The Fed Responds to Report that Fed Chair Powell Traded During FOMC Blackout Periods

 

The Fed Responds to Report that Fed Chair Powell Traded During FOMC Blackout Periods

By Pam Martens and Russ Martens: February 11, 2022 ~

A Fed spokesperson has provided Wall Street On Parade with a detailed response to our article yesterday, which documented that trades were made in accounts in which Fed Chair Jerome Powell had a financial interest during a Federal Open Market Committee (FOMC) meeting in 2015 and another in 2019. Fed officials are clearly prohibited from trading before and during FOMC meetings because that is when they have insider, market-moving information.

Below is the full statement from the Fed spokesperson. Following the statement, we will explain its many, serious flaws.

“Chair Powell has not traded during FOMC blackout periods. The transactions that were reported occurred in family trusts over which he had no control. Chair Powell is not a trustee and did not direct or control the trades. He relinquished his previous role as a trustee in 2012 when he joined the Federal Reserve as a Board Member.

“These transactions were regular trades for the purposes of the trust, e.g., raising money for donations under the terms of a charitable trust. The trust is legally required to make certain charitable donations every year. In practical terms, this means that transactions must occur in order to free up funds for those donations.

“The trust financial advisor was advised of our blackout periods and was directed to avoid transactions during those blackout periods. Although they were aware of the FOMC blackout dates, the advisor mistakenly made some transactions during some blackout periods. These transactions were reported as part of his publicly available financial disclosures, which have been available regularly every year since he joined the Board. They are available to anyone through the Office of Government Ethics website, OGE.gov.”

Flaw Number 1: The 2015 trades occurred in “Powell Family Trusts” 3 and 4; the 2019 trades occurred in the “Powell Family Trust 3.” Powell’s financial disclosure forms, which he signed, define what has to be reported under “Part 7, Transactions” as follows: “Part 7 discloses purchases, sales, or exchanges of real property or securities in excess of $1,000 made on behalf of the filer, the filer’s spouse or dependent child during the reporting period.” Thus, Powell or someone in his immediate household had an interest in the assets being sold during two separate FOMC meetings. The assets were not held in Blind Trusts, so Powell – who has a law degree – should have been on top of what was happening in these accounts.

Flaw Number 2: Powell signed an Ethics Agreement in 2017 where he agreed to the following:

“If I have a managed account or otherwise use the services of an investment professional during my appointment, I will ensure that the account manager or investment professional obtains my prior approval on a case-by-case basis for the purchase of any assets other than cash, cash equivalents, investment funds that qualify for the exemption at 5 C.F.R. § 2640.201(a), obligations of the United States, or municipal bonds.”

It follows, logically, that Powell would do the same thing for sales transactions, i.e., give his approval on a “case-by-case basis.”

Flaw Number 3: The statement regarding the need to raise cash to fund charitable donations is not convincing. Many wealthy individuals gift appreciated securities to charity, obtaining a tax advantage in doing so. Regardless, in both 2015 and 2019, waiting one extra day to make the trades would have avoided running afoul of the Fed’s prohibition on trading during the blackout period around FOMC meetings.

Flaw Number 4: Powell signs all of his financial disclosure forms, including those for 2015 and 2019. Why didn’t he notice that there were trades listed that occurred on FOMC meeting dates and issue a timely public apology?

Flaw Number 5: According to the Congressional Research Service, this is the prescribed procedure at the Fed that is supposed to prevent the problems outlined above, as well as those of the three Fed officials that have resigned over their own trading scandals since last September:

“Financial disclosure reports from covered officials, including the original entrance reports and the annual reports filed by May 15, are to be reviewed by supervisory ethics personnel to identify potential ethics and conflict problems, and to resolve any conflict of interest issues that may be raised by the ownership of certain assets by a particular public official. Remedial action which may be required by ethics officials to resolve identified conflicts of interest with respect to certain assets may include divestiture, establishment of a qualified blind trust, procurement of conflict of interest waivers, specific written recusal instruments, and requests for voluntary transfer or reassignment.”

