Breaking News: Carmen M. Segarra v. The Federal Reserve Bank of New York, et al.--Case Analysis
Tue, Oct 15, 2013 - 5:20pm
Whistleblower lawsuit versus the Federal Reserve Bank of New York
This is right in line with Pining 4 the Fjords’ recent blog post about criminal organizations and fraud, and the effort to pin any blame on underlings because the criminal orders that come from the top are not able to be proved by real evidence. In short, those at the top escape prosecution, because the underlings do the deeds, and either get caught, or quit before getting caught.
Carmen M. Segarra’s story is right in line with that thesis.
On October 10, 2013, plaintiff Carmen M Segarra filed a lawsuit alleging violations of 12 US code section 1831 and other laws “prohibiting obstruction and interference with a bank examiners examination and retaliation for her preliminary examination findings,” against the Federal Reserve Bank of New York, Michael Silva, Michael Koh, and Jonathon Kim. In the lawsuit, Ms. Segarra contends she was wrongfully terminated in violation of a federal law that affords protections to bank examiners who find wrongdoing in the course of doing their jobs. Mr. Silva, who is chief of staff for the executive group at the New York Fed, is among the defendants named in the suit.
The formal document initiating the lawsuit is properly referred to as the “complaint.” The complaint sets out the allegations–a fancy word for “facts”–which then triggers the named defendants to file a responsive pleading, in which the defendants either admit or deny the allegations. The defendants can challenge the lawsuit right from the start, by filing a motion to dismiss, or can assert other legal challenges as well.
The complaint was not originally uploaded as an electronically filed a complaint, but copies of the complaint were made available online which copies did not bear a filing stamp or case number.
One such site where the complaint is available for viewing is here: https://stopforeclosurefraud.com/2013/10/10/complaint-segarra-v-the-fede...
Here, the tone of the lawsuit was set immediately. The defendant FED jumped into court screaming about privacy, and secrecy, and that Plaintiff is committing wrongdoing because she is alleging wrongdoing at the FED in violation of her supposed duties and obligations while working at the FED. Look for this to be a battle of epic proportions, as this litigation plays out.
In any event, I found the actual case number, here: https://www.nj.com/business/index.ssf/2013/10/ex-fed_examiner_says_goldm...
From there, on my PACER account, I obtained the docket sheet from the US District Court, Southern District of New York, which shows the activity on the lawsuit to date.
Fortunately, the Wall Street Journal, online edition, has a filed-stamped copy of the entire complaint here: https://online.wsj.com/public/resources/documents/fedreservesuit1010.pdf
Anyhow, I am going to go through the complaint, in order, and give my impressions. There is an excellent summary of the lawsuit, and Carmen’s story, here: https://www.propublica.org/article/ny-fed-fired-examiner-who-took-on-gol...
There is another excellent piece, here, and I encourage all to read these great stories to get the full understanding: https://firedoglake.com/2013/10/12/bill-black-carmen-segarra-and-the-reg...
The back story is this:
“In the spring of 2012, a senior examiner with the Federal Reserve Bank of New York [Carmen M. Segarra] 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 them. When she refused, Segarra said she was called to a meeting where her 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 7 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.” That blurb is from https://www.propublica.org/article/ny-fed-fired-examiner-who-took-on-gol...
This quote from the story caught my attention: “After the Dec. 8 meeting, the New York Fed’s senior supervising officer at Goldman, Michael Silva, called an impromptu session with Fed staffers, including Segarra. Silva said he was worried that Goldman was not managing conflicts well and that if the extent of the problem became public, clients might abandon the firm and cause serious financial damage, according to Segarra’s contemporaneous notes.”
What Silva is saying is so simple, yet so evil. Silva was saying, in short, that illegal activity, so long as kept hidden from the public, is okay, because the alternative is unacceptable, i.e., “might cause serious financial damage.” Again, for whose benefit? Passive language always is murky, because Silva does not say for WHOM the financial damage would be caused to! Was it the insiders at the banks? Or was it some other group? There you have it. Institutionalized fraud, on a grand scale, countenanced by the regulators of the supposed “fair” system of capitalism in the United States. Disgusted yet?
I am not going to spend any time further addressing the back story which was done very well by propublica.org, et al., but I will analyze the actual allegations and give my humble legal opinion about the lawsuit.
