October 28, 2015
Contact: Matt Anderson, 212-709-1691
NYDFS ANNOUNCES GOLDMAN SACHS TO PAY $50 MILLION; ACCEPT THREE-YEAR REGULATORY CONSULTING ABSTENTION; ADMIT FAILURE TO SUPERVISE FOR BANKING LAW VIOLATIONS
Goldman Sachs Employee Schemed to Steal Confidential Regulatory Information, and Improperly Shared that Information with Other Goldman Employees
Goldman Employee Worked for Goldman Client He Was Charged with Examining Months Earlier as a Regulator
Anthony J. Albanese, Acting Superintendent of Financial Services, today announced the resolution of an enforcement action against Goldman Sachs after a Goldman Sachs employee schemed to steal confidential regulatory and government information for use in advising a Goldman Sachs client, and improperly shared that information with other Goldman Sachs employees – in violation of New York Banking Law §36(10).
Acting Superintendent Albanese said: “We are pleased that Goldman Sachs has decided to resolve this matter and work with us to institute reforms that help prevent similar problems from occurring in the future. This case underscores the critical need for financial institutions to put in place strong controls and policies for employee conflicts screening and the use of confidential regulatory information.”
Under today’s action, Goldman Sachs will pay $50 million to the New York State Department of Financial Services (NYDFS) and accept a three-year voluntary abstention from accepting new consulting engagements that require the Department to authorize the disclosure of confidential information under New York Banking Law §36(10). Goldman Sachs also admits that a Goldman employee engaged in the criminal theft of Department confidential supervisory information; Goldman Sachs management failed to effectively supervise its employee to prevent this theft from occurring; and Goldman failed to implement and maintain adequate policies and procedures relating to post-employment restrictions for former government employees. Additionally, Goldman will implement a series of reforms to help ensure compliance with post-government-employment revolving door restrictions and prevent the improper use of confidential regulatory information under New York Banking Law § 36(10).
Violation of Post-employment Restrictions
On July 21, 2014, an individual began work at Goldman, Sachs & Co. as an Associate in the Financial Institutions Group (“FIG”) of the Investment Banking Division (“IBD”). The Associate reported to a Managing Director and a Partner at Goldman.
Prior to his employment at Goldman, from approximately August 2007 to March 2014, the Associate was a bank examiner at the U.S. Federal Reserve Bank of New York (“the New York Fed”). His most recent position at the New York Fed was as the Central Point of Contact (“CPC”) – the primary supervisory contact for a particular financial institution – for an entity regulated by the Department (the “Regulated Entity”).
In March 2014, the Associate was required to resign from his position at the New York Fed for, among other reasons, taking his work blackberry overseas without obtaining prior authorization to do so and for attempting to falsify records to make it look like he had obtained such authorization, and for engaging in unauthorized communications with the Federal Reserve Board.
The Associate was hired in large part for the regulatory experience and knowledge he had gained while working at the New York Fed. Prior to hiring him, the Partner and other senior personnel interviewed and called the Associate several times, and the Partner took him out to lunch and dinner.
Prior to starting at Goldman, in May 2014, the Associate informed the Partner of potential restrictions on his work, due to his previous employment at the New York Fed, and specifically as the CPC for the Regulated Entity. The Partner advised the Associate to consult the New York Fed to obtain clarification regarding any applicable restrictions.
Accordingly, the Associate inquired with the New York Fed Ethics Office and was given a “Notice of Post-Employment Restriction,” which he completed and signed with respect to his supervisory work for the Regulated Entity. The Associate provided this form to Goldman. This Notice of Post-Employment Restriction read that the Associate was prohibited “from knowingly accepting compensation as an employee, officer, director, or consultant from [the Regulated Entity]” until February 1, 2015.
On May 14, 2014, the Associate forwarded this notice of restriction to the Partner, the Managing Director, and an attorney in Goldman’s Legal Department. In his email, the Associate also included guidance from the New York Fed, stating, in short, that a person falls under the post-employment restriction if that person “directly works on matters for, or on behalf of,” the relevant financial institution.
Despite receiving this notice and guidance, Goldman placed the Associate on Regulated Entity matters from the outset of his employment. As further detailed below, the Associate also schemed to steal confidential regulatory and government documents related to that same Regulated Entity in advising that client.
Unauthorized Possession and Dissemination of Confidential Information
During his employment at Goldman, the Associate wrongfully obtained confidential information, including approximately 35 documents, on approximately 20 occasions, from a former co-worker at the New York Fed (the “New York Fed Employee”). These documents constituted confidential regulatory or supervisory information – many marked as “internal,” “restricted,” or “confidential” – belonging to the Department, the New York Fed or the Federal Deposit Insurance Corporation (the “FDIC”). The Associate’s main conduit for receiving information from the New York Fed was his former coworker, the New York Fed Employee, who has since been terminated for this conduct. While still employed at the New York Fed, the New York Fed Employee would email documents to the Associate’s personal email address, and the Associate would subsequently forward those emails to his own Goldman work email address.
On numerous occasions, the Associate provided this confidential information to various senior personnel at Goldman, including the Partner and the Managing Director, as well as a Vice President and another associate who perform quantitative analysis for Goldman. In several instances where the Associate forwarded confidential information to other Goldman personnel, the Associate wrote in the body of the email that the documents were highly confidential or directed the recipients, “Please don’t distribute.” At least nine documents that the Associate provided to Goldman constituted confidential supervisory information under New York Banking Law § 36(10). Pursuant to the statute, such confidential supervisory information shall not be disclosed unless authorized by the Department. The documents included draft and final versions of memoranda regarding and examinations of the Regulated Entity, as well as correspondence related to those examinations.
