Ex-Goldman Banker and Fed Employee Will Plead Guilty in Document Leak
A former Goldman Sachs
banker suspected of taking confidential documents from a source inside
the government has agreed to plead guilty, a rare criminal action on
Wall Street, where Goldman itself is facing an array of regulatory
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, will accept a plea deal from federal
prosecutors that could send them to prison for up to a year, according
to lawyers briefed on the matter who spoke on the condition of
anonymity. The men, both fired after the leak, also may face lifetime
bars from the banking industry.
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 penalty.
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 with
the Department of Financial Services 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 beginning to overcome a popular image as a firm willing to cut
corners to turn a profit.
For Goldman and the New York Fed,
the case is likely to 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 concerns
that regulators and bankers, when intermingled, 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 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, “Although we would have liked to
see him escape any criminal liability, we are thankful that the U.S.
attorney’s office took what we think is a reasonable approach,” adding
that “misdemeanor pleas in federal court are rare.”
Scott Morvillo, a lawyer for Mr. Bansal, declined to comment.
It
is rare for a Wall Street banker to face 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.
Mr.
Bansal and Mr. Gross are facing misdemeanor charges, following the
precedent of past Fed leak cases that were resolved without felony
charges. The outcome partly reflects their low-level rank on Wall
Street. Mr. Bansal, who was 29 at the time, was an associate at Goldman.
By
contrast, a senior colleague who supervised some of his work was a
seasoned Wall Street executive. Prosecutors are not expected to charge
the senior colleague, Joseph Jiampietro, even though some New York Fed
documents were found on his desk, the lawyers briefed on the matter
said. Mr. Jiampietro — who at the time was a managing director at
Goldman and previously was 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.
While
the $50 million fine contemplated in the tentative deal with the New
York Department of Financial Services is a small 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 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.
Mr.
Bansal joined Goldman in July 2014 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 previous 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 supervisors encouraged him 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 legal.
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’s 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. In 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.
Jessica Silver-Greenberg contributed reporting.
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