October 04, 2021

Warren Calls on SEC to Investigate Securities Trades by High-Level Federal Reserve Officials to Determine if They May Have Violated Insider Trading Rules

Officials Have Access to Non-Public Information on the Economy and Influence on Key Fed Decisions; Trades “Reflect Atrocious Judgement,” a “Disregard for the Public Trust” 

Warren Introduced The Anti-Corruption and Public Integrity Act that Would End Stock Trading and Ownership by High-Ranking Government Officials and Members Of Congress

Link to Letter (pdf)

WASHINGTON, D.C. — Today, United States Senator Elizabeth Warren (D-Mass.) called on the U.S. Securities and Exchange Commission (SEC) to investigate ethically questionable transactions made by top Federal Reserve officials and determine if they may have violated insider trading rules. A new report revealed that Federal Reserve Vice Chair Richard Clarida traded “between $1 million and $5 million out of a bond fund into stock funds [in February 2020], one day before Chair Jerome Powell issued a statement flagging possible policy action as the pandemic worsened.” Vice Chair Clarida’s trades, in addition to transactions made by two regional Federal Reserve Bank Presidents revealed last month, appear to run afoul of Fed guidelines stating that 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.”

“The reports of this financial activity by Fed officials raise serious questions about possible conflicts of interest and reveal a disregard for the public trust. They also reflect atrocious judgement by these officials, and an attitude that personal profiteering is more important than the American people’s confidence in the Fed. Mr. Clarida’s financial disclosures, for example, reveal that he is a multi-millionaire. There is no justifiable ethics or financial rationale for him or any other government official to be involved in these questionable market machinations while having access to non-public information and authority over decisions that have extraordinary impacts on markets and the economy. 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,” wrote Senator Warren.

Senator Warren, a champion of tighter ethics rules that prohibit all government officials from holding or trading stock that may be influenced by their agency, department, or actions, is urging the SEC to investigate the extent of trading activity by high-level Federal Reserve officials; the timing and rationale for these individuals’ trades; the extent to which these trades may have been influenced by non-public information in possession of the individuals making the trades; and whether these trades may have represented violations of provisions that bar individuals from “purchasing or selling a security while in possession of material nonpublic information.” 

The new revelations of Vice Chair Clarida’s trades follow reports which emerged last month that detail multiple million-dollar-plus stock trades made in 2020 by Robert Kaplan, President of the Federal Reserve Bank of Dallas; and reports that Eric Rosengren, President of the Federal Reserve Bank of Boston, “listed stakes in four separate real estate investment trusts and disclosed multiple purchases and sales in those and other securities” in the same timeframe. The activities raise deep concerns of corroded public trust and the effectiveness of the Fed. 

Senator Warren previously called on Regional Fed leaders to adopt robust and comprehensive ethics guidelines in her Anti-Corruption and Public Integrity Act. The bicameral bill, first in 2018, would tighten conflict of interest and recusal requirements, and shut the revolving door between industry and government. The sweeping ethics legislation would ban individual stock ownership by Members of Congress, Cabinet Secretaries, senior congressional staff, federal judges, White House staff, and other senior agency officials while in office. It would also prohibit all government officials from holding or trading stock where its value might be influenced by their agency, department, or actions. Additionally, the bill would require senior government officials and White House staff to divest from privately owned assets that could present conflicts, including large companies and commercial real estate.