warrants, particularly when to look at who knew what when, you need to dig a bit at the ProPublica site.

.

By news cycle standards, Goldman and the New York Fed had ample warning the ProPublica story was coming. ProPublica sent the New York Fed a letter with detailed questions about the information in the tapes and requested a response by the end of the business day on September 12; the list of questions to Goldman was dated 9/9/14, and one assumes both missives went out at pretty much the same time.

So both institutions knew a major, unflattering story was coming out, reinforcing the allegations Segarra had already made in her failed unlawful termination lawsuit, but with much more specific and damning ammo. The fact that ProPublica clearly wanted to launch the piece shortly after September 12 but didn’t release it until September 26 strongly suggests that at least one and probably both institutions got into a protracted debate about ProPublica’s interpretation of the recordings and made strenuous objections to some of the inferences it was drawing.

The drawn-out timetable also meant that both institutions had some time to see if they had any other related dirty laundry it might behoove them to clean up. So let’s look at the section we highlighted earlier, along with the rest of the paragraph:

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.

Here are the additional details regarding the “leak”. Three paragraphs later (emphasis ours):

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.

So after what amounts to the authors positioning Goldman as having acted promptly (“Goldman stopped the leak…Soon after Goldman detected the leak,” we find out that other higher ups at Goldman might indeed have been aware that Bansal and Jiampietro were engaged in less than kosher conduct some time before the firings.

Here is the detail on how Goldman says it handled the matter:

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.

So Bansal and his boss are presented as know-nothings despite having bank regulatory backgrounds; indeed, that’s almost certainly the reason both were hired in the first place.

And the tell here is “It was not until the morning of Sept. 26 that Goldman executives objected to some of Mr. Bansal’s information..”. That is a de facto admission, a full 28 paragraphs into the story, that on the very same morning that the damaging ProPublica story hit the wires, that Goldman senior brass decided that what Bansal had extracted from the Fed might put the bank in hot water. But see how easy this is to miss?

In other words, it looks like Goldman was aware of Bansal and Jiampietro’s conduct and waited to decide whether or not to act based on how damaging the ProPublica story turned out to be. Correlation may not be causation, but the timing here looks awfully sus.

The idea that Goldman’s decisions are driven by simple reputational considerations rather than a desire to comply is reinforced by the leakage of this story to Wall Street’s most friendly news outlet, the New York Times’ Dealbook, prior to Senate hearings on the Segarra tapes this Friday. The bank clearly wants to spin this new PR problem as them being pro-active and dealing with a bad situation promptly, when it looks like they actually waited until events forced their hand.

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25 comments

  1. jsn

    Thanks for this effort!

    Every day I scan the Times headlines looking for stories of interest and once I find one, I skip to the fold and read the line that spans it. Ten years ago that line predictably contained what we once thought of as the lede.

    Now that appears to have migrated out another dozen paragraphs or so, with all else ahead “framing”.

    It’s getting pretty cumbersome to frame an increasingly absurd official narrative.

  2. Ishmael

    The person who truly should be investigated is Tim Geitner for his August 2007 leakage to major banks.

    1. susan the other

      My thought all the way through was: Well, we are talking about the US Treasury here and it’s “agent” the Federal Reserve System. So since you cannot “adverse the sovereign” the Fed and its banks are relatively immune. Can we change the law to say Yes you can adverse the sovereign? OK, that’s a can of worms. Not to mention that they are their own watchdog. The whole thing is such a mess of invested interests it should be scrapped. Hey… “That ain’t mine.” The thought occurs to me that our media is so very remiss that a legal outline of all the ways to catch these guys fudging the facts and the dates and being obviously disingenuous is long overdue.

  3. John Koonmen

    The word is tortuous, not “tortured”. I wouldn’t have said anything except that Gruber used the exact same wrong word.

    He also pronounced palatable with a second syllable accent and a long “a”. MIT geek?

    1. Yves Smith Post author

      “Tortured writing” appears to have moved into standard usage, as a Google frequency search suggests, in the sense of “mangled writing:. And usage migrates: “sophisticated” originally meant shallow and showy. But I take your point. “Tortuous” is more apt here.

    2. craazyman

      it was probably tortured into tortuousity, nobody is that prolix unless they’re prosing in pain

      where’s that French cat? hahahah Evidently it was a tiger of few words.

