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The Atlanta Federal Reserve bank president violated the US central bank’s trading rules and created the “appearance” of benefiting from confidential information, an internal watchdog said in a report on Wednesday.
The Fed’s independent inspector general concluded that Raphael Bostic had repeatedly broken its trading policies since becoming president of the Atlanta Fed in 2017, including 154 trades executed on his behalf during communications blackouts ahead of Fed rate-setting meetings.
While the report concluded Bostic did not trade on confidential Federal Open Market Committee information or have any conflicts of interests, the scope and timing of the transactions sparked alarm.
“Based on the totality of these findings, Dr. Bostic also created an ‘appearance of acting on confidential FOMC information’ and an ‘appearance of a conflict of interest’ that could cause a reasonable person to question Dr. Bostic’s impartiality under FRB Atlanta’s code of conduct,” according to the report.
In a statement on Wednesday, the Atlanta’s Fed board of directors said it took the issues “seriously” and would meet to “carefully discuss the report’s details further”.
A spokesperson from the Fed’s board of governors said officials had received the report and would review it.
Bostic was at the centre of the scandal first in October 2022 when it was disclosed that transactions were made for him during the blackout, when trading activity by Fed officials is prohibited. The ethics officer at the Fed disclosed then that Bostic had “filed materially incomplete annual disclosures during all prior years in office”.
New violations were revealed less than a year later involving an account run by a money manager, over which he and his spouse had no discretion. Bostic said the trades occurred “prior to realising that they were subject to blackout restrictions”.
The IG’s report on Wednesday said Bostic thought that trades he was not directing “can happen whenever they happen because none of my knowledge is informing any strategies, any actions, any of those sorts of things”.
The report said Bostic “had access to, but intentionally avoided, readily available information that trades had been executed on his behalf during FOMC blackout periods”, including monthly hard copy trading statements.
Bostic said he shredded those statements and only logged in online to view an electronic copy at year-end.
The IG’s office also found that Bostic’s holdings of Treasuries exceeded the Fed’s internal limits and that he did not follow rules regarding trades as recently as this year once he got clearance to do so.
Bostic was not the only Fed official to become ensnared in one of the worst reputational crises in the central bank’s history. Robert Kaplan and Eric Rosengren resigned from their positions as presidents of the Dallas and Boston Feds, respectively, after they were found to have traded at the onset of the coronavirus pandemic, as the central bank intervened in financial markets.
Richard Clarida, who was cleared of any wrongdoing, stepped down early from his position as Fed vice-chair ahead of a planned departure in 2022. Fed Chair Powell was also cleared of wrongdoing by the Fed’s watchdog after his trades drew scrutiny.
Following the scandal, the Fed tightened its trading rules for senior officials and top staff, barring them from buying individual shares and other investments and limiting transactions to “purchasing diversified investment vehicles, like mutual funds”.
Trading in cryptocurrencies, foreign exchange and commodities was also banned, along with short selling securities. Restrictions were also placed on when trades could be placed and how long they must be held.
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