Plaintiff Carmen M. Segarra is represented by Linda Stengle, an attorney with the law firm Kenny & Kenny out of Cherry Hill, New Jersey. Linda’s email is lstengle[at]kenneymccafferty[dot]com. I suggest anyone interested please email her with support. This lawsuit will no doubt be a memorable one. For all of us who hope that truth emerges about the shadowy world of the FED, the discovery in this case should prove fantastically interesting and enlightening. My only hope is that they do not settle confidentially before such discovery unfolds.
The FED is not yet shown as being represented by counsel. Instead, on October 11, 2013 the FED directly mailed a letter to the Judge, asking that the complaint be withheld from the public. The judge granted the request, and ordered that the complaint was not to be available electronically to the public until after a hearing, (Docket Entry #2). A hearing regarding the request to seal certain matters was set for October 15, 2013, today.
At today’s hearing, the judge DENIED the motion to seal. Judge Ronnie Abrams denied the Federal Reserve Bank of New York’s motion to seal or redact certain paragraphs of plaintiff’s complaint and exhibits. Further, Judge Abrams ordered plaintiff to submit to the clerk of the court an electronic copy of the complaint for filing on ECF. The court finally ordered that the clerk is to make the complaint and all attachments available on ECF. The Wall Street Journal already has the entire complaint, emails and all attachments, up on line. Go read it.
This means, that shortly, the allegations of the complaint, along with all exhibits supporting allegations, will be made part of the public record and accessible to all who wish to look at them. I find this to be a remarkable order, especially given the allegations. I wonder if judge Abrams will have the temerity to continue the courageous rulings.
Section I of the complaint is the Introduction. Here is what stands out in my mind. From the back stories, Carmen is an elite insider. Her linked in profile is here: https://www.linkedin.com/profile/view?id=389947&authType=NAME_SEARCH&aut...
Carmen attended Harvard, BA in History, 1990-1994. She received a MA in French Cultural Studies at Columbia University, from 1994-1995. She attended and received her JD degree from Cornell University Law School, 1995 through 1998. She did a European stint during law school at the Institute of International and Comparative Law Cornell Law School and Universite de Paris (Sorbonne), studying International Litigation and European Community Law in 1996.
Her educational pedigree is EXCEPTIONAL. She is fluent in many languages: “Interests:
Fluent in Spanish, English, French Intermediate Italian and German Beginner Dutch.”
Her work history is impressive, and proves beyond doubt that she was being groomed for promotions to the very top. From October 1998 through December 2002, Carmen was corporate counsel for MBNA America Bank (now Bank of America), Banco Popular de Puerto Rico, Banco Santander, First Bank, Oriental Bank, Government Development Bank of Puerto Rico, Tishman Speyer, Four Seasons, Hilton, Goya Foods, Shell, Sears, Pfizer. Her profile says she “represented clients in securities public and private transactions, bond issuances, emerging markets, investments, banking and financing, mergers and acquisitions, corporate and public finance, real estate and commercial financing, tax, legislation, hotel and resort development.”
Carmen went on to work for Bank of America: “Legal Counsel - Government Affairs & Law
Bank of America
January 2003 – December 2004 (2 years)
•Government Affairs Department: Responsible for legal review of all state and federal consumer banking and investment legislation and regulation. Created and implemented legal review and tracking procedures, drafted new legislation and amendments; lobbied, developed strategy, and drafted white papers.
•Legal Department: Advised on portfolio acquisitions, contracts, customer failures, privacy, and civil law issues.
•Business Development: Developed, implemented, and supervised translation of all pertinent legal documents, marketing, and telemarketing copy. Coordinated, evaluated, selected and managed third-party vendors and outside counsel. Oversaw quality control efforts. Participated in bilingual employee recruitment efforts. Developed new business.”
Carmen worked at Citi from January 2005 through December 2008, then went to Altura Capital from August 2008 through August 2009. Something happened such that her resume shows she was not employed from August 2009 until April 2010. It could have been time off for personal reasons, who knows. Anyhow, Carmen ended up at Societe General, where she was “Legal Counsel - Private Banking.” She left there after 1 year and three months, ending up at the Federal Reserve Bank of New York, where she worked in the ‘Legal and Compliance SBE onsite Goldman Sachs.”
