Bloomberg Investigates Former NY Fed Chairman Stephen Friedman Over Controversial Purchases Of Goldman Shares
We were first to cover this story - Sent findings to the House Oversight Committee, as well to as individual members, and made a radio appearance to discuss the allegations. Later in February, the Nation reported an investigation into Friedman's stock purchases had recently begun.
Bloomberg examines the story in more detail today:
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Scrutiny of Goldman Focuses on Silence Over Friedman Conflicts
Greg Palm, Goldman Sachs Group Inc. general counsel, took a call in his 37th-floor office at One New York Plaza on Dec. 16, 2008. It was his old boss, Stephen Friedman, a former Goldman chairman who was then head of the audit committee of its board of directors. Goldman’s stock was down 65 percent from its 52-week high during an accelerating global financial breakdown.
Friedman, who had become chairman of the Federal Reserve Bank of New York that year, told Palm he wanted to buy, Bloomberg Markets magazine reports in its August issue.
Palm says he couldn’t think of a reason why Friedman shouldn’t: Goldman had made the necessary disclosures in that day’s filings, Palm says.
“We’d just reported earnings,” says Palm, whose job includes approving trades by directors. “There was no material information that wasn’t public from Goldman’s standpoint.”
Friedman, 72, who is still a Goldman director, bought 37,300 shares at an average of $80.78 each on Dec. 17. Five weeks later, he picked up 15,300 more at an average of $66.61. By yesterday, the stock had doubled to $133.76, giving Friedman a paper profit of $3 million.
Now, the U.S. House Oversight and Government Reform Committee is investigating Friedman’s stock purchases. It wants to know why he was permitted to buy stock in a bank he was regulating as chairman of the New York Fed.
Friedman held both that post and his Goldman board seat when the firm became a bank holding company in September 2008. The Federal Reserve Act forbids an official at the New York Fed in his position from also being a director of a bank or buying its stock.
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‘Perfectly Legal’
The New York Fed sought a waiver from the Federal Reserve Board in September 2008 so that Friedman could keep his position there. Michele Davis, a spokeswoman for Friedman, says New York Fed general counsel Tom Baxter told Friedman that the rules were in abeyance while the waiver was pending.
“Therefore, Mr. Friedman’s purchases of Goldman Sachs stock were perfectly legal,” she says. The waiver was granted in January 2009.
Jerry Jordan, a former president of the Cleveland Fed, says the section of the Federal Reserve Act barring Friedman from owning bank stock or buying new shares could not be waived. “It was not allowed,” he says. “You can’t get permission to violate the law.”
Keeping Mum
Goldman Sachs’s ties to the New York Fed pose another potential conflict for Friedman, says James Cox, a professor at Duke University School of Law. Goldman was a prime beneficiary of the New York Fed-engineered bailout of American International Group Inc.’s bank counterparties, receiving, by its own count, $12.9 billion for the credit protection it held on mortgage- related securities. That figure was not publicly disclosed by AIG until March 2009 -- after Friedman had bought his shares.
“It raises at the least an eyebrow in terms of what he knew about those payments,” Cox says.
New York Fed spokesman Jack Gutt responds: “Friedman had no involvement in nor was he provided with confidential information related to the New York Fed’s negotiation with any AIG counterparties.”
Friedman resigned from the New York Fed on May 7, 2009, days after the Wall Street Journal reported his stock buying. At the time, Baxter said in a statement, “It is my view that these purchases did not violate any Federal Reserve statute, rule or policy.”
As the Friedman saga unfolds -- and Goldman’s regulatory and legal entanglements escalate -- the firm’s nine outside directors, who aren’t Goldman employees, are keeping mum.
Continue reading at Bloomberg (there's MUCH more)
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Video: I discussed the allegations with Larry Doyle on Blog Talk Radio Sunday night.
Listen to the final 90 seconds.
Editor's note: In the video, I incorrectly attributed the original article exposing Friedman's GS stock purchases to Gretchen Morgenson of the New York Times. It was in fact Kate Kelley at the WSJ who first broke the story that lead to Friedman's resignation.
Jul 1, 2011 at 2:26 PM
Reader Comments (10)
http://www.thenation.com/article/friedmanism-fed
http://dailybail.com/home/how-the-ny-fed-under-stephen-friedman-tim-geithner-pressured.html
http://dailybail.com/home/aig-cover-up-sigtarp-barofsky-hints-at-criminal-charges-agai.html
http://www.bloomberg.com/news/2010-06-30/scrutiny-of-goldman-sachs-board-focusing-on-silence-over-client-conflicts.html
http://www.cbsnews.com/8301-503544_162-20007458-503544.html
it's in the link...
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