Goldman Sachs agreed to pay a $50 million fine and accepted a three-year ban on some advisory work in New York as part of a settlement with the state's financial regulator over the leak of Federal Reserve documents.

The resolution grows out of an incident last year that highlighted the sometimes cozy relationship between Wall Street and its regulators. The case involved Rohit Bansal — a recent hire from the Federal Reserve Bank of New York-- who obtained confidential information last year from a friend at the Fed. The information concerned a mid-sized New York bank that was a Goldman Sachs client and which Bansal supervised at his former job. Bansal circulated the document among Goldman Sachs colleagues as part of the bank's advisory efforts on behalf of the client. When Goldman Sachs's management learned of the breach, they fired Bansal along with his boss and started an investigation. The Fed fired the employee who provided the documents, Jason Gross, according to two people briefed on the matter. Bansal and Gross are expected to plead guilty to misdemeanor counts brought by the Manhattan U.S. Attorney, a person briefed on the case said.

The leak has intensified scrutiny of both the so-called revolving door — employees moving between regulators and banks — and the specific relationship between Goldman Sachs and the New York Fed. The latter's president, William C. Dudley, defended its oversight of banks at a Senate hearing in November after a former New York Fed bank examiner, Carmen Segarra, claimed her colleagues were too deferential to Goldman Sachs, where Dudley was chief economist for a decade. Segarra sued the New York Fed in 2013 claiming she was fired for refusing to change findings about Goldman Sachs' conflict of interest policy. The case was dismissed by a judge who said Segarra failed to allege enough facts under the whistle-blower protections of the Federal Deposit Insurance Act.

According to Wednesday's settlement, Bansal was forced to resign from his position at the Fed in March 2014 for taking his work blackberry overseas without getting permission, and for falsifying records to make it look like he had obtained authorization.

After he was hired by Goldman in July 2014, Bansal was assigned to a group advising the same mid-sized New York bank that he had been examining during his time at the Fed. Goldman Sachs assigned him to the team despite receiving a copy of a restriction notice from the New York Fed specifically forbidding Bansal from working on any matters related to the mid-sized bank until early 2015.

Bansal obtained about 35 documents, on approximately 20 occasions, from his friend Gross at the New York Fed, according to the DFS. Gross would send confidential Fed documents to Bansal's personal e-mail address, and Bansal forwarded those to his Goldman e-mail account, the regulator said.

Bansal would then circulate some of these Fed documents to senior personnel at Goldman, including a partner and a managing director, Joseph Jiampietro, who was identified not by name but by title.

The bank alerted the compliance department when it found out about documents, according to an internal memo obtained last year by Bloomberg News that didn't identify Bansal and Gross.

"We have zero tolerance for improper handling of confidential information," Goldman Sachs said in a statement.

"We have reviewed our policies regarding hiring from governmental institutions and have implemented changes to make them appropriately robust." The New York Fed said in a statement in November that it has "zero tolerance" for personnel who don't safeguard confidential information.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.