It was not an Ethics Officer at the Fed who disclosed to the public the fact that trades in Powell’s accounts occurred on an FOMC meeting date. It was an activist group called Occupy the Fed.

In fact, the General Counsel and Ethics Officer of the Dallas Fed, Sharon Sweeney, allowed Dallas Fed President Robert Kaplan to trade in and out of “over $1 million” S&P 500 futures contracts from 2015 through 2020. These types of contracts can be used to make directional bets on which way the stock market is going to move. They trade during and after the stock markets in the U.S. have closed – almost continuously from Sunday evening to Friday evening. (See our report: Robert Kaplan Was Trading Like a Hedge Fund Kingpin for Five Years while President of the Dallas Fed; a Dozen Legal Safeguards Failed to Stop Him.)

Supervisory ethics personnel at the Fed also did not stop Fed Chair Powell from having upwards of $25 million of his family wealth managed by BlackRock while the firm was given three no-bid contracts by the Fed.

The Fed is not some mom and pop shop in Dubois. It’s the central bank of the United States with a current balance sheet of $8.9 trillion, 98 percent of which American taxpayers are on the hook for. It’s also in charge of supervising the most dangerous megabanks in the United States, which continue to be serially charged with crimes against the investing public while the Fed continues to bail them out.

Do we really want a man at the helm of this sprawling institution who can’t even own up to his failure to police his own trading activities?

LINK

Bloomberg’s Craig Torres Shakes Up the Fed’s Zombie Press Conference with a Gutsy Trading Scandal Question

 

Bloomberg’s Craig Torres Shakes Up the Fed’s Zombie Press Conference with a Gutsy Trading Scandal Question

By Pam Martens and Russ Martens: January 28, 2022 ~

Craig Torres, Bloomberg News Reporter Covering the Fed and Economy

Fed Chair Jerome Powell’s press conferences are tortiously zombie affairs even for Fed wonks like us. The vast majority of questions coming from the press strictly adhere to coloring inside the lines. That means only slight variations on endless questions about inflation, asset tapering, timing of rate hikes and similar snoozers.

We were struggling to avoid nodding off during Powell’s press conference this past Wednesday when the Fed and economic reporter for Bloomberg News, Craig Torres, jolted us upright in our chair. Torres asked Powell a wonky question and then appended a follow up question about the Fed’s trading scandal. That part of the exchange went as follows:

Torres: “Chair Powell, I have a quick administrative question. You know, Robert Kaplan’s disclosure of his securities transactions: In a couple of months, Chair Powell, or maybe sooner, you and I will file our tax returns. And we’ll list transactions and all kinds of things. And next to those transactions we’ll put dates. And Bloomberg asked for the dates of Mr. Kaplan’s transactions. The Dallas Fed is not giving us the dates. And I don’t see why this is a matter for the Inspector General or anybody else. I mean, why can’t he give us the dates? Will you help us get the dates of those transactions? Thanks.”

Powell: “I know you’ve been all over this issue with my colleagues, Craig, on the issue of information. We don’t have that information at the Board. And, you know, I had — I asked the Inspector General to do an investigation, and that is out of my hands. I’m playing no role in it. I seek to play no role in it. And I don’t — I really — I can’t help you here today on this issue. And I’m sorry I can’t.”

Torres was not suggesting that the trading scandal itself is not “a matter for the Inspector General or anybody else.” Clearly, the trading scandal is a matter for the SEC and the criminal division of the Justice Department. (See our report:  Robert Kaplan Was Trading Like a Hedge Fund Kingpin for Five Years while President of the Dallas Fed; a Dozen Legal Safeguards Failed to Stop Him.)

