Atlanta Fed President Raphael Bostic’s trading activity violated two Federal Open Market Committee rules and two Atlanta Fed code-of-conduct policies, the Federal Reserve’s Office of Inspector General found in a Sept. 4 report made public Wednesday.
More than 150 transactions were executed on Bostic’s behalf during blackout periods – before and after Fed policy meetings – between March 2018 and March 2023, the OIG found.
Additionally, Bostic held U.S. Treasury bonds or notes worth more than a $50,000 threshold, according to the report.
Moreover, Bostic didn’t initially and accurately report certain securities transactions, and some trades didn’t align with what the Atlanta Fed president had submitted in a pre-clearance system, the OIG found.
The trades, however, were not made based on confidential information and did not show conflicts of interest, the OIG determined.
But they created “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," the investigation concluded.
The OIG made no recommendations on next steps for Bostic or the Fed, but the report has been referred to the Fed's board of governors “for any further action as they deem appropriate,” Bloomberg reported.
A Fed spokeswoman said the board has received the report and is reviewing it.
The Atlanta Fed is also reviewing the report, said Claire Lewis Arnold, the board chair of the central bank satellite.
"We take these issues seriously and the full board will meet to carefully discuss the report's details further,” she said in a statement.
Bostic, in 2022, said he improperly disclosed financial transactions dating back to 2017 — the year he took his current role — because he misunderstood trading restrictions and wanted to avoid perceived conflict of interest by holding his assets in managed accounts he could not direct.
At that point, Fed Chair Jerome Powell asked the OIG to investigate Bostic’s disclosures spanning to the beginning of his Atlanta Fed tenure.
Bostic followed up last year, reporting additional blackout trading violations from 2022.
This month’s OIG report highlighted 60 trades made between March 24 and April 29, 2020. Fed ethics officials urged policymakers and other senior staff at the time to voluntarily refrain from trading activities because of how intricately the Fed was maneuvering to support the economy at the start of the COVID-19 pandemic.
Bostic would hardly be the first Fed official ensnared in allegations of early COVID-era trading violations. Fed Vice Chair Richard Clarida resigned in 2022, after he disclosed selling an exchange-traded fund Feb. 24, 2020, only to repurchase it three days later, before Powell issued a statement signaling the Fed might cut interest rates.
Months earlier, Eric Rosengren and Robert Kaplan, presidents of the Boston and Dallas Fed, respectively, resigned when they disclosed they traded stocks at the onset of the pandemic while also helping to set monetary policy. An OIG report in January cleared the two ex-presidents of wrongdoing, but – as with the Bostic probe – noted an “appearance of a conflict of interest.”
The Rosengren and Kaplan disclosures led the Fed to issue new rules barring its board governors, 12 regional presidents and senior staff from buying individual stocks, holding investments in individual bonds or agency-backed securities, or entering into derivatives.
Policymakers and senior staff, under the amended rules, must provide 45 days’ notice before buying or selling any allowed securities, must obtain approval for those transactions, and must hold any investments for at least a year, the Fed said. “Further, no purchases or sales will be allowed during periods of heightened financial market stress,” the central bank said.
Bostic’s trades were made by third-party investment managers, and neither the Atlanta Fed president nor his personal investment adviser had control over the moves, this month’s report found.
Bostic told the IG in 2022 he thought ethics guidelines at the time “permitted transactions to occur during blackout periods so long as they were authorized before the blackout period began,” or as long as a person didn’t knowingly execute them during that period, according to the report.
But the OIG chided Bostic for failing to ensure his transactions aligned with Fed policies.
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, the OIG found.
Bostic said he shredded those statements and only logged in online to view an electronic copy at year-end, according to the Financial Times.
Bostic no longer keeps his assets in a unified managed account. Rather, they are held in an account managed by his brokerage firm and handled in accordance with Fed protocols, American Banker reported.
But even the office that issued the report has come under fire. Sen. Elizabeth Warren, D-MA, and others have asserted the OIG is far from independent because the inspector general is selected by the Fed chief.
