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Bloomberg Investigates Former NY Fed Chairman Stephen Friedman

$5 million profit on inside information and never punished.


Greg Palm, Goldman Sachs general counsel, took a call in his 37th-floor office at One New York Plaza.  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.  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.

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 $5 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.

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.”

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 an eyebrow in terms of what he knew about those payments,” Cox says.

Friedman resigned from the New York Fed on May 7, 2009, days after the Wall Street Journal reported his stock buying.

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...



I did a radio appearance on the Friedman story.

We were first to cover this story.  Later in February, the Nation reported an investigation into Friedman's stock purchases had recently begun.

Why did the Federal Reserve Bank of New York (FRBNY), whose Chairman was Stephen Friedman (a Goldman Sachs board member who resigned from the New York Fed earlier this year when it was revealed that he had made $5 million by purchasing shares in GS with the knowledge that AIG would be paying counterparties at par and that Goldman would be getting a $13 billion windfall -- when no one else had this information) and whose President was none other than current Treasury Secretary Tim Geithner, why did this New York Fed choose to pay AIG's counterparties 100 cents on the dollar when AIG itself had been negotiating for steep haircuts with claimants, AND why did they then pressure AIG executives to keep quiet about the decision even discouraging AIG from disclosing the 'par-payments' to its shareholders in required SEC filings?

Read more here...


NY Fed And Goldman Sachs Crony CEO Retires



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Reader Comments (10)

That distinction belongs to Stephen Friedman, the former chairman of the board of the New York Federal Reserve Bank and a member of the board of directors of Goldman Sachs. Through those two posts, Friedman may have had access to privileged information about the extent of Goldman's exposure to AIG and the opportunity to profit from the Fed's bailout of the beleaguered insurance giant. While he was serving on both boards, Friedman purchased 52,600 shares of Goldman stock, more than doubling the number of shares he owned. These purchases have since risen millions of dollars in value--and raised allegations of insider trading.

Jun 30, 2010 at 4:28 PM | Registered CommenterDailyBail
« How The NY Fed, Under Stephen Friedman & Tim Geithner Pressured AIG Officials To Withhold Details Of Payments To Goldman Sachs, Other Counterparties »

Jun 30, 2010 at 4:29 PM | Registered CommenterDailyBail
« AIG Cover-Up: SIGTARP Barofsky Hints At Criminal Charges Against The New York Fed »

Jun 30, 2010 at 4:29 PM | Registered CommenterDailyBail
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.

Jun 30, 2010 at 4:30 PM | Registered CommenterDailyBail
I wonder how the ex Retard in Chief is spending his days? He sorta dropped off the radar screen. Is he still giving "lectures" at Chuck&Cheese locations?
Jul 1, 2010 at 2:27 PM | Unregistered CommenterRecoverylessRecovery
rlr..he presented a video on facebook a few weeks back...no kidding...


it's in the link...
Jul 1, 2010 at 3:01 PM | Registered CommenterDailyBail
"rlr..he presented a video on facebook a few weeks back...no kidding.."

Holy crap! Are you directly connected to GOD or somethin'? I mean you seem to have access to EVERY bit of information & facts a person could ever want. Thanks for the link.
Jul 1, 2010 at 8:37 PM | Unregistered CommenterRecoverylessRecovery
Oh before I forget. I also wanted to praise your good taste with the videos you post. Consistantly good stuff!
Jul 1, 2010 at 8:40 PM | Unregistered CommenterRecoverylessRecovery
you're in a good mood tonight...thanks...
Jul 2, 2010 at 1:21 AM | Registered CommenterDailyBail
If understanding the particulars to these acts of organized crime helps put the perps into the already constructed slave labor camps with illegal alien felons, I am here to learn and serve. but I keep comming back to the simplistic approach as if we have caught the boss's son ripping off the beer cooler at the town supermarket and instead of beating the little imp, the boss tells us that he will have to take it out of our paychecks. Forget the law. This business is in-house and the sheriff is wholesaling cocaine and heroine and can't be bothered.
To this entire band of Sly Richard wannabes and pirates for the queen, when your mother told you that you were perfect and you were safe, she was lying her ass off. Your 'weather war', GOM oil well blow-out, and 9-11 allies also are in the cross-hairs of justice and due process. Remember the anglerfish. And he's just a fish.
Jul 7, 2011 at 6:06 PM | Unregistered CommenterHoward T. Lewis III

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