Torres was suggesting that there is no reason for the dates of Kaplan’s trades to be withheld from the public because of any ongoing investigation because that information was previously legally owed to the American people and Kaplan didn’t provide it as legally required. Thus, as they say in the courtroom, it’s “ripe” for disclosure.

When Kaplan made his multiple “over $1 million” trades in bets on which way the stock market would move using S&P 500 futures – during the year of 2020 when he was both sitting as a voting member of the Fed’s FOMC as well as making market-moving comments himself to the media – he was legally obligated to report the dates of each individual buy and sell on the form provided to him by the Dallas Fed. Every other regional Fed Bank President listed the dates of the buys and sells. But Kaplan simply wrote the word “multiple” where the date was required. (See Kaplan’s financial disclosure forms from 2015 through 2020 here.)

Kaplan is a sophisticated investor who spent 22 years at Goldman Sachs, rising to the rank of Vice Chairman. He clearly knew, for five solid years, that he was not providing the dates of his trades as required by the mandated financial disclosure form. That, in and of itself, is a smoking gun. Why withhold information if you have nothing to hide?

What Craig Torres should do now is what the late Bloomberg reporter Mark Pittman did in 2008. He should march into the newsroom and ask his boss if he can file a lawsuit in federal court to get the information that the Dallas Fed refused to turn over. But instead of filing a lawsuit against the Fed, which is likely telling the truth and doesn’t have Kaplan’s trading records (because it’s incompetent at policing trading abuses within its own ranks as well as on Wall Street) Torres and Bloomberg should file a lawsuit against Kaplan himself.

Think about that for a moment. Kaplan is now a private citizen. He can no longer hide behind the shield of the Dallas Fed. The information was legally required to be filed by him from 2015 through 2020 and he didn’t file it. It belongs to the American people and to the press. It is long overdue so the court should demand its immediate release. Kaplan’s stalling tactics are grinding investigative journalism in this critical area of public interest to a halt.

In addition, Torres could ask the court to make Kaplan turn over not simply the dates of his trades but the trade confirmations from his brokerage firm to confirm that he’s now being forthright about these trades. That would provide a major piece of information about the name of the brokerage firm that had such lax compliance procedures that it allowed a Fed Bank President with insider information to trade like a hedge fund kingpin. As we previously reported, Goldman Sachs Refuses to Say If It Was Placing Trades for Dallas Fed President Kaplan.

Another reason that Torres should ask to file this lawsuit alongside Bloomberg News is to find out if Bloomberg News, with billionaire Mike Bloomberg at the helm, is willing to back up its investigative reporters. Mike Bloomberg was Mayor of New York City with someone else in charge of his publishing empire when Pittman filed his lawsuit against the Fed.

Mike Bloomberg’s willingness to meddle and defend rogue actors is on full display in a headline at Bloomberg News today. He’s written an opinion piece telling Congress to back off bringing antitrust legislation against big tech companies. Should the public be listening to a billionaire tell Congress what legislation it should bring when Mike Bloomberg used his own wealth to overturn term limits in New York City so that he could get a third term as Mayor?

You might be questioning why Wall Street On Parade hasn’t brought such a case against Kaplan to federal court since we seem to be in possession of all of the salient details. It’s because we’re a two-person research and writing team and we’re already hard-pressed to pick up the slack on what mainstream media won’t report. For example, consider our report: There’s a News Blackout on the Fed’s Naming of the Banks that Got Its Emergency Repo Loans; Some Journalists Appear to Be Under Gag Orders.

If Bloomberg News files the lawsuit, it can do what it did in the Pittman case. It can get other major media outlets to support its position in an Amicus Brief. It’s time for American journalists to come out of our COVID caves and re-engage in a participatory democracy. 

