Warren urges SEC to open insider trading investigation against Fed Vice President Clarida and others

Senator Elizabeth Warren on Monday urged the Securities and Exchange Commission to investigate whether three Federal Reserve executives violated insider trading rules in 2020, when they bought and sold assets as the central bank stepped up efforts to save the US economy from economic turmoil.

Warren, who sits on the congressional committee that oversees the Fed, urged SEC Chairman Gary Gensler in a letter to review “ethically questionable transactions” carried out by Fed Vice Chairman Richard Clarida and regional chairmen Robert Kaplan and Eric Rosengren.

The Massachusetts Democrat’s request marks her latest and most publicized attack on Fed officials for transactions made in 2020. Clarida is a senior deputy to Fed Chairman Jerome Powell.

She has repeatedly criticized Fed officials for million-dollar transactions made last year, as the central bank acted on the basis of potentially unique information and other economic data.

“I am writing to ask the SEC to investigate securities transactions by senior Federal Reserve officials and determine whether any of these ethically questionable transactions may have violated insider trading rules.” , she wrote in the letter.

“There is no justifiable ethical or financial justification for [Clarida] or any other government official to be involved in these dubious 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 Fed spokesperson noted that Clarida’s transactions were made public in May and in accordance with a “pre-planned rebalancing” of its accounts. One of those deals included between $ 1 million and $ 5 million from a broad-based bond fund to broad-based equity funds in February 2020.

Clarida’s trades “were executed prior to her involvement in deliberations over Federal Reserve actions to respond to the emergence of the coronavirus and not during a period of blackout,” a Fed spokesperson said in a press release sent by email. “The selected funds were chosen with the prior approval of the Board’s Ethics Officer.”

It is difficult to prove insider trading if the financial transactions are part of a programmed program of buying and selling securities and not spontaneous one-off transactions programmed according to market events.

The Fed declined to comment further on when Clarida submitted its 2020 transactions for review or when the Fed’s ethics official approved the plan. The Fed spokesperson also declined to say whether the central bank was working with the SEC, which also declined to comment.

Similar disclosure forms released in recent weeks showed Kaplan, the chairman of the Dallas Fed, traded millions of dollars in individual stocks last year. The forms also showed Rosengren, the chairman of the Boston Fed, was trading real estate while he and other Fed members worked to buy mortgage-backed securities.

The two resigned last week amid public outcry, although Rosengren cited health concerns for his early exit.

While Clarida’s specific portfolio holdings are not considered unusual, their February 2020 timeline – just ahead of a market sell off in March 2020 in response to the Covid-19 pandemic in the United States – has rekindled concerns. as to the fact that the central bank’s trading rules may be out of date and that Clarida may have acted on the basis of non-public information.

Powell said on September 22 that the central bank’s current trade rules are insufficient and that he has ordered a review and overhaul of its protocols.

“We understand very well that the confidence of the American people is essential to allow us to carry out our mission,” he said after the last Fed policy meeting. “And that is why I have asked the Fed to begin a full review of the ethics rules regarding financial assets and activities authorized by Fed officials.”