In 2019, the FDIC’s second-largest legal official left a ranting and cursing voicemail to an employee criticizing her work. Federal banking regulators paid that employee $100,000 in severance pay, former officials said.
The judicial officer kept his job. Last year, Chairman Martin Gruenberg promoted him to general counsel for the federal agency.
Now Gruenberg is under investigation for his leadership at the Federal Deposit Insurance Corp. under fire after a Wall Street Journal investigation found that a long-standing toxic atmosphere with few consequences for bad behavior led women to leave the agency.
He faced criticism from Congress on Tuesday and Wednesday in response to the investigation. “What the hell is going on at the FDIC?” asked Louisiana Republican Senator John Kennedy.
Gruenberg said harassment and discrimination are “completely unacceptable” and the agency will not tolerate it. He announced that an independent firm would conduct a “top-down” assessment of the agency. He said he was unaware of the allegations of workplace problems at the agency before the Journal’s reporting.
Still, Gruenberg and his top deputies were involved in decisions about high-profile examples of alleged sexism, harassment and racial discrimination in which the agency did not take a hard line toward people accused of misconduct, according to current and former FDIC officials.
Gruenberg himself earned a reputation for being a bully and having an explosive temper, officials said. In nearly two decades at the FDIC – including leading the agency from 2011 to 2018 and a second term as chairman last year – Gruenberg said he insulted and cross-examined employees, questioned their loyalty and accused them of withholding information from him , they said.
The FDIC hired an outside investigator to investigate Gruenberg’s conduct in 2008, when he was vice chairman, after he allegedly lost his temper with and castigated a senior FDIC official.
Gruenberg initially told the House Financial Services Committee in a sworn deposition on Wednesday that he had never been investigated for inappropriate behavior. Later in the day, after the Journal reached out to the FDIC for comment, Gruenberg said he wanted to correct the statement and confirmed that he had been under investigation in 2008.
Gruenberg is known as a micromanager and has a temperament that made employees reluctant to introduce themselves to him and contributed to some officers’ decisions to leave the agency, officials said. Several current and former officials called him a “screamer,” despite his sleepy demeanor at congressional hearings.
Some FDIC officials said they had never seen Gruenberg engage in inappropriate behavior, and what some employees described as bullying, others described as his prosecutorial nature. Several former officials said Gruenberg had high expectations of his staff, and many more junior officials said they were treated with respect by the chairman.
An FDIC official said the agency has “no higher priority than ensuring that all FDIC employees work in a safe environment where they feel valued and respected.” Sexual harassment or discriminatory behavior is completely unacceptable. We take these allegations very seriously.” The agency has hired a law firm to conduct a review of the agency’s culture and will “take appropriate action to address the issues it has identified,” she said.
The agency declined a request for an interview with Grünberg.
On Wednesday, Rep. Bill Huizenga (R., Mich.) asked Gruenberg if he was aware of incidents of misconduct in the Journal’s investigation, noting that many of them occurred “on your watch.”
Gruenberg said that was not the case and that the investigative and disciplinary process is normally handled by the legal department. “The board is basically kept away from it,” he said.
Employees said poor workplace behavior has been ingrained in the agency for years because top administration has not fully addressed the problems, whether in regional offices or at headquarters in Washington. When employees raised such issues, they said they believed the agency had swept the problems under the rug.
These allegations were not just aimed at Grünberg. A senior FDIC official said she told former Chairwoman Sheila Bair, who led the agency from 2006 to 2011, in 2009 that a potential executive had sexually harassed her years earlier. After consulting Gruenberg, who advocated for the hiring, Bair hired the man, who ended up working in an office next to his accuser.
Later, under Gruenberg’s leadership, the director of the agency’s Office of Minority and Women Inclusion was accused of discrimination, including for telling a black employee that slavery was “not all bad.” Gruenberg’s deputy assigned the director to a position in the training department, according to the legal documents. The FDIC said in filings that the reassignment was not a demotion and his salary was not reduced.
“When an employee comes to management to raise a concern, they always take management’s side,” said Stephanie Gilliard, a Black senior administrative specialist in Washington who left the agency in 2018 after filing another lawsuit alleging discrimination and a hostile work environment. The agency denied her allegations but paid her $250,000 in severance this year, authorities said. Before filing her lawsuit, Gilliard said she reached out to Gruenberg for help but received no response.
In the Journal’s investigation published earlier this week, based on interviews with more than 100 current and former FDIC employees, female employees described a sexualized boys’ club environment in regional offices and said they felt they were consistently offered fewer opportunities than their male colleagues. The employees said the agency has hesitated to impose tough disciplinary measures against managers accused of misconduct and, in several cases, moved supervisors who were the subject of complaints to other offices rather than impose tougher measures.
