Insider trading.....

Warren calls on SEC to probe Fed on insider trading

“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,” Warren wrote

By VICTORIA GUIDA

Sen. Elizabeth Warren on Monday called on the Securities and Exchange Commission to examine whether top Federal Reserve officials violated insider trading rules last year, the latest twist in a controversy that has already led to the resignation of two policymakers.

In a letter to SEC Chair Gary Gensler, Warren (D-Mass.) called for a full investigation of trading activity by high-level Fed officials. She pointed to new revelations that Vice Chair Richard Clarida moved between $1 million and $5 million out of a bond fund into stock funds in February 2020, just a day before Fed Chair Jerome Powell put out a statement signaling that the central bank might take action to cushion the economy at the onset of the pandemic.

That came on top of recent disclosures that two other officials — Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren — also actively traded in stocks and real estate assets while the central bank was engaged in an extensive rescue of financial markets. Both Kaplan and Rosengren announced their resignations last week.

“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,” Warren wrote. “They also reflect atrocious judgment by these officials, and an attitude that personal profiteering is more important than the American people’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 added.

Powell has vowed to tighten the central bank’s ethics rules and last week told lawmakers that the central bank was examining whether the trading activity by some Fed officials was “within the law.”

The most recent news about Clarida’s trades, earlier reported by Bloomberg, adds a new wrinkle. Because of the quasi-private structure of regional Fed banks, their presidents are not required to disclose their financial trades to the Office of Government Ethics, unlike Powell, Clarida and other members of the Fed’s Washington-based board.

A Fed spokesperson said Clarida’s 2020 transactions “represent a preplanned rebalancing of his accounts” that 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 selected funds were chosen with the prior approval of the Board’s ethics official,” the spokesperson said, adding that Clarida’s financial disclosure was released in mid-May.

The uproar comes at an inopportune time for Powell politically, as he awaits a decision on whether President Joe Biden will reappoint him for another term. Warren last week said she would oppose his renomination.

“It is not clear why Chair Powell did not stop these activities, which corrode the trust and effectiveness of the Fed,” she said in the letter Monday.