LINK

After Its President Created the Biggest Trading Scandal in Fed History, Dallas Fed Chair Calls Robert Kaplan’s Tenure “Great Leadership”

 

After Its President Created the Biggest Trading Scandal in Fed History, Dallas Fed Chair Calls Robert Kaplan’s Tenure “Great Leadership”

By Pam Martens and Russ Martens: January 18, 2022 ~

Thomas J. Falk, New Chair of the Dallas Fed Board of Directors

Last Thursday evening, at 5:00 p.m. Dallas time and 6:00 p.m. Eastern Standard Time, when millions of folks on the East Coast are sitting down for dinner, the Dallas Fed held a virtual Town Hall.

Given the fact that the President of the Dallas Fed, Robert Kaplan, had to step down in disgrace in September, after trading like a hedge fund kingpin in 2020 while simultaneously having access to confidential market-moving information as a voting member of the Fed’s Federal Open Market Committee (FOMC), there was a very good reason for the Dallas Fed to hold a Town Hall.

But stunningly, the tone-deaf Dallas Fed did not focus the Town Hall on how its Board and management had negligently supervised Robert Kaplan, allowing him to trade in and out of S&P 500 futures in over $1 million trades during a year of a national pandemic crisis. Instead, the Dallas Fed attempted a public relations stunt, and focused the Town Hall on how it wanted the public to engage in its search for a new President. It was clearly a Town Hall ginned up in an effort to quiet the pitchforks.

The Dallas Fed did not take one question on former President Robert Kaplan’s outrageous trading. It did not take one question on why its General Counsel and Ethics Officer, Sharon Sweeney, signed off on these trades. It did not take one question as to why the former and current Board Chairs, Greg Armstrong and Thomas Falk, respectively, lied to the American people in their official statement regarding Robert Kaplan severing his ties to the banks supervised by the Fed.

Instead, the newly appointed Chair of the Dallas Fed Board, Thomas Falk, called the tenure of Robert Kaplan at the Dallas Fed “great leadership.” We could hardly believe our ears. Fortunately, the Dallas Fed put up a video of the Town Hall so that we could double check what we heard. We’ve set the video clip below to the question from the moderator that triggered the “great leadership” response from Thomas Falk.

Falk had come under our radar previously. At the time the scandal hit last September, Falk was serving as Vice Chair of the Dallas Fed Board. He and the Chair at that time, Greg Armstrong, included the following false statements in their official announcement of Kaplan’s “retirement.”

“Upon joining the Bank, Rob systematically sold all of his personal holdings related to financial institutions over which the Federal Reserve had regulatory oversight or were otherwise restricted. Rob also conducted his investment activities in accordance with the rules and policies of the Federal Reserve System.”

Both of those sentences are blatantly false. Kaplan was a sophisticated Wall Street veteran who previously worked at Goldman Sachs for 22 years, rising to the rank of Vice Chairman. He clearly knew that making directional bets on the market using S&P 500 futures, while simultaneously making market moving statements on television and sitting on inside information from the FOMC meetings, could subject him to criminal charges of insider trading.

On October 5, we sent an overnight letter to the home of Falk in Dallas. We advised him as follows:

“On Monday, September 27, under your name and that of the Chair, Greg Armstrong, the Board of Directors of the Dallas Fed released a statement to the press that included this sentence:

‘Upon joining the Bank, Rob systematically sold all of his personal holdings related to financial institutions over which the Federal Reserve had regulatory oversight or were otherwise restricted.’

“This was a materially false statement since Mr. Kaplan’s financial disclosure forms indicate that he owned four proprietary products from Goldman Sachs long after he joined the Dallas Fed on September 8, 2015. (Goldman Sachs has been supervised by the Federal Reserve since September 21, 2008.)

“One of those Goldman Sachs products, the Exchange Place LP, appears on Mr. Kaplan’s financial disclosure form for years 2015 through 2020. The address of Exchange Place LP is Goldman Sachs’ headquarters at 200 West St. in Manhattan; the officers of Exchange Place LP are employees of Goldman Sachs; and the phone number for Exchange Place LP is Goldman Sach’s phone number.

