Sen. Elizabeth Warren is asking the Securities and Exchange Commission to investigate Federal Reserve officials’ personal trades.
The Massachusetts Democrat asked SEC Chairman Gary Gensler to look into “ethically questionable” transactions that she says might have violated insider trading rules in a Monday letter. The transactions in question were executed last year, and Warren asserted that they may have been conflicts of interest at best and criminal at worst.
Disclosures revealed that Robert Kaplan, who was president of the Federal Reserve Bank of Dallas, made several stock trades last year that were valued at more than $1 million. Additionally, Eric Rosengren, who was president of the Federal Reserve Bank of Boston, bought and sold real estate investment trust shares.
Both Kaplan and Rosengren announced their retirements on the same day last week — Kaplan cited the controversy in stepping down, while Rosengren said that he decided to retire in light of long-running kidney issues.
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Also last week, Bloomberg revealed that Federal Reserve Vice Chairman Richard Clarida traded between $1 million and $5 million from a bond fund into stock funds just a day before Fed Chairman Jerome Powell hinted that the central bank might need to use its policy tools to intervene should the pandemic grow worse.
Warren said the trading activity of the three men reflects “atrocious judgment.” She excoriated them for exhibiting “an attitude that personal profiteering is more important” than U.S. confidence in the Fed.
“Finally, and most importantly from the perspective of the SEC, if these trades were based on Fed officials’ knowledge of non-public, market moving information, they may have represented potentially illegal activity,” she wrote.
Warren mused that it “is not clear” why Powell didn’t stop the trades and cited Fed guidelines that dictate officials should “avoid any dealings or other conduct that might convey even an appearance of conflict between their personal interests, the interests of the System, and the public interest.”
Powell was asked about Kaplan and Rosengren’s trading activity during a news conference last month. The chairman told reporters that he was unaware of the men’s 2020 transactions until they began to be reported in the media last month.
“In terms of having confidence and that sort of thing, I think no one is happy. No one on the [Federal Open Market Committee] is happy to have these questions raised,” Powell said.
In her letter to Gensler, Warren specifically requested that the SEC examine the extent of trading activity by high-level Fed officials, the timing and rationale for the men’s trades, the extent to which the trades may have been influenced by nonpublic central bank information, and whether they violated government provisions.
Warren said that “all federal officials have a responsibility under existing law to address corrupt and illegal behavior within their jurisdiction.”
“The SEC can do its part by undertaking a sweeping review of all securities trades by Federal Reserve officials to determine if they may have violated insider trading laws,” she said.
Both Kaplan and Rosengren denied any ethical wrongdoing on their parts, and Clarida, through a spokesperson, also denied any impropriety. The spokesperson said that his disclosures “represent a pre-planned rebalancing to his accounts.”
“The transactions were executed prior to his involvement in deliberations on Federal Reserve actions to respond to the emergence of the coronavirus and not during a blackout period,” the spokesperson said. “The selected funds were chosen with the prior approval of the Board’s ethics official.”
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The SEC and Federal Reserve declined to comment about Warren’s letter when contacted by the Washington Examiner.