At least 17 confidential documents that the Associate had improperly received from the New York Fed – seven of which constituted confidential supervisory information under New York Banking Law § 36(10) – were found in hard copy on the desk of the Managing Director. Additional hard copy documents were found on the desks of the Vice President and the other associate, including at least one document constituting confidential supervisory information under New York Banking Law § 36(10).
On August 18, 2014, the Associate shared three documents pertaining to enterprise risk management with the Managing Director, writing, “Below is the ERM request list, work program and assessment framework we used for ERM targets. Again this is highly confidential as its not public and has not been issued a[s] guidance yet. Not sure where it is at anymore due to internal politics. I worked on this framework and guidance within the context of a system working group with the Fed system. We ran several pilots to test it was well. Please don’t distribute.” The Managing Director replied, “I won’t. Will review on plane tomorrow to DC.” The documents were marked as “Internal-FR” or “Restricted-FR.”
Part of Goldman’s work for the Regulated Entity included advisory services with respect to a potential transaction. A certain component of the Regulated Entity’s examination rating was relevant to the transaction. The Regulated Entity’s examinations were conducted jointly by the FDIC, DFS and the New York Fed. As described below, the Associate used confidential information regarding the Regulated Entity’s examination rating – obtained both from his prior employment at the New York Fed and from his contacts there – and conveyed this information to the Managing Director, who then conveyed the information to the Regulated Entity on September 23, 2014, in advance of it being conveyed by the regulators.
On August 16, 2014, the Associate emailed the Managing Director regarding the regulators’ perspective on the Regulated Entity’s forthcoming examination rating, writing “You need to speak to [the CEO of the Regulated Entity] about scheduling a meeting with all 3 agencies ASAP. He needs to meet with them and display and discuss all the improvements and corrections they have made during the last examination cycle.”
On September 23, 2014, the Associate attended the birthday dinner of the New York Fed Employee at Peter Luger Steakhouse, along with several other New York Fed employees. Immediately after the dinner, the Associate emailed the Managing Director, divulging confidential information concerning the Regulated Entity, specifically, the relevant component of the upcoming examination rating. The Associate wrote, “…the exit meeting is tomorrow and looks like no [change] to the [relevant] rating. I heard there won’t be any split rating… [The Regulated Entity] should have listened to you with the advice…hopefully [the CEO] will now know you didn’t have phony info.”
In this email, the Associate also provided advice to relay to the Regulated Entity’s management, stating that they should “keep their cool, not get defensive and not say too much unless the regulators have a blatant fact wrong” as it “will go off better for them in the long run. Believe it or not the regulator’s [sic] look for reaction and level of mgmt respectiveness [sic] during these exit meetings.” The Managing Director replied “Let’s discuss . . . I’m seeing [the CEO of the Regulated Entity] tmw afternoon alone.”
Later that night, the Associate followed up with another email to the Managing Director, writing, “I feel awful not being there to wrap up 2013. I would have been able to pull all this through. I was a real advocate for all the work they have done.” He also offered to join a meeting with the CEO of the Regulated Entity if the Managing Director wanted.
On September 26, 2014, Goldman had an internal call regarding the calculation of certain asset ratios, during which there was disagreement over the appropriate method. During the call, the Associate circulated an internal New York Fed document – which the Associate had recently obtained from the New York Fed Employee – relating to the calculation, to the call participants, writing, “Pls keep confidential?” Following the group call, the Partner called the Associate to discuss the document, including where he had obtained it, and the Associate told him that he had obtained it from the New York Fed. The Partner then called the Global Head of IBD Compliance to report the matter and forwarded the document.
Compliance Failures, Failure to Supervise and Violation of Internal Policies
After receiving notice of the Associate’s prohibition on working on matters for the Regulated Entity, Goldman, including the Partner and the Legal Department, failed to take any steps to screen the Associate from such prohibited work. Instead, Goldman affirmatively placed the Associate on matters for the Regulated Entity beginning on his first day, and added the Associate to the official Goldman database as a member of the Regulated Entity “Team” – a team led by the Partner.
Goldman failed to provide training to personnel regarding what constituted confidential supervisory information and how it should be safeguarded. While Goldman policies provided that confidential information received from clients should only be shared on a “need to know” basis, Goldman did not distinguish between this broader category of confidential information and the type of confidential supervisory information belonging to a regulator or other government agency, which is protected by law, such as confidential supervisory information under New York Banking Law § 36(10). Indeed, Goldman policies failed to adequately address Department confidential supervisory information.
As noted above, the Associate also violated Goldman’s internal policy on “Use of Materials from Previous Employers,” which states that work that personnel have done for previous employers, and confidential information gained while working there, should not be brought into Goldman or used or disclosed to others at Goldman without the express permission of the previous employer.
Goldman agrees to implement reforms to its policies and procedures, including at Goldman Sachs Bank USA, the NYDFS-regulated entity, that are reasonably designed to prevent the improper use of confidential supervisory information under New York Banking Law § 36(10), including the following:
- Policies and procedures reasonably designed to ensure the protection and proper handling of confidential supervisory information under New York Banking Law § 36(10);
- Confirming that, to the best of Goldman’s knowledge, as of the date of this Consent Order, Goldman has not accepted any engagements that would require the Department to authorize the disclosure of confidential supervisory information under New York Banking Law § 36(10);
- Policies and procedures reasonably designed to ensure that Goldman is aware of applicable post-employment restrictions for former government employees hired after the date of this Consent Order who have left the government within the past five years and that Goldman has taken steps necessary to address compliance with those restrictions;
- Processes to monitor the assignment of such former government employees to prevent violations of post-employment restrictions and protect confidential supervisory information under New York Banking Law § 36(10); and
- Processes to monitor the use of email to address the misuse of confidential material under New York Banking Law § 36(10).
To view a copy of today’s NYDFS order regarding Goldman Sachs, please visit, link.