“In addition, Mr. Kaplan uses the term ‘GS’ on his various financial disclosure forms next to three other proprietary products that were created and sold by Goldman Sachs: the Goldman Sachs Financial Square Money Market Fund; the Goldman Sachs Medium Term Managed Corporate Bond Account, and the Goldman Sachs Private Equity Fund 2000 (which does not publicly trade).

“First, I am asking for you to issue a retraction of the materially false statement that has been issued under your name.

“Second, I am asking that you have a staff member at the Dallas Fed email me the precise dates of each purchase and sell transaction that Mr. Kaplan transacted in 2020. The public is owed that information. As a former auditor, you can easily see that the Dallas Fed financial disclosure form requires that information and Mr. Kaplan simply replaced that required information with the word ‘Multiple.’

“All other regional Federal Reserve Bank Presidents complied with the requirement to provide the dates of their purchases and sells in 2020. Only Mr. Kaplan ignored this requirement.

“I have previously requested those dates from James Hoard of the Dallas Fed via email and received no forthcoming information.

“I look forward to your timely attention to these serious matters.”

We heard nothing further from Falk and the grossly false statement remains today on the website of the Dallas Fed. James Hoard, part of the Communications team at the Dallas Fed, continues to deny the media the dates of Kaplan’s trades, thus preventing the press from doing its job. At present, the public does not know if Kaplan was making millions of dollars of trades in S&P 500 futures, or tens of millions or hundreds of millions of dollars, in a year when the President of the United States had declared a National Emergency.

The Dallas Fed has also refused to say if Kaplan was shorting the market in 2020 (betting it would go down) in a year when 352,000 of his fellow Americans died from COVID-19 according to Johns Hopkins University.

The year 2020 presented a unique opportunity for a nimble trader to make huge gains (or losses) trading S&P 500 futures, which unlike the stock market, do not close at 4:00 p.m. EST but trade continuously from Sunday evening to Friday evening. At numerous times during 2020, the Fed was making dramatic market-moving announcements of interest rate cuts and the creation of a multitude of emergency lending facilities and taking other emergency measures. From January 1, 2020 through April 30, 2020, based in no small part on these Fed announcements, the S&P 500 Index gyrated from down 30 percent in late March to up 10 percent by the end of April.

As of last Thursday, Falk had no way to know if Kaplan will be charged with insider trading. Senator Elizabeth Warren has called on the SEC to open an insider trading investigation. Others have called on the Justice Department to open a criminal investigation. Neither the SEC nor the Justice Department disclose when an investigation has been opened. What is known is that the Inspector General of the Federal Reserve (who, unfortunately, reports to the Board of the Fed) has an ongoing investigation of the Fed trading scandal, which includes additional Fed officials besides Kaplan.

For Falk to attempt to prejudice these investigations by calling Kaplan’s tenure at the Dallas Fed “great leadership,” raises suspicions as to what his real motive is to be shilling for Kaplan.

Kaplan triggered the worst trading scandal in the 108-year history of the Fed. Newspapers around the world carried the story, bringing reputational damage to the U.S. central bank. Editorial boards of newspapers across the U.S. chastised the Fed for having such loose trading restrictions on its officials.

The Chair of the Federal Reserve Board of Governors, Jerome Powell, responded by releasing a draft set of new trading rules to be implemented. But at his confirmation hearing before the Senate Banking Committee on January 11, Powell told the Chair of the Committee, Senator Sherrod Brown, that the final rules had not yet been adopted.

Powell, himself, has come under questions about his trading activity, but the Senate is likely to confirm him for another four years as Chair of the Fed before the details of any government investigation into the trading scandal are released. This could set the Federal Reserve up for more distrust at a time when confidence in the institution has seriously eroded, according to polls.

The obvious conclusion to draw from all this is that it’s not just the trading rules for officials at the Fed that need to be radically restructured, but the institution itself is due for a serious restructuring by Congressional legislation.

LINK