Fed officials offload shares to avoid conflicts of interest

Federal Reserve updates

Two Federal Reserve officials said they would sell their portfolios of shares by the end of the month after coming under scrutiny for investing and trading in a year when the US central bank took extraordinary steps to shore up financial markets.

Robert Kaplan and Eric Rosengren, presidents of the Dallas and Boston Feds, respectively, said they would hold the proceeds from the share sales in cash or invest them in diversified indexed funds, which would prevent them from picking individual stocks.

The pair said they would refrain from any share trading as long as they remain at the helms of their institutions.

Kaplan said on Thursday that financial transactions conducted during his tenure as Dallas Fed president had complied with the central bank’s ethics rules, but that he had “decided to change [his] investment practices” in order “to avoid even the appearance of any conflict of interest”.

Rosengren issued a similar statement simultaneously and expressed regret for creating any ethics concerns.

“Regrettably, the appearance of . . . permissible personal investment decisions has generated some questions, so I have made the decision to divest these assets to underscore my commitment to Fed ethics guidelines,” he said. “It is extremely important to me to avoid even the appearance of a conflict of interest.”

Kaplan disclosed this month that he held stakes worth more than $1m in 27 publicly traded companies, funds and alternative investments, which was subsequently reported by The Wall Street Journal this week.

His holdings included iPhone maker Apple, Chinese ecommerce group Alibaba, electric vehicle manufacturer Tesla and telecoms group Verizon.

His disclosure, which also showed he owned a stake in the Kansas City Royals baseball team, indicated he made various trades worth more than $1m in 22 stocks and funds last year.

The disclosure was not detailed enough to show how Kaplan’s portfolio performed in a year when the broad market rose 16 per cent, although he held stakes in several high flyers, most notably Tesla.

But Kaplan also held several of the year’s worst-performing blue-chip stocks, including Delta and Boeing, as well as a number of oil and gas companies that were hit by the drop in crude prices — including Valero, Chevron and Marathon Petroleum.

Rosengren, who has warned about risks in the real estate market, listed stakes worth at least $151,000 in four real estate investment trusts.

The disclosure showed he ended last year with positions in Annaly Capital, Invesco Mortgage Capital, Two Harbors Investment and AGNC Investment Corporation, and that he bought and sold stakes throughout the year.

His positions in Annaly, AGNC and Two Harbors represented three of the four largest publicly traded stocks in his portfolio, according to the disclosure.

He also owned shares in AT&T, Pfizer and Chevron, among others.

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