Federal prosecutors are preparing to announce a criminal case against a former Goldman Sachs
banker suspected of taking confidential documents from a source inside
the government, a rare criminal action on Wall Street that comes as
Goldman itself is facing an array of penalties over the leak.
The banker and his source, who at the time of the leak was an employee at the Federal Reserve Bank of New York,
one of Goldman’s regulators, might plead guilty to misdemeanor theft
charges rather than fight the case at trial, according to lawyers
briefed on the matter who were not authorized to discuss private
deliberations. The men, who were both fired in the wake of the leak,
would face up to a year in prison if they accept the plea deals this
week.
In
a statement, a Goldman spokesman emphasized that the banker worked for
the firm for less than three months, and that the bank “immediately
began an investigation and notified the appropriate regulators” once it
detected the leak. Nonetheless, the bank is expected to pay a
significant price for the leak.
Under
a tentative deal with New York State’s financial regulator, the lawyers
said, Goldman would pay a fine of $50 million and face new restrictions
on how it handled delicate regulatory information. The settlement would
also force Goldman to take the rare step of acknowledging that it
failed to adequately supervise the former banker — thrusting the bank
back into the spotlight just as it was shedding a popular image as a
firm willing to cut corners to turn a profit.
For
Goldman and the New York Fed, the charges will give new life to an
embarrassing episode that illustrated the blurred lines between their
institutions. Perhaps more than any other bank, Goldman swaps employees
with the government, earning it the nickname “Government Sachs.”
While
the so-called revolving door is common on Wall Street, the
investigation into the Goldman banker and the New York Fed regulator
exposes the perils of the job hopping, affirming the public’s worst
fears that regulators and bankers, when intermingled, might occasionally
form unholy alliances.
The leak, which was first reported by The New York Times last year, was arguably the product of the revolving door.
The
Goldman banker, Rohit Bansal, previously spent seven years as a
regulator at the New York Fed. After Mr. Bansal joined Goldman in July
2014, his boss assigned him to advise one of the same banks he
previously regulated, a midsize bank in New York, the lawyers said. Soon
after, he received government information about that bank from Jason
Gross, a former colleague who was still working at the New York Fed.
That
leak, which violated a cardinal rule of the regulatory world, provided
Goldman a window into the Fed’s private insights about the New York bank
and other regulatory matters, the lawyers said. In essence, it gave
Goldman a leg up when advising the client.
In
the statement, the Goldman spokesman, Michael DuVally, said that the
bank had “reviewed our policies regarding hiring from governmental
institutions and have implemented changes to make them appropriately
robust.”
Bruce
Barket, a lawyer for Mr. Gross, said, “We have a meritorious legal
argument that my client did not violate federal law,” and added that
even if prosecutors disagreed, “it would be a relatively minor
infraction by a young man who we think would be a deserving candidate of
a nonprosecution agreement.”
Scott Morvillo, a lawyer for Mr. Bansal, declined to comment.
It
is rare that a Wall Street banker faces criminal charges. After the
financial crisis, not one Wall Street chief executive was charged, and
prosecutors have charged bankers or traders in only a handful of
investigations.
Still,
Mr. Bansal and Mr. Gross are facing misdemeanor charges, following the
precedent of past Fed leak cases that were resolved without felonies.
The outcome partly reflects their low-level rank on Wall Street. Mr.
Bansal, who was 29 at the time, was an associate at Goldman.
His
supervisor, by contrast, was a seasoned Wall Street executive.
Prosecutors are not expected to charge the supervisor, Joseph
Jiampietro, even though some New York Fed documents were found on his
desk, the lawyers briefed on the matter said. Mr. Jiampietro — a
managing director at Goldman who was once a senior adviser to Sheila C.
Bair, the former chairwoman of the Federal Deposit Insurance Corporation — has told the authorities that he never read the documents and had no clue that they were illegally obtained.
Goldman
fired Mr. Jiampietro, though it never concluded that he knew about the
leak, instead remarking in a report to regulators that he “failed to
properly escalate” the problem.
Peter Chavkin, a lawyer for Mr. Jiampietro, declined to comment.
A spokesman for Preet Bharara,
the United States attorney in Manhattan, declined to comment, as did a
spokesman for Anthony J. Albanese, the acting head of the New York
Department of Financial Services. The Fed declined to comment as well.
