Richard Clarida, vice president of the Federal Reserve, blamed “unintentional mistakes” for failing to reveal the full extent of his trade activity at the start of the pandemic, threatening to re-ignite ethical scandal at the U.S. Central Bank.
New revelations reveal that Clarida – already under fire from trade critics because the Fed planned emergency support for the economy – has been more active in financial markets than he originally discovered.
Clarida, the Fed’s deputy, previously revealed that on February 27, 2020, he transferred between $ 1 million and $ 5 million from a bond fund to an equity fund. These shops were controversial because they were closed only the day before Jay Powell, the president of the central bank, signaled that the Fed was preparing urgent measures to support the economy.
However, amended releases, released by the Fed last month, show that three days before the already reported transactions, Clarida sold between $ 1 million and $ 5 million in shares from the same equity fund. Updated announcements were first reported by The New York Times.
The revelations are the latest developments in a saga that has already forced the departure of two Fed regional presidents, while prompting a thorough revision of the trading rules for top officials.
“This shows not only a breakdown in the ethical decision-making of senior policymakers, but also in the very procedures and controls designed to monitor these policymakers,” said Caleb Nygaard, senior research associate at Yale’s Financial Stability Program and former Fed employee.
Nygaard added: “The nature of scandals like this is that the damage only increases every day when the public doesn’t hear the whole story and how the Fed plans to fix it.”
When Clarida’s business came to light in October, a Fed spokesman said they were part of a “pre-planned rebalance” and had previously received approval from the Central Bank’s Ethics Office.
Norman Eisen, an ethics adviser to the Obama administration from the Brookings Institution, said the latest discovery “calls into question” the initial explanation of Clarida’s turn. He added that it is the “duty” of the outgoing vice president to provide more information on transactions.
“Honestly, I don’t understand how selling the fund, not revealing it, then buying the same fund again, all with the Fed’s profits and sensitive information, is a ‘rebalance’, so it’s absolutely necessary for him to explain that reasoning,” he said.
The trade scandal that first erupted in September has caused widespread outcry reconsideration and encouraged Elizabeth Warren, a progressive Democrat from Massachusetts, to demand that the Securities and Exchange Commission investigate transactions that “reflect[ed] a terrible verdict ”.
An independent government supervisor who oversaw the central bank subsequently opened investigation.
Two Fed regional presidents, Eric Rosengren of Boston and Robert Kaplan of Dallas, resigned from their positions after it was determined that they had bought and sold individual shares several times last year and held shares in several investment funds.
Kaplan has uncovered holdings worth more than $ 1 million in 27 public companies, funds and alternative investments, including iPhone maker Apple, China’s e-commerce group Alibaba, electric vehicle maker Tesla and telecom group Verizon. Rosengren had large stakes in several real estate investment funds.
In an attempt to regain its credibility, the Fed is in October announced rules prohibiting policymakers and senior staff from purchasing individual shares, limiting any purchase to a variety of investment assets such as mutual funds.
They were also prohibited from holding investments in individual bonds, agency securities or concluding derivative contracts, with the introduction of guidelines on when transactions can be completed, how many days are required in advance and how long investments must be held.
“This new announcement about Clarida’s trading activity raises more questions about transparency and ethics in the Fed,” said Sarah Blinder, a political scientist at George Washington University. “The public must have confidence that the Fed will actually adhere to its own stricter regime.”
The Fed did not immediately respond to a request for comment on Thursday.