The independent federal agency, with fewer than 6,000 employees, is one of the country’s top regulators and is tasked with overseeing U.S. banks and insuring deposits. Financing comes from banks’ insurance premiums and not from the federal budget. Congressional interest has arisen primarily in response to banking crises, such as the bank failures this spring. An internal review after the bankruptcies cited the FDIC’s difficulty retaining auditors as one reason it did not identify problems with some of the failed banks sooner.
Before joining the FDIC, Gruenberg spent nearly two decades on Capitol Hill, where he also became known for his temper, according to those who worked with him at the time. Some aid workers remembered hearing him screaming from the hallway.
As a senior adviser to former Senator Paul Sarbanes, a Democrat from Maryland, Gruenberg played a key role in drafting the Sarbanes-Oxley Act of 2002, which, among other things, emphasized the importance of “tone at the top” and the responsibility of senior leaders to their culture Organization.
Transportation for defendants
Harrel Pettway, the legal officer who left the abusive voicemail for an employee, received a letter of reprimand after the incident in 2019, former officials said. He remained No. 2 in the legal department, and when Jelena McWilliams, who led the FDIC from 2018 to 2022, left the agency along with its general counsel, she tapped Pettway to be his acting successor.
Gruenberg, who took over as acting chairman when McWilliams left, named Pettway general counsel days later.
Pettway did not respond to requests for comment.
In 2009, former Chairman Bair was preparing to hire Michael Bradfield, a former Federal Reserve official and protégé of former Fed Chairman Paul Volcker, as general counsel. Around that time, a senior FDIC official said she told Bair that the man had sexually harassed her and others at the Fed decades earlier. She asked Bair not to hire him.
The official, Chief Deputy Attorney Roberta McInerney, said she told Bair that Bradfield had cornered her late that night in his office at the Fed. Bair’s reaction was cool, she said.
“It’s been a long time. “He’s 74. You don’t have to worry about that now,” McInerney said as Bair responded.
Bair made the allegation to Bradfield, who denied it, a former official said. She also took it to Gruenberg, who had pushed for Bradfield’s hiring, the former official said. Gruenberg said he had never heard such allegations about Bradfield and continued to support his hiring.
Bradfield’s office ended up next to McInerney’s. She remembered hearing his voice through the wall on his first day and starting to cry.
“At that point I felt like there was nothing I could do,” McInerney said. “I could have gone to HR and said it was traumatic. But if you do that, it ruins your career – you’re frozen out of everything because, “You’re a troublemaker.”
McInerney said she was impressed by Bair’s wisdom and skillful leadership, but ultimately felt let down by her.
Bradfield left the agency about a year after joining and died in 2017. His family did not respond to a request for comment through an attorney.
Despite the decision, former employees said Bair was more concerned with the well-being of the agency’s rank and file than Gruenberg. She launched an attempt to reform the agency’s culture and improve communication between leadership and employees. The agency ranked first among the best agencies in its size class in 2011, her final year as chair. The agency remained at the top of the list until 2017.
When the financial crisis hit, many employees said they believed she had championed the agency and increased its relevance, which boosted morale.
Still, Bair could also be combative, particularly toward senior agency officials, former employees said. A Journal article in 2009, as the country emerged from the financial crisis, noted that FDIC employees expressed frustration with Bair’s “head-splitting” management style.
Bair declined to comment on criticism of her leadership style. Her supporters told the Journal she demands high levels of performance from her employees during a difficult time in the financial industry.
Employee morale has declined in recent years. The FDIC fell to 17th in the agency job rankings last year, from 8th in 2021. The list, compiled by the nonprofit Partnership for Public Service, is being closely followed by the agency. The decline was due in part to a 10-point drop in the effective leadership score among senior leaders.
In 2016, Gilliard, the Black senior administrative specialist who sued the agency over discrimination and harassment allegations, said in court papers that her supervisor and the supervisor’s boss had sex in the FDIC parking garage. She said both supervisors discriminated against her, including by treating her more harshly than her white colleagues and passing her over for promotions.
The agency moved forward, but did not strike Gilliard’s testimony about the alleged affair between her superiors — which “contained references to ‘fellatio’ and the ‘garage truck incident'” — from the record, arguing they were irrelevant, according to E- Emails and legal documents.
Gilliard left the agency in 2018. Her supervisor was demoted and left the agency the following year; The male supervisor received a demotion in his title but received a raise and continues to work at the agency.
Accusations of racism
The FDIC continues to battle allegations of racism, more than two decades after the agency paid more than $15 million in 2000 to settle allegations of racial discrimination and favoritism in promotions for more than 3,000 black employees in a class-action lawsuit.