In response to the leak, the Federal Reserve
is expected to permanently bar Mr. Bansal from the banking industry,
according to a person briefed on the matter. The Fed has barred six
people so far this year, a significant increase from the three preceding
years.
The
leak was not the first incident that raised doubts about the ties
between the New York Fed and large banks, particularly Goldman.
In
2013, Carmen Segarra, a former employee of the New York Fed, sued the
agency for wrongful dismissal, contending that she had been fired for
not changing negative regulatory findings about Goldman. In a victory
for the New York Fed, both a federal court and a federal appeals court
dismissed her lawsuit.
In
the leak case, the New York Fed said it had immediately notified law
enforcement agencies after discovering that confidential regulatory
information might have been shared at Goldman. And in a statement last
year, the Fed said it was “resolute to learn from our experiences.”
William
C. Dudley, a former Goldman economist who has been the president of the
New York Fed since 2009, has also taken several steps to make the
agency a more stringent regulator. And, perturbed by a string of
scandals at global banks, Mr. Dudley in 2013 unnerved some Wall Street
executives when he said he saw “evidence of deep-seated cultural and
ethical failures at many large financial institutions.”![]()
Goldman
has largely steered clear of those scandals that have stung its rivals —
like market rigging of currencies and interest rates. The leak case
puts it back under the microscope.
The
tentative deal with the New York State Department of Financial Services
requires the bank to pay a $50 million fine. While that sum is a
fraction of what Goldman paid in financial crisis-era cases, it is far
more than the bank expected to pay after making an opening offer of $3
million, the lawyers briefed on the matter said.
In
addition to the fine, and the admission that it failed to supervise Mr.
Bansal, Goldman will accept a three-year suspension from conducting
certain consulting deals with banks in New York State. The prohibition
denies Goldman a special privilege — legally accessing confidential
information about a banking client with permission from regulators.
Goldman, though, has rarely if ever done consulting deals that require
such information, one of the lawyers briefed on the matter said, so that
aspect of the deal is unlikely to dent the bank’s business.
The
regulatory case against Goldman, and the criminal case against Mr.
Bansal and Mr. Gross, stems from July 2014, when Mr. Bansal joined the
bank from the New York Fed. At the time he left the Fed, Mr. Bansal was
the “central point of contact” for certain banks. At Goldman, he joined a
unit within the investment bank that advises other financial
institutions on mergers and other deals.
That role presented him with a potential conflict of interest.
And
although Goldman required him to attend compliance training — at which
he was told not to use any material from his prior employer — it was
unclear whether the New York Fed prohibited Mr. Bansal from working on
behalf of any banks he had previously regulated. Because the New York
Fed’s rules are somewhat ambiguous, Goldman sent Mr. Bansal to clarify
his restrictions with the regulator.
After
some discussion, when the restrictions were still unclear, Mr. Bansal
filled out a recusal form himself and handed it to Goldman. He mentioned
only one bank on the form — the midsize one in New York.
Despite
Mr. Bansal’s recusing himself, his supervisor, Mr. Jiampietro,
suggested that he might be able to work behind the scenes for that New
York bank, the lawyers said. Mr. Bansal agreed, though he later told
authorities that he felt pressured to do so.
Much of what Mr. Bansal did, the lawyers said, was fair game.
But eventually, information from Mr. Gross started to flow.
In
one conference call with colleagues in early September 2014, Mr. Bansal
shared insights about the midsize bank in New York, the lawyers said.
At other points, he emailed Fed material to Mr. Jiampietro. Despite the
warning signs, no one flagged the information for Goldman’s compliance
department.
It
was not until Sept. 26, the same day news reports emerged about Ms.
Segarra taping conversations with her supervisors about Goldman, that
Goldman executives objected to some of Mr. Bansal’s information, the
lawyers briefed on the matter said. On a conference call with Scott
Romanoff, a partner at Goldman and a well-known Wall Street executive,
Mr. Bansal circulated a spreadsheet that contained some seemingly
delicate details.
After
the call, Mr. Romanoff contacted Mr. Bansal to clarify where he had
obtained the information. Mr. Bansal, the lawyers said, acknowledged
that it came from the New York Fed. In an email later that day, Mr.
Bansal said “sorry” to Mr. Romanoff, who by then had alerted Goldman’s
compliance department.
That night, a Friday, Goldman alerted the New York Fed.
0 comments:
Post a Comment