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NY Fed’s Stephen Friedman resigns over ties to Goldman

By Carol Eisenberg

May 8, 2009 at 12:27pm

His nickname at Goldman Sachs was “Mr. Inside,” and for decades, Stephen Friedman’s extensive contacts and expertise made him a go-to player on Wall Street.

But it was precisely that web of connections that raised conflict-of-interest issues in his latest job as non-executive chairman of the powerful Federal Reserve Bank of New York.

Friedman, 71, resigned from the post Thursday amid questions about his continuing ties to Goldman Sachs, which were first raised in a Wall Street Journal story Monday.

“Although I have been in compliance with the rules, my public service motivated continuation on the Reserve Bank Board is being mischaracterized as improper,” he wrote in a letter to New York Fed President William Dudley. “The Federal Reserve System has important work to do and does not need this distraction.”

In its story, the Journal had disclosed that Friedman was allowed to lead the New York Fed and remain a Goldman director and shareholder, in violation of Fed policy because of Goldman’s new status as a bank holding company. The New York Fed sought a one-year waiver of that rule, which was granted by the Federal Reserve board in Washington in January.

While the waiver was under consideration, in December, Friedman bought 37,300 more Goldman shares, the paper reported. He also bought more shares the day after the waiver came through. The purchases, which gave him a $3 million paper gain, were disclosed in Securities and Exchange Commission filings.

Friedman originally told the Journal that his role at the New York Fed wasn’t a policy-making one and that he saw “no conflict whatsoever in owning shares” of Goldman.

He noted that when he became an economic adviser to former President George W. Bush, he had had to sell nearly all his investments, in a process he described as “very costly and a difficult thing to manage.”

A longtime star of the financial world, Friedman had worked as an investment banker, a private-equity executive and an economic adviser to the president.

The bulk of his career, however, was spent at Goldman Sachs, where he held numerous executive roles. He was the company’s co-chief operating officer from 1987 to 1990, co-chairman, along with his longtime friend Robert E. Rubin, from 1990 to 1992, and the sole chairman from 1992 to 1994; he still serves as a director.

Admired for his intelligence and low-key style, Friedman has a welter of relationships in the philanthropic world as well. He is chairman emeritus of the board of Columbia University, where he attended law school, chairman emeritus of the executive committee of the Brookings Institution, and a member of the Council on Foreign Relations.

Out of work, he is said to be an avid chess player and wrestler. A wrestling center at his alma mater, Cornell University, bears his name. His son David Benioff, wrote the screenplay for The Kite Runner and X-Men Origins: Wolverine and is married to actress Amanda Peet. His brother, Richard, is a constitutional law scholar at the University of Michigan.

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