The Federal Reserve Bank of New York’s William C. Dudley got a waiver in 2008 to keep personal financial holdings of American International Group Inc. after the company received a Fed rescue, a U.S. senator said.
Dudley, who was the New York Fed’s markets-group chief at the time and is now the bank’s president, is the senior New York Fed official identified in a Government Accountability Office report today as receiving the waiver, Senator Bernard Sanders, a Vermont Independent, said today in a statement. Jack Gutt, a New York Fed spokesman, declined to comment.
The GAO criticized the Fed’s standards for managing conflicts of interest, saying the Dudley example “highlights the potential for appearance concerns” even if the stake is a small percentage of the person’s total holdings. New York Fed employees who requested permission to retain holdings in companies receiving assistance were “generally allowed” to keep the investments, the GAO said.
The Dudley waiver is a “disturbing finding,” Sanders said in his statement.
“Without additional provisions in conflicts policies and procedures, the Reserve Banks risk being exposed to the appearance of conflicts and to questions about the integrity of their decisions and actions,” the GAO said in its report today after a year-long review of the central bank’s emergency-lending programs. The GAO didn’t identify Dudley by name.
The waiver allowed the New York Fed official to keep holdings in AIG and General Electric Co. whose “combined value of the official’s interests comprising less than 5 percent of the official’s total financial holdings,” the GAO said.
The Fed on Sept. 16, 2008 authorized an $85 billion loan to AIG to avert the company’s collapse, one day after Lehman Brothers Holdings Inc. filed the largest bankruptcy in U.S. history. The bailout later expanded to include $182 billion in aid from the U.S. Treasury and the Fed.
The waiver granted to the senior official said that the official’s participation in decisions related to AIG and GE was “critical to the official’s senior-level responsibilities,” the GAO said.
The New York Fed’s chief ethics officer judged that “divestiture of the holdings could violate securities law because of the official’s access to material, nonpublic information” and that selling the shares could have “created the appearance of a conflict,” according to the GAO.
The GAO said that it “did not assess the appropriateness” of the New York Fed’s decisions to grant waivers and that “these decisions are case-specific and necessarily require subjective judgments.”
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