In a March 2012 meeting, a group of examiners at the Federal Reserve Bank of New York agreed that Goldman Sachs had inadequate procedures to guard against conflicts of interest—guidelines aimed at stopping firms from putting their pursuit of profit ahead of their clients' best interests.
The examiners voted to downgrade a confidential rating assigned by the New York Fed that could have spurred costly enforcement actions and other regulatory penalties. It is not known whether the vote materialized in a rating change. The former examiner who pushed for a downgrade, Carmen Segarra, now contends in a lawsuit filed Thursday that just weeks after the vote, her superiors asked her to change her findings on Goldman and fired her after she refused.
The vote to downgrade, which has not been previously reported, could have been a big blow for Goldman.
"Goldman Sachs does not have a conflicts-of-interest policy, not firmwide, and not for any divisions," the examiner wrote to Michael Silva, a senior executive at the New York Fed. "I would go so far as to say they have never had a policy on conflicts."
The lawsuit, along with a review by The New York Times of confidential government documents and internal e-mails, raises questions about the success of Goldman's efforts to police potential conflicts.
The bank has been buffeted by accusations that it has put its own interests ahead of its clients, a contention it denies. Goldman, for instance, faced accusations that in the run-up to the financial crisis it sold billions of dollars in souring real estate assets to unsuspecting clients. Just weeks before the examiners' vote last year, the bank had been publicly excoriated by a federal judge who found that Goldman had conflicts in a huge energy deal.
The lawsuit also provides a rare glimpse at the often-opaque relationship between federal regulators and Wall Street. In the aftermath of the financial crisis, banking regulators faced criticism that they were too cozy with the banks that they were overseeing — a familiarity that failed to thwart some of the risky behavior precipitating the housing crisis and ensuing recession.
Even now, banks have sway over their regulators, especially those stationed on site at a bank's headquarters, according to two former regulators who spoke on the condition of anonymity. The banks, for example, can work behind the scenes to avert a vote like the one to downgrade Goldman. However, the people say, once a vote to downgrade has taken place, it is difficult to reverse.
In the lawsuit, Ms. Segarra contends she was wrongfully terminated in violation of a federal law that affords protections to bank examiners who find wrongdoing in the course of doing their jobs. Mr. Silva, who is chief of staff for the executive group at the New York Fed, is among the defendants named in the suit.
(Read more: JPMorgan Rio operation losses key executive)
Jack Gutt, a New York Fed spokesman, declined to comment on Ms. Segarra, citing rules that restrict what the regulator can discuss. "Personnel decisions at the New York Fed are based exclusively on individual job performance and are subject to thorough review. We categorically reject any suggestions to the contrary," he said in a statement.
Mr. Silva declined to comment through the New York Fed spokesman.