    3. MyLessThanPrimeBeef

      I am working in a new field I call grammar math.

      How many grammatic violations per, say, 1000 words, can you commit in your writing and still have it comprehensible?

      And is that number the same across different languages? Or are we talking about a universal constant here?

      1. Mel

        Maybe take a lead from mortgage-servicing math, where some 10% (is that the suggested regulatory threshold?) of actions can be illegal and still leave a servicer being just fine.
        I’m looking for a way to write using neologisms, common misspellings and solecisms generally, to produce a text that means two diametrically opposed things. It’s tricky. Probably needs computer-generation.

      2. susan the other

        Well, I hope you include a paragraph on facetious grammar and humor. But in any event, I’ll definitely read it like a math addict who knows not one thing about higher math.

      3. Pepe

        I am working in a new field I call grammar math.

        You could call its practitioners “grammar martinets.”

        Since English does not have an official grammar, if you are going to claim “bad” usage, I would hope that you provide Google ngrams as evidence.

        1. MyLessThanPrimeBeef

          I am hoping the research will bring more understanding and tolerance for ‘bad usage’ by demonstrating the resilient effectiveness of our language or any language.

  4. Pepsi

    Has anyone written about the ‘un-capturing’ of institutions before? Are there any successful campaigns that come to mind. It’s been on my mind and I’m not sure what to search for.

    1. Pepsi

      Maybe it’s happened in Venezuela? Although what I’ve read has explained it more as a parallel set of institutions rather than a reform of old ones?

    2. Ishmael

      Maybe the French Revolution! I think a quite a few institutions were “un-captured” for a short period but then then were captured by some one else.

  5. diptherio

    As a younger man, I was always taught that “ignorance is no excuse,” for breaking the law. Anyone else get that? Does this mean the next time I’m in court for jay-walking I can just tell the judge, “but I didn’t know it was illegal your honor. Therefore your laws do not apply to me.”?

    1. Pepsi

      Mens rea is no longer part of American law. Even though its logical in an 8th century sense, like if you don’t know something is a crime, its hardly fair to punish you for it.

      But when laws grow into regulations to stop harmful practices, one simply must operate within them or face the consequences. It’s really absurd for them to claim otherwise as they have gigantic compliance departments, neutered or not, they’re being paid and exist.

      It’s quite hard to pretend our courts are holy impartial bodies as this two tiered system operates, whistling along, as if it’s not odd that rich people are not responsible for their actions, and poor people need to be punished as harshly as possible, no matter what.

      Actually a good piece touching on that issue, by the wonderful (for a social democrat) Sam Kriss. http://www.full-stop.net/2014/08/27/features/essays/sam-kriss/police-unreality/

      “eudal lords claimed to be divinely appointed guarantors of the safety of their loyal but non-consanguineous subjects, while in truth being rentiers with pretensions and silly hats. Today this double structure is everywhere. Schools and universities pretend to be dedicated to the universal ideal of knowledge while in reality imparting the skills and ideologies of the workplace, courts pretend to deliver holy justice while lending false legitimacy to the prison system, militaries pretend to protect global human rights while engaging in the same old resource-grabbing, and so on ad nauseam. Any organ of an essentially unjust order needs to plug itself into some grand metaphysical narrative to do its work unimpeded. Cops are different. Uniquely, they dissimulate, pretending to be more boring and quotidian than they actually are. They’re hiding something.”

      1. MyLessThanPrimeBeef

        It’s easier to remain as feudal lords, if you can entertain the serfs with paid-for-by-rich-people’s-money elections to elect their pre-approved, new feudal lords AND keep the top-down power structure the SAME.

        A new power structure would let the People have their hands on the new-money purse.

        And put two-tiered schools, universities, courts, militaries under scrutiny by making them earn every cent they spend, because money is power.

        He who controls money, control the country.

        Wo viel gelebt wird, auch wird viel gestorben.

  6. OpenThePodBayDoorsHAL

    This is a “dog bites man” story, wake me up when someone at the top of ANY of our institutions is held accountable. Last time I can remember is Nixon.

  7. flora

    “And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place.”
    -Sen. Dick Durbin (D -Illinois) , 2009.

  8. RUKidding

    Perp walks or it doesn’t count.

    Appreciate the post; always interesting to know the latest scuttlebutt, but doubtful anything meaningful will come of it.

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