She is, by any measure, a perfect example of an elite insider–and an Ivy League trained lawyer, too. Except, she did not toe the line like she was supposed to. Why not? Who on earth would have the audacity, the temerity, to stand proud and refuse to perform illegal activity, especially after such a long, and storied educational and occupational history? I for one, am flabbergasted with this insider turning on the FED. It seems, almost Karen Hudes-like. Really. So, it could be that whoever was grooming and mentoring her will be on the chopping block for allowing this protégé to tell tales . . .
Back to the lawsuit.
The introduction points out that Carmen started work at the Fed as a senior bank examiner on Halloween, 2011. She was assigned to examine the legal and compliance divisions of the vampire squid, formerly referred to as the Goldman Sachs group. Carmen says that the squid repeatedly obstructed and interfered with Carmen’s examination of Goldman over several months, when in May 2012, the squid directed Carmen to change the findings of her examination. Carmen says she refused, and three days later she was terminated, on May 23, 2012. She asks for traditional legal remedies such as reinstatement, back pay, compensation for loss benefits, compensatory and punitive damages, attorneys fees etc. No doubt this case is worth multiple seven figures given Carmen’s pedigree and now black stain essentially precluding any future employment for her in any meaningful position.
Strangely, Carmen waited until just now to file suit. I wonder why the delay? Why now, why not earlier? What happened to cause Carmen to file suit now? Is it the economy? Is it Bernanke leaving, and Yellen coming aboard? Is it something sinister? Or is it just timing, in that unless she files suit within the statute of limitations, her lawsuit will be time barred? I’m not sure.
Carmen points out that “there is a history of employees moving from employment at Goldman to employment at the Federal Reserve and vice versa. Top level management for the federal reserve worked at Goldman previously. There are also federal reserve personnel who are embedded at Goldman. Prior to 2011, approximately 3 federal reserve employees were embedded on-site at Goldman, and one of those employees was Michael Koh.”
Michael F. Silva is “a relationship manager for the Fed Reserve Bank of NY.” Here is the interesting part: “prior to serving as the relationship manager for the FRBNY – Goldman relationship, Silva was chief of staff to Timothy Geithner . . . [and] is currently chief of staff and senior vice president for the executive group at the FRBNY. Silva first became employed by the Federal Reserve as a law clerk in 1992.”
WELL LOOKEY THERE . . . Silva was Geithner’s boy. He is trusted, having worked at the FRBNY since 1992.
S. Michael Koh was Michael Silva’s deputy, with a title of assistant vice president. Koh used to work at Shearson Lehman Brothers. Is there any connection to the Lehman failure? Hmmmm . . .
Johnathon J. Kim was Carmen’s supervisor, with a title of supervising officer of the legal and compliance risk team. He did such a good job, that two months after Carmen’s firing, Kim got promoted.
The factual allegations are laid out in section IV, Statement of the Facts. There is a lot of detail here, but suffice it to say, that Carmen easily alleges sufficient facts to state a case. Carmen points out she was looking into conflict of interest policy at Goldman Sachs. Goldman, not surprisingly to any of us here on tfmr, was woefully lacking in the adherence to ethics, such as avoiding conflicts of interests. Carmen pointed that out, in detail, and her bosses did not like that she had identified that Goldman was lacking in conflicts of interest policy, asked her to “fix” her findings, she refused, and they fired her.
Silva specifically told Carmen “that Goldman would suffer significant financial harm if consumers and clients learned the extent of Goldman's noncompliance with rules on conflict of
interest.” [Complaint, at paragraph 30]. To this I say: No kidding! <sarc off>
Here is a flavor of the blatant disregard for illegality at Goldman: “In addition to finding that Goldman fabricated information about performing due diligence on the Santander transaction, Carmen's examination of the Santander transaction revealed Goldman misrepresented Defendant's approval of the transaction.
40. As of January 6, 2012, Defendant Federal Reserve had not approved the Santander transaction. Goldman stated to third parties that it had approval for the Santander transaction when Goldman did not have approval.
41. Carmen informed Defendants of Goldman's misrepresentation of the Federal
Reserve's approval of the Santander transaction.
42. Without Carmen's prior knowledge, Defendant Koh discussed with Goldman Carmen's finding of misrepresentation of the FRBNY's approval of the Santander transaction. Afterwards, Defendant Koh told Carmen [that] Goldman admitted the misconduct. Defendant Koh told Carmen [that] Goldman said it engaged in such misrepresentations "all the time." Koh said he did not think Goldman's misrepresentation was important, and Koh further opined that because the Santander transaction was closed, Goldman's misrepresentation about FRBNY's approval of the transaction was moot.”
