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Elizabeth Warren Requests SEC to Investigate Federal Reserve Board’s Trading Activities

Senator Elizabeth Warren (D., Massachusetts) told the Securities and Exchange Commission whether personal financial investments by senior Federal Reserve Board officials, including Vice-Chair Richard Clarida, violated insider trading rules. I asked you to investigate.

Warren said in a letter to SEC Chairman Gary Gensler Monday that the Fed should decide on the legality of an “ethically questionable deal” by three Fed officials. Boston Fed President Eric Rosengren and Dallas Fed President Robert Kaplan resigned after a disclosure form released in early September, and the Wall Street Journal first reported that both men were individual last year. It was widely traded in stock.

“”“We now understand that our practices need to be modified and are in the process of developing ideas and recommendations for that.”


— Federal Reserve Chairman Jerome Powell

A third official, Clarida, started at $ 1 million from a mutual fund on February 27, 2020, the day before Federal Reserve Board Chairman Jerome Powell issued a statement showing potential interest rates. Moved to two other funds between $ 5 million. Cut due to concerns about up-and-coming pandemics.

The SEC did not immediately respond to the request for comment

In a pre-parliamentary testimony on September 28, Powell promised to renew the Fed’s policy on how its leaders manage private investment to minimize even the emergence of conflicts of interest. He acknowledged that the rules permitting transactions by Mr. Kaplan and Mr. Rosengren, even if they appear to meet the existing protocols of each bank, are insufficient to maintain public confidence. ..

Mentioning the trade activities of Mr. Kaplan and Mr. Rosengren, “We now understand that we need to modify our practices and are developing ideas and recommendations for that.” Said. He did not mention Mr. Clarida’s financial disclosure, announced in May this year and first reported by Bloomberg News on October 1.

Warren asked the SEC to find out how private information available to Fed policy makers affected transactions and whether they violated provisions prohibiting such transactions. ..

“”“There is no legitimate ethical or financial basis. [Federal Reserve Vice Chairman Richard Clarida] Or other government officials involved in these suspicious market tactics … “


— Senator Elizabeth Warren

Warren wrote in a letter that the trading activities of all three “reflected the vicious judgments of these officials.” About Mr. Clarida, she wrote: “While he and other government officials are involved in these suspicious market tactics, the market and the economy.”

Unlike Kaplan and Rosengren, Clarida was not actively trading individual securities. An investment trust or exchange-traded fund is a basket of stocks, bonds, or other securities. Last year, Clarida disclosed a total of five transactions that took place over the two days of late February and early August.

In a transaction on February 27, 2020, Clarida sold out a bond fund and bought the same amount of assets in two equity funds. The last week of February began a period of intense volatility in financial markets, with stocks falling and bonds recovering.

Clarida’s calendar showed that on February 27, 2020, he spoke with Fed board members at 4:45 pm. Powell took the extraordinary step of issuing a statement on February 28, 2020, stating that the Fed “acts appropriately to support the economy,” which was a sign of a potential interest rate cut.

A Federal Reserve Board spokesman said in a statement that Mr. Clarida’s 2020 transaction “represents a pre-planned account rebalancing” that reflects similar activity disclosed in April 2019. Stated. It is a coronavirus emergency, not during a power outage. The selected fund was selected with the prior approval of a board ethic officer, “said a spokesman.

Last year, Warren introduced a law prohibiting senior government officials from trading individual stocks. Clarida’s work did not violate the proposed additional restrictions.

Chris Low, chief economist at FHN Financial, said in a note to clients on Monday that the activity seems to be “just the kind that autopilot trade civil servants are supposed to do.” “Unfortunately for Clarida … the timing stinks, whether by chance or not.”

The White House is considering reappointing Powell or appointing his successor when his four-year term as chairman expires in early February, while at the same time providing financial disclosure to Fed officials. The controversy over it is intensifying. Powell was considered a leading candidate for reappointment until recently. Federal Reserve Bank Governor Lael Brainard, a central bank dignitary who oversees the Reserve Bank, is another top candidate for this job.

Warren did not address the transaction issue with Powell at last week’s hearing, instead she strongly criticized his record of banking regulation, and if President Biden nominated him for the second term. He said he would oppose the confirmation. Powell’s efforts to ease financial regulations imposed after the 2008 crisis “make you a dangerous man to lead the Fed,” she told him last week.

Write to Nick Timiraos (nick.timiraos@wsj.com)

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Elizabeth Warren Requests SEC to Investigate Federal Reserve Board’s Trading Activities

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