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Another top Fed official says he broke central bank’s trading rules

Atlanta Fed President Raphael Bostic is the latest official embroiled in a scandal that has led to multiple resignations. The inspector general will investigate his actions.

Atlanta Fed President Raphael Bostic speaks at a European Financial Forum event in Dublin in 2019. He said Friday that he had broken the bank's trading rules and filed incomplete financial disclosures. (Clodagh Kilcoyne/Reuters)
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Atlanta Fed President Raphael Bostic on Friday said he broke the Fed’s financial trading rules, becoming the latest top official embroiled in a scandal that has already led to multiple resignations and prompted sharper oversight at the central bank.

Bostic, who has led the Atlanta Fed since 2017, released new documents outlining multiple violations, including trades made through third-party financial advisers during the Fed’s “blackout” periods and other times of market stress, when officials are barred from a range of financial activities. Bostic’s corrected disclosures also note that he filed incomplete information for each year of his presidency, and that he held more than $50,000 in U.S. Treasury funds last year, which exceeded the permissible limit at the time for top officials.

Fed inspector general probe clears Powell, Clarida of violating laws

Fed Chair Jerome H. Powell has requested that Bostic’s disclosures be investigated by the central bank’s Office of the Inspector General, which for a year has been probing the activities of multiple Fed policymakers. A spokesperson for the inspector general’s office said it would conduct an investigation, but declined to comment further.

In a lengthy statement, Bostic said he did not have the ability to conduct direct trades in his accounts. But transactions managed by a third party still went against Fed rules. In addition to correcting his disclosures, Bostic has also divested his Treasury funds to comply with stricter Fed oversight rules.

“I recognize it is my responsibility to understand and abide by every obligation of this office,” Bostic said. “I want to be clear: at no time did I knowingly authorize or complete a financial transaction based on nonpublic information or with any intent to conceal or sidestep my obligations of transparent and accountable reporting.”

Fed overhauls trading rules for senior officials amid scrutiny of policymakers’ past behavior

The Fed has been under tremendous pressure to lower inflation and steer the economy toward some semblance of normal. But the central bank’s reputation took a particular beating upon revelations that multiple officials were involved in suspicious financial activities during the coronavirus crisis, when they had unique insight into the innermost workings of the financial system.

As part of the Fed’s cleanup act, Powell was forced to make the case through news conferences and testimony before Congress that the central bank was worthy of the public’s trust. The Fed also announced a major tightening of its ethics rules, which now prohibit the purchase of individual securities, restrict active trading and ramp up the timeliness of reporting and public financial disclosures by Fed policymakers and senior staff members. Senior Fed officials are also only allowed to purchase diversified investment vehicles, such as mutual funds.

Two Fed officials announce retirements amid controversy over ethics and stock trading

Since September 2021, three officials have resigned from their posts: former Dallas Fed president Robert Kaplan, former Boston Fed president Eric Rosengren and former Fed vice chair Richard Clarida.

Kaplan’s trading activity included 27 individual stocks, funds or alternative asset holdings, each valued at more than $1 million. Rosengren’s trading activities were on a much smaller scale but included stakes in four real estate investment trusts, at a time when Rosengren was publicly raising concerns for the commercial real estate sector. The Office of the Inspector General is still working on its review of their activities.

Clarida failed to report several trades on his 2019 and 2020 disclosure forms. He resigned in January after revelations that he corrected his public forms to show trades made early in the coronavirus crisis, when the Fed was enormously involved in rescuing the financial system. Clarida was cleared by the OIG in July.

The scrutiny extended to Powell himself. According to an OIG report, a financial adviser working on behalf of a Powell family trust executed five trades in December 2019 during the blackout period. The report made clear the trades were precipitated after Powell’s wife asked to make funds available for the purpose of charitable donations at the end of the year. Powell has also been cleared by the OIG.