The Carmen Segarra Case: Welcome to New York, Wall Street and McJustice

By Pam Martens: May 7, 2014

There is one key thing you need to know from the get-go about bank examiner Carmen Segarra’s Federal whistleblower lawsuit over being fired for her finding that Goldman Sach’s had no firm wide conflict of interests policy and landing in a Federal courtroom with even worse conflicts: this kind of McJustice has been tolerated in the Federal Court for the Southern District of New York for at least the past 20 years.

Segarra was a bank examiner with a law degree at the Federal Reserve Bank of New York, one of Wall Street’s key regulators, who charged in a Federal lawsuit filed in October 2013 that she was told to change her negative examination of Goldman Sachs by colleagues, who also obstructed and interfered with her investigation. When she refused to alter her findings, she was terminated in retaliation and escorted from the Fed premises according to her lawsuit. The folks telling her to change her opinion at the New York Fed are called “relationship managers.”

It’s easy to see why the New York Fed, a study in conflicts, doesn’t consider conflicts a biggie at Goldman Sachs. The New York Fed is just one of 12 regional Federal Reserve Banks – but it is strangely unique among its peers. Here’s just a sampling of its uniqueness and outrageous conflicts:

The President of the New York Fed sits permanently on the Federal Open Market Committee (FOMC). The Presidents of the other 11 regional banks rotate on the FOMC;

Although there is no law requiring that the New York Fed should be the sole regional Federal Reserve Bank to conduct the open market operations of the FOMC, it has uniquely served in this function since 1935;

It is the only regional Federal Reserve Bank to have its own trading floor and speed dials to the largest firms on Wall Street;

It is the only regional Fed Bank to be allowed to intervene in foreign exchange markets (a market where cartel activity is currently under criminal investigation);

In July of 2012, Wall Street On Parade reported on how a Barclays’ employee told a Senior Financial Economist at the New York Fed that his bank was not “posting um, an honest LIBOR.” That 2008 conversation denoted one of the biggest cartel frauds in history, and yet, no one at the New York Fed thought it necessary to alert the U.S. Justice Department that one of the benchmark interest rates used to index financial products around the world was being intentionally rigged.

The New York Fed, uniquely among the regional Fed Banks, stores gold for foreign central banks, governments and international agencies;

The New York Fed uniquely managed relationships with Wall Street banks during the financial crisis from 2007 to 2010 by making secret, below-market rate loans to the tune of trillions of dollars to the banks that were collapsing as a result of its unwatchful regulatory eye; then refused to turn over the details when the press filed suit for the information until it was ordered to do so by a court.

To carry out its monetary policy, the New York Fed must engage in open market trading operations with Primary Dealers. Primary Dealers include all of the largest Wall Street banks – the firms it is also charged with supervising.

The New York Fed supervises the largest and most dangerous global banks while their CEOs take turns sitting on its Board of Directors. Sandy Weill, Chairman and/or CEO of Citigroup at the time, served on the Board from 2001 to 2006. The New York Fed ended up funneling over $2 trillion in below market rate loans to Citigroup, a clearly insolvent bank that President Obama had ordered to be unwound, during the 2008-2010 financial collapse. That came on top of other government assistance totaling over $345 billion in equity infusions and asset guarantees to Citigroup while the President’s order was ignored.

Jamie Dimon, Chairman and CEO of JPMorgan Chase, served on the New York Fed Board from 2007 to the end of 2012. Dimon continued to serve despite a public outcry calling for him to resign. (JPMorgan was under investigation by the New York Fed for losing $6.2 billion of depositors’ money in a failed bet on exotic derivatives – the London Whale debacle – as Dimon sat on its Board.)

In 2011, the Government Accountability Office studied this Board structure and found it deeply wanting in “accountability and transparency.”

Segarra, a bank examiner at this riddled mess of conflicts, seeks justice at the U.S. District Court for the Southern District of New York in October 2013. Her Judge is Ronnie Abrams, wife of Greg Andres, a partner at law firm Davis Polk & Wardwell LLP. The case is before the court from October 2013 until April 3, 2014 when the Judge schedules a telephone conference with both sides to share the pesky detail that “it had just come to her attention that her husband…was representing Goldman Sachs in an advisory capacity.”

This is a transcript of a portion of the telephone conference as provided as part of the Judge’s decision: (See Carmen Segarra v. Federal Reserve Bank of New York, et al )

“I wanted to let you know this. And if either side—I don’t need to know who—but has any desire to have me recuse myself, I am happy to entertain that request.  Again, I don’t need to know who is making the request, but before the argument tomorrow, I wanted to let you know that.  I’m perfectly willing to put off the argument for a few days to give you the time to think about it. Or, Miss Stengel, if you want to talk to your client about it.  But I also didn’t want to inconvenience you.  And so as soon as I found this out, I tried to . . . get you on the phone to advise you of this.”

Neither side asked for recusal at this point. However, a week later, Segarra’s attorney, Linda Stengle, asks for “a more complete disclosure of both Judge Abrams’s husband’s relationship with Goldman Sachs and Judge Abrams’s prior working relationship with defense attorney Thomas Noone,” (the lawyer representing the New York Fed). Stengle wanted the “commencement date of Husband’s present work for Goldman Sachs” and “historical relationship, if any between Husband and Goldman Sachs.” Under Federal government conflict rules, the conflicts of the spouse become the conflicts of the Federal judge.

We learn from footnotes in the decision that the attorney for the New York Fed, Thomas Noone, also previously worked for the Davis Polk & Wardwell law firm, as did the Judge previously.

Twenty days after the disclosure that her husband is a lawyer to Goldman Sachs, Judge Abrams throws out Segarra’s case while refusing to provide any further details on her husband’s involvement with Goldman Sachs.

Instead, in her written decision, Judge Abrams attempts to tar the reputation of Segarra’s attorney, accusing her of  “judge-shopping” for simply asking for transparency.

This is Circa 2014 in the rotten-to-the-core Big Apple financial system.

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