U.S. Senator Elizabeth Warren (D-MA) questions Charles P. Rettig, commissioner of the Internal Revenue Service, during the Senate Finance Committee hearing titled The IRS Fiscal Year 2022 Budget, in Dirksen Senate Office Building in Washington, D.C., June 8, 2021.
Tom Williams | Pool | Reuters
Sen. Elizabeth Warren on Monday urged the Securities and Exchange Commission to investigate whether three Federal Reserve leaders violated insider trading rules in 2020, when they bought and sold assets as the central bank ramped up efforts to save the U.S. economy from economic turmoil.
Warren, who sits on the congressional committee that oversees the Fed, pressed SEC Chairman Gary Gensler in a letter to look into “ethically questionable transactions” made by Fed Vice Chair Richard Clarida and regional Presidents Robert Kaplan and Eric Rosengren.
The Massachusetts Democrat’s request marks her latest and highest-profile attack against Fed officials for trades made in 2020. Clarida is a top deputy to Fed Chairman Jerome Powell.
She has repeatedly critiqued Fed officials for million-dollar trades made last year while the central bank acted on potentially unique insights and other economic data.
“I am writing to ask that the SEC investigate trading in securities by high-level Federal Reserve officials and determine if any of these ethically questionable transactions may have violated insider trading rules,” she wrote in the letter.
“There is no justifiable ethics or financial rationale for [Clarida] or any other government official to be involved in these questionable market machinations while having access to non-public information and authority over decisions that have extraordinary impacts on markets and the economy,” Warren wrote.
A spokesman for the Fed noted that Clarida’s trades were made public in May and in accordance with a “preplanned rebalancing” of his accounts. One such transaction included between $1 million and $5 million from a broad-based bond fund into broad-based equity funds in February 2020.
Clarida’s transactions “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,” a Fed spokesman said in an emailed statement. “The selected funds were chosen with the prior approval of the Board’s ethics official.”
It is difficult to prove insider trading if financial transactions are part of a scheduled program to buy and sell securities and not spontaneous, one-off trades timed to market events.
The Fed declined to comment further about when Clarida submitted his 2020 transactions for review or when the Fed’s ethics official approved the plan. The Fed spokesman also declined to comment on whether the central bank is working with the SEC, which also declined to comment.
Similar disclosure forms released in recent weeks showed that Kaplan, the Dallas Fed president, traded millions of dollars in individual stocks last year. The forms also showed that Rosengren, the Boston Fed president, traded in real estate while he and other Fed members worked to buy up mortgage-backed securities.
Both resigned last week amid the public uproar, though Rosengren cited health issues for his early exit.
While Clarida’s specific portfolio holdings are not considered unusual, their February 2020 timing — just ahead of a major market sell-off in March 2020 in response to the Covid-19 pandemic in the U.S. — has renewed concerns that the central bank’s trading rules may be outdated and that Clarida might have acted on nonpublic information.
Powell said Sept. 22 that the central bank’s current trading rules are insufficient and that he has ordered a review and overhaul of its protocols.
“We understand very well that the trust of the American people is essential for us to effectively carry out our mission,” he said, at the conclusion of the Fed’s last policymaking meeting. “And that’s why I directed the Fed to begin a comprehensive review of the ethics rules around permissible financial holdings and activity by Fed officials.”