Atlanta Fed chairman’s trade rule violation reignites ethics scandal

The head of the US Federal Reserve in Atlanta has violated the Federal Reserve’s trading rules and restrictions, the regional bank’s board of directors announced on Friday, reigniting one of the worst reputation crises in the institution’s history.

Transactions on behalf of Raphael Bostic, who has been Atlanta Fed President since 2017, were found to have been conducted during the blackout period, in which trading activities are prohibited prior to monetary policy-setting meetings.

The Atlanta Fed board of directors said it was also made aware of “inaccuracies” in the financial information provided by Bostic regarding its “personal financial assets and transactions.”

Commenting on Bostic’s 2021 annual disclosures, Sean Croston, the Fed’s Ethics Officer, said, “In the course of reviewing Raphael Bostic’s disclosures, we found that he has submitted materially incomplete annual disclosures in all of his prior years in office.”

The announcement threatens to reignite a scandal the central bank has been desperate to put behind it. The excitement erupted in September 2021 when it was discovered that two regional Fed Presidents were active participants in financial markets in 2020 as the Fed made unprecedented interventions to support the economy and financial markets early in the coronavirus pandemic.

Transactions by Richard Clarida, then vice chairman, were also under scrutiny, and he later resigned along with the two presidents after it was discovered that he had traded much more extensively than originally disclosed. Clarida resigned in January but was subsequently cleared of any wrongdoing alongside Fed Chair Jay Powell.

The investigations against the former state chairmen are still open.

Explaining the trades and the inaccuracies, Bostic said Friday his assets were held in “managed accounts that neither I nor my personal investment advisor could direct.”

He said he was “not aware of any specific deals or their timing,” including those violating blackout rules, nor that his holdings of U.S. Treasury funds in 2021 exceeded limits set by the central bank .

“However, I have learned that while I was not able to control trades in these accounts, the third-party led transactions, not just the assets themselves, should have been reported on my annual financial disclosure forms,” ​​he said in a statement noting his “regrets”.

“I want to be clear: at no time have I knowingly authorized or entered into any financial transaction based on non-public information or with the intention of hiding or circumventing my duties of transparent and accountable reporting,” added Bostic.

In a statement released Friday, Atlanta Fed chief executive Elizabeth Smith said Bostic’s forms have now been “thoroughly corrected.” She said she and her colleagues “have confidence in President Bostic’s statement that he had not attempted to impose any . . . Knowledge” related to the Federal Open Market Committee, which sets US monetary policy.

Smith added that the board is “pleased” with Bostic’s revised disclosures and the “changes he has made in managing his investments.”

According to a Fed spokesman, an independent government regulator that oversees the central bank will “initiate an independent review” at Powell’s request.

“We look forward to the results of their work and will accept and take appropriate action based on their findings,” the person said in a statement.

The Fed unanimously passed rules in February severely restricting the trading of its top officials and senior executives.

First announced in October 2021, the rules prohibit Fed leaders from buying individual stocks and other assets, and limit transactions to “buying diversified investment vehicles such as mutual funds.”

Officials have far more restricted windows in which to authorize transactions and are now barred from trading even during acute market stress. The Fed has also changed when and how often trades must be disclosed.