Federal Reserve trading scandal forces resignation of a third greedy official

Federal Reserve Vice Chair Richard Clarida said that he will step down on Friday, becoming the third official at the central bank to resign after a trading scandal that involved potential conflicts of interest.

Clarida is a Republican nominated by President Donald Trump and became a member of the Board of Governors of the Federal Reserve System on September 17, 2018.

The announcement followed revelations about Clarida’s trading in a stock fund in February 2020, when the coronavirus threatened to upend the global economy and the Fed was weighing extraordinary rescue measures.

One day before Fed Chair Jerome Powell issued a statement regarding the economic response to the COVID-19 pandemic, on February 27, 2020, Clarida traded between $1 million and $5 million out of a bond fund into the equity fund PIMCO StocksPlus. 

On October 4, 2021, Senator Elizabeth Warren requested the Securities and Exchange Commission investigate whether Clarida violated insider trading rules and to look into his “ethically questionable transactions.”

Clarida amended his financial disclosures in late December to show that he had sold and then repurchased shares in the stock fund within a matter of days, exposing as a lie his earlier claims that had characterized those stock trades as a simple rebalancing of his portfolio.

The New York Times wrote: “the rapid move out of stocks and then back in makes it look less like a planned, long-term financial maneuver and more like a response to market conditions.”

“Clarida is the third senior Fed official to resign due to possible insider trading during the pandemic, which shows there is an epidemic of ethical and legal violations at the highest levels of the Federal Reserve that the chairman has failed to address,” said Dennis Kelleher, president of Better Markets, which advocates for stronger market regulation.

“This is a shocking and disturbing development, which raises further questions about the policies and procedures for trading by Fed governors. We need a full investigation of who traded what, when, and on the basis of which nonpublic information in 2020 and 2021,” said Simon Johnson, an economist at the Massachusetts Institute of Technology.

Last year, the presidents of two regional Federal Reserve banks — Robert Kaplan of the Dallas Fed and Eric Rosengren of the Boston Fed — also stepped down after their unethical trading was revealed.

Although the trades complied with Federal Reserve financial ethics rules, they raised the possibility of conflicts of interest because the officials could have profited from the actions the Fed was taking at the time.

Kaplan had traded at least $1 million worth of stocks in 22 transactions in 2020.

Rosengren invested in an investment fund that held mortgage-backed securities, similar to what the Fed has bought to try to hold down long-term rates.

After those resignations were announced, Powell unveiled new ethics rules around trading by Federal Reserve board members and other top officials. The rules bar those officials from owning individual stocks or bonds and require 45 days’ advance notice of any trade.

Clarida, who has been part of an inner circle of Fed officials close to Powell and known as the “troika,” was scheduled to finish his term at the end of this month. Instead, he will instead resign about two weeks early. By doing so, he will miss what would have been his final meeting, scheduled for Jan. 25-26.

Clarida previously served as assistant secretary for economic policy of the U.S. Treasury in the George W. Bush administration, as a managing director of PIMCO, and as a professor at Columbia University.

When Clarida joined the Fed in 2018, his financial disclosures, which report assets in a range of values, estimated his wealth at between $9 million and $39 million.

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