Friedman's Goldman shares a "conflict": report

WASHINGTON Wed Jan 27, 2010 6:50pm EST

Stephen Friedman waits to be introduced in the Roosevelt Room at the White House in Washington, December 12, 2002. REUTERS/William Philpott

Stephen Friedman waits to be introduced in the Roosevelt Room at the White House in Washington, December 12, 2002.

Credit: Reuters/William Philpott

WASHINGTON (Reuters) - A U.S. congressional committee may probe more closely into the purchase of shares of Goldman Sachs by Stephen Friedman when he was chairman of the New York Federal Reserve bank, the committee's chairman said on Wednesday.

Friedman resigned abruptly last May from the New York Fed board amid questions about his purchases of shares in Wall Street giant Goldman where he was formerly a top executive.

"I thought there was a real conflict there," Representative Edolphus Towns, chairman of the House Oversight and Government Reform Committee and a New York Democrat, said in an interview after he chaired a hearing where Friedman testified.

At the hearing, Friedman said a Fed policy adopted just three months ago addresses the situation he faced, and would have shortened a delay in the processing of waiver requests for him. Friedman remains a Goldman board member.

Towns, noting that Friedman had purchased additional Goldman shares after becoming a member of the New York Fed's board, told Reuters: "It looked as if that was a conflict. That's something that I'm sure we'll probably look at a little further."

In November, the Federal Reserve said it will no longer let regional Fed bank directors own shares in financial firms.

Under prior rules, regional Fed directors selected by the central bank's board of governors, such as Friedman, were only barred from owning shares in banks regulated by the U.S. Federal Reserve.

Friedman's ownership of Goldman stock came to violate that policy once the firm, gripped by the financial crisis, converted into a bank holding company in order to qualify for direct aid from both the Treasury and the Fed.

The episode proved embarrassing for the central bank and spurred an internal Fed review of its governance practices aimed at weeding out any potential conflicts of interest.

The Towns hearing was focused mainly on the Bush administration's bailout of former insurer AIG.

Friedman said he was not involved in the initial bailout decision, nor in decisions to repay AIG's counterparties at par value and not to disclose the counterparties' identities.

(Editing by Leslie Adler)