An independent government watchdog overseen by the Federal Reserve last year began reviewing whether trading ethics conducted by top officials met standards and complied with the law.
In an investigation released by the Fed on Monday, U.S. Federal Reserve Chairman Jay Powell said last month that he would begin reviewing its ethics guidelines when it emerged that the two executives were actively trading while the institution was aggressively exploding financial markets.
“As part of our comprehensive review, we began discussions last week with the Office of the Inspector General of the Federal Reserve Board (OIG) to determine the ethical rules and regulations relevant to the trading activity of some senior officials,” the Fed said in a statement.
Eric Rosengren of the Federal Reserve Bank of Boston and Robert Kaplan of the Dallas Fed have resigned as regional presidents, while the third senior Fed official, Vice-Chairman Richard Clarider, has also been scrutinized.
“We welcome [OIG] Will take and take appropriate action based on the review and its findings, ”the Fed said.
The announcement comes hours after Democratic Senators Elizabeth Warren, Massachusetts, Clareida, Rosengren and Kaplan called on top U.S. securities regulators to investigate “morally questionable” transactions and whether they violated “internal trading rules.”
In a letter to Gary Gensler, chairman of the Securities and Exchange Commission, Warren wrote, “Reports of these financial activity by Fed officials raise serious questions about potential conflicts of interest and show contempt for public confidence.”
“They also reflect the brutal verdict by these officials, and the attitude that personal gain is more important than the American people’s confidence in the Fed.”
Clarida moved from a bond fund to between $ 1 million and $ 5 million and to a stock fund. On February 27, Jay Powell, the Fed chair, issued a rare statement in a policy-making meeting that the central bank was preparing to take action to support the economy. A few days later, the Fed announced an emergency interest rate cut.
According to the federation, the Claridar transaction was part of a “pre-planned restructuring” and was executed before it was involved in any relevant negotiations. The Fed said they had prior approval from Fed ethics officials.
The Claridar trading activity, which was first published by Bloomberg, came shortly after Kaplan and Rosengren announced their resignations after reporting on their transactions. Rosegren resigned last week, while Kaplan is stepping down at the end of the week.
At a congressional hearing last week, Powell promised that the rules would be tightened and said any presence of a conflict of interest was “clearly unacceptable.”
Warren added in his letter, “If these businesses are based on non-public knowledge of Fed officials, relying on market-driven information, they could probably represent illegal activity.”
Warren’s intervention comes just a week after he said he would oppose Powell’s re-election as chairman of the Fed, describing him as a “dangerous man” because of his record in banking control.
Powell, who was once seen as a shoe-in for a second term, has opted for re-election because of opposition from Warren and some other progressives, high inflation and trading scandals at the central bank.
The SEC, the Federal Reserve Bank of Dallas and the Boston Fed declined to comment.
Additional report by Stefania Palmer in Montreal