As of 2022, minorities will make up a quarter of executives and women will make up 35%, according to annual diversity reports.
In September 2018, an anonymous group of Black employees wrote to former Chairman McWilliams to express concern about their treatment under Gruenberg during his previous tenure as Chairman.
“The culture at the FDIC for African American employees is such that they are afraid to talk about the issues they face for fear of consequences,” they wrote, according to the FDIC and congressional officials.
McWilliams told the Journal that she was concerned about the letter and that the agency has made changes to address the concerns, including making evaluations and promotion systems more merit-based.
Allegations of discrimination continued, and the union filed several complaints alleging discrimination against black employees in subsequent years.
When Gruenberg returned to the agency’s helm in 2022, two Republican senators wrote to the FDIC to ensure that the agency would not “return to a toxic workplace” under his leadership. They demanded documentation including complaints, investigations and settlements.
Gruenberg declined to provide the records, citing concerns about privilege and privacy. Instead, he described his efforts to strengthen diversity programs at the agency, including meeting with the leadership of an employee resource group for Black employees, according to the response reviewed by the Journal.
The FDIC is embroiled in ongoing litigation over a 2016 decision to appoint Segundo Pereira, the former director of the diversity office, to a senior advisory role at the FDIC’s Corporate University, which runs the examiner training program. According to legal documents, Pereira faced multiple complaints of harassment and discrimination.
Employees had complained to senior FDIC executives and the agency’s inspector general that Pereira was discriminating against black employees and creating a hostile work environment. Among their complaints was that around 2015 he told a black employee that slavery was “not all bad.”
Barbara Ryan, then managing director and deputy to Grünberg, reappointed Pereira. In an affidavit, she said that when she learned that an “unprecedented number” of complaints had been filed against Pereira, she “became very concerned about the reputation of the FDIC should it become known to the outside world that the FDIC’s highest-ranking official was for.” “Diversity is responsible” and inclusion has been the subject of so many accusations of injustice.”
Pereira denied comment on slavery when asked by internal investigators, but said he may have noticed the “remarkable” number of Confederate flags after a recent trip to South Carolina. “Perhaps something similar came up in the course of such a conversation,” the investigators wrote.
In 2020, Pereira, who is Hispanic, sued the FDIC over his transfer, accusing the agency of discriminating against him by relegating him to a “dead-end job” and calling complaints about him frivolous and false. His lawyer declined to comment.
Ryan, who retired in 2018, did not respond to a request for comment.
Study of temperament
Last year, President Biden nominated Gruenberg, now 70, to run the agency for a second term. During the confirmation process, Republican investigators on the Senate Banking Committee questioned aides about Gruenberg’s temperament, current and former officials said.
One incident they investigated was the 2008 meeting in which Gruenberg berated a senior official because she had not agreed with him on the timing of an upcoming senior management conference that he was unable to attend.
Bair, then chairman, was told this was part of a pattern of behavior and hired an outside investigator to look into the incident, officials said. The officer told the investigator that during the meeting she was worried that Gruenberg would take the notes from her hands and tear them up, former officials said. Bair spoke with Grünberg about his behavior at the time and advisers also met with him to discuss his communication style, the officials said.
Investigators were also told that Gruenberg broke several office phones out of frustration.
On a bipartisan call during the confirmation, Republican investigators asked Gruenberg about the altercation and whether he threw phones. He denied behaving inappropriately toward the employee or throwing phones.
Because the allegations were not confirmed, the committee did not ask questions on the issue at Gruenberg’s public confirmation hearing. He was confirmed to a five-year term by a vote of 45-39, along with two Republicans nominated to serve on the regulator’s board.
A White House official said it supported the agency’s decision to conduct an investigation into workplace culture and referred further questions to the FDIC.
A high percentage of employees have spent decades at the agency, which some employees say provides little incentive for change. The agency pays unusually well for a government organization.
The average length of service for FDIC employees is 25 years. A fifth of the workforce had the right to retire last year — six percentage points higher than the governmentwide rate — and employees typically stay about eight years afterward, according to an inspector general report. Officials joke that FDIC stands for “Found Dead in Chair.”
The leadership problems could weaken the agency’s ability to do its work, current and former employees said. In addition to examining banks’ books of accounts, the regulator is also expected to review a bank’s management and human resources practices and monitor diversity and inclusion efforts.
“The financial market is moving rapidly. “I don’t think the FDIC is on track to compete because it’s not attracting and retaining the best and brightest, particularly when it comes to younger employees,” said Candice Nonas, a former senior resolution specialist at the FDIC. “ They need to re-examine leaders who maintain the status quo.”
Lisa Schwartz contributed to this article.
Write to Rebecca Ballhaus at [email protected]
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