“This trading scandal – the most severe ethics failure in the Fed’s history – eroded the public’s trust and raised legitimate questions about the integrity of Fed officials and the Fed’s policy making process.”

“The Fed’s repeated denials of requests for transparency and your apparent inability to live up to your responsibilities as the Fed’s watchdog unfortunately suggest that the public may never get to the bottom of the scandal.”

WASHINGTON, D.C. – In a bipartisan letter to the Federal Reserve’s (Fed) Office of Inspector General (IG), Senators Rick Scott and Elizabeth Warren called out the Fed IG’s failure to hold officials accountable for violating Fed rules and fostering a culture in which severe conflicts of interests go consistently unchecked.

The lawmakers point to the recent closing of the investigation into suspicious trades made in 2020 by Robert Kaplan, former President of the Dallas Federal Reserve Bank, and Eric Rosengren, former President of the Boston Federal Reserve Bank, as the latest example of a culture that insulates Fed officials from accountability. During the Covid-19 pandemic, these officials engaged in investment trades while in possession of insider information about the Fed, raising public skepticism about the integrity of the Fed decision-making process and its high-ranking officials. The report, which took over two years to complete and found numerous unreported trades and discrepancies on the part of the officials, makes no suggestion to hold either official accountable–and is consistent with its 2022 report which let Reserve Board Chair Powell and Vice-Chair Clarida off the hook for similar violations.

The lawmakers write, “Your years-long delay before completing this investigation, your failure to hold Mr. Rosengren and Mr. Kaplan accountable for violating key Reserve Bank rules and policies, and your inability to address ongoing weaknesses in Federal Reserve ethics rules represent failures to uphold your mission of providing independent oversight of the agency.”

In 2020, Kaplan made multiple $1 million-plus trades in more than a dozen companies, failing to report two trades on his 2020 Form A supplemental list of transaction dates. The Inspector General indicated that Kaplan may have been untruthful with regard to the information during the course of the investigation. Likewise, Rosengren did not report multiple trades and had multiple discrepancies between his brokerage statements and trading data and what he reported on his 2020 Form A, including seventeen purchases of real estate trusts at up to $250,000 each, at a time when he was “instrumental in policy decisions that influenced the nation’s housing market.” 

The IG’s report underscores the insufficient conflict of interest rules and disclosure review processes at the Fed. The Office of Inspector General made six recommendations to improve accountability, including that the Board develop a new financial disclosure report review process with guidance and enforcement mechanisms. As of last month, a status report revealed the Fed has failed to impose stricter ethics requirements–the few actions taken by the Board to fulfill recommendations by the Inspector General appear to be inadequate. 

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Earlier this year, Senator Scott introduced a legislative package aimed at forcing accountability on the Federal Reserve. This package includes:

• The Regular Order for Investments (ROI) of the Federal Reserve Act to end the Fed’s bad practices and force the Fed to consider the impact of its decisions on hard-working American families so this never happens again;
• The Right-Size the Federal Reserve Act to ensure an unwinding of the Fed’s massive balance sheet by mandating that it remain at or below 10% of U.S. GDP; and
• The Rein in the Federal Reserve Act to interject much-needed scrutiny and accountability of the Fed’s actions by establishing a statutory process for more strict oversight by Congress.

Read more about the proposals in the senator’s Washington Examiner op-ed HERE.

This legislation builds on Senator Scott’s bipartisan bill to require a presidentially appointed and Senate-confirmed inspector general to the Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau.

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