The Federal Reserve’s watchdog announced plans to investigate possible insider trading by senior Fed officials. The probe resulted from calls by senators to open an investigation. The agency should check “ethically questionable transactions” made by three senior Fed officials.
Fed’s Office of Inspector General To Open Probe on Possible Insider Trading
In a statement Monday, the US central bank said they are initiating a probe. “As part of our comprehensive review, we began discussions last week with the Office of Inspector General for the Federal Reserve Board to initiate an independent review of whether trading activity by certain senior officials was in compliance with both the relevant ethics rules and the law. We welcome this review and will accept and take appropriate actions based on its findings.”
Last month, chairman Jerome Powell opened an internal examination of the central bank’s ethics rules. This followed revelations of unusual trading activity made in 2020 by senior officials.
The trades happened right before the agency released emergency support for the US economy to counteract the pandemic’s effects.
Powell promised the media last month of “a thoroughgoing and comprehensive review. We’re going to gather all the facts and look at ways to further tighten our rules and standards.”
Warren Called on Sec Over Possible Insider Trading
Senator Elizabeth Warren (D-MA) sent a letter to the Securities and Exchange Commission. She asked Chairman Gary Gensler to look into possible insider trading activity. The officials in question include Eric Rosengren and Dallas' Robert Kaplan.
Rosengren is president of the Boston Fed. Meanwhile, Robert Kaplan is President of the Dallas Fed. Both resigned from their positions last week. Recently released disclosure forms showed both traded extensively last year.
The third official involved is Fed Vice Chairman Richard Clarida. Instead of stocks like the other two, Clarida dealt with mutual funds.
He reportedly moved between $1 million and $5 million out of one mutual fund and into two other funds on Feb. 27, 2020. This was the day before Powell announced they will lower interest rates due to the pandemic.
Senators Hail The Decision
Senator Patrick Toomey (R-PA) is the top Republican on the Senate Banking Committee. He endorsed the investigation, saying that it “makes sense” to do it. Toomey added that the public needs to maintain a high level of confidence in Fed officials.
Meanwhile, Warren welcomed the planned probe. “Good, they should. The SEC should also open an investigation. This is serious,” she said. In addition, Warren asked the SEC to look at the extent to which any trades.
She wanted to know if any transactions benefited from nonpublic information. Federal Reserve policymakers such as the three officials have access to this type of data.
Consequently, she asked if using this information violated provisions that prohibit this activity. Warren said that the three’s activities “reflect atrocious judgment” on their part. She added that they have “no justifiable ethics or financial rationale.”
Fed Has Specific Rules On Trading
The Federal Reserve’s information-security guideline lists specific trading rules. It notes that officials who possess confidential policy information should refrain from trading. Doing so could create the appearance of acting on inside information.
Watch the Bloomberg Markets and Finances video reporting that Fed Chairman Jerome Powell says that the Fed ‘looking carefully' at Kaplan, Rosengren trades:
What do you think of the alleged insider trading made by senior Federal Reserve officials? Do you think the three officials will face sanctions for what they did?
Or, should we expect nothing to come from this probe? Share your reactions below.