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Fed’s trading scandal revived by top official’s revelations

Richard Clarida, vice chair of the Federal Reserve, blamed “inadvertent errors” for not disclosing his entire trading activity at the start of the pandemic, threatening to re-establish moral scandal at the central bank of the United States.

New revelations reveal that Clarida – who was fired for making trades when the Fed was plotting emergency support for the economy – was more active in financial markets than he revealed. initial.

Clarida, the Fed’s second-in-command, previously revealed that he moved from $1 million to $5 million from a bond fund to a stock fund on February 27, 2020. Those transactions caused a stir. controversial because they were made just the day before. Jay Powell, the president of the central bank, signaled the Fed was preparing emergency measures to support the economy.

However, the revised disclosure, released by the Fed last month, shows that three days before the transactions were reported, Clarida sold between $1 million and $5 million in shares from the same stock fund. The updated revelations were first reported by The New York Times.

The revelations are the latest development in a saga that has forced two regional Fed presidents to leave while pushing for a sweeping overhaul of trading rules for top officials.

“This not only demonstrates a breakdown in ethical decision-making by a planner,” said Kaleb Nygaard, a senior research associate at Yale’s Financial Stability Program and a former Fed employee. high-level policy makers, but also in the procedures and controls themselves that oversee these policymakers. .

“The essence of scandals like this is that the damage only grows with each day that the public doesn’t get to hear the full story and how the Fed plans to fix it,” Nygaard added.

When Clarida’s transactions came to light in October, a Fed spokesman said they were part of a “pre-planned rebalancing” and had been approved by the central bank’s ethics office. Approved in advance.

Norman Eisen, the Obama administration’s ethics adviser at the Brookings Institution, said the latest disclosure “questions” the original explanation for Clarida’s transactions. He added it was the “incumbent” on the outgoing vice-president to provide more information on the transactions.

“Honestly, I don’t understand how selling off the fund, not disclosing it, and then buying back the fund itself, all of which generate profits and have sensitive Fed information, create into a ‘rebalancing’, so it’s really necessary that he explain that rationale,” he said.

The trading scandal that first broke out in September has spread careful assessment and prompted Elizabeth Warren, a radical Democrat from Massachusetts, to ask the Securities and Exchange Commission to open an investigation into the transactions “reflecting[ed] brutal sentence”.

An independent government watchdog that oversees the central bank later opened a investigation.

Two regional Fed presidents, Eric Rosengren of Boston and Robert Kaplan of Dallas, resignation from their positions after they were found to have repeatedly traded individual stocks and held shares in several investment funds last year.

Kaplan reveals holdings worth more than $1 million in 27 publicly traded companies, funds and alternative investments, including iPhone maker Apple, Chinese e-commerce group Alibaba, maker of electric car Tesla and telecommunications corporation Verizon. Rosengren holds large shares in several real estate investment trusts.

In an attempt to restore its credibility, the Fed in October announced rules that forbid policymakers and its senior staff from buying individual stocks, restricting any purchases to diversified investment vehicles such as mutual funds.

They also forbid them from holding investments in individual bonds, agency securities or entering into derivative contracts, and provide guidelines on when transactions can be made, giving advance notice. how many days and how long the investments must be held.

“This new revelation about Clarida’s trading practices raises more questions about transparency and ethics at the Fed,” said Sarah Blinder, a political scientist at George Washington University. “The public needs to be able to trust that the Fed will actually stick to its own stricter regime.”

The Fed did not immediately respond to a request for comment on Thursday.

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