See! The Fed insiders ACTIVELY disregard illegality. It is not even a close call. These allegations are sensational, and provable, from the testimony of Carmen and her well-documented emails. The perpetrators will deny it all, but that only creates the need for a jury trial to see who is telling the truth. The case will most certainly NOT be dismissed by a 12(b) motion, and is almost certain to resolve by way of confidential, multiple seven figure settlement.
Strangely, I feel myself rooting for Carmen, even though she is as insider an elitist as they come. Maybe she and Bill Black can get together and make something of this? Who knows?
This whole case reminds me of a professional colleague of mine. He used to work as a VP for a major bank in California. He was in IT, mainly. He noted that during the build up towards the bursting of the real estate bubble, that senior management refused to take seriously their duties in compliance with regulations. The senior management paid lip service to compliance issues, underfunded that department, and basically ignored any attempts of any underlings to comply with the law regarding any number of critical transactions. In short, the entire bank business model succeeded–meaning profits and bonuses paid to those at the top–based on the bank NOT complying with existing laws. This is exactly the control group accounting fraud which has become the norm, is not punished, and threatens to bring down the whole system because trust is being destroyed.
We see it, we read about it, and now we have proof that it exists, is widespread, and IGNORED and covered up at the highest levels.
Here is where Pining’s brilliant insight hits home: [Complaint, at paragraphs 88-90] “On May 15, 2012, Defendants Silva and Koh met with Carmen and attempted to force her to change the findings of her examination of Goldman. They said they did not believe her finding that Goldman had no conflict of interest policy was "credible." Defendants Silva and Koh told Carmen that she had to "come offof that position."
89. To change her findings and to provide support for those false findings, Carmen would also have to alter, destroy, and or suppress meeting records and documents produced by Goldman in response to the examination questions and document requests. Such conduct was illegal and could subject Carmen to criminal charges. Carmen told Defendants Silva and Koh she did not believe it was responsible or proper to change her findings to say Goldman had a firmwide conflict of interest policy when so much evidence existed showing Goldman's non-compliance. She emailed Defendant Silva to confirm her refusal to change her findings, and she
em ailed Defendant Kim to notify him of Defendant Silva's improper request.
90. Three business days later, on May 23, 2012, Defendants terminated Carmen and had security escort her from the building. Defendants terminated Carmen because her bank examination found that Goldman had no conflict of interest program in compliance with SR08-08 and because Carmen refused to change her examination findings.”
So there you have it. Carmen investigated the giant vampire squid, found them lacking in critical conflict of interest procedures, that Goldman actively lied about it to regulators, repeatedly, actively, unabashedly, and remained protected from any adverse regulatory action by the very regulators assigned to root out and prevent this exact harm from occurring. Then when Carmen was forced to do something illegal, Carmen chose to disobey orders from on high at great risk to her personal career. Wow. Heady stuff. It seems true enough for me. Note that there is no paper link to Goldman. The underlings, Carmen and her bosses at the FRBNY are all on the hook for their potential actions, but not the squid, who remains hidden in the shadows.
So, those facts give rise to legal claims under 12 U.S.C. § 1831, which prohibits termination of bank examiners for engaging in protected conduct. There is an allegation of violation of state consumer protection law, a common law wrongful termination in violation of public policy theory, and finally, a breach of contract claim. There is the traditional prayer, seeking money and other remedies.
The attachments include Carmen’s handwritten notes, some Goldman excerpts in response to the FRBNY document requests, various memoranda, and some emails from May 11 and 13, 2012. I have not read them all, but they do seem to provide more than ample factual proof of the allegations. The email of May 13, 2012 from Silva to Carmen, is as “cover-your-ass” as it gets. They were going to terminate her, no question about it. Silva is rotten to the core. Carmen documented her efforts, Silva basically threatened Carmen and used key, soon-to-be-found-in-a-termination-letter language and phrases such as “have caused me to raise serious questions in my mind as to your judgement [sic],” and “I find your failure to follow that process very troubling.”
Carmen was being run out, by Silva, et al., and Carmen forced the issue with her decision to stand up to the bosses at the FRBNY who were beholden to Goldman. She got fired for it.
Let’s see what comes of it.