Fed Ethics Scandal: Investments Violated Ethics Rules, But Cleared of Insider Trading

A recent investigation into the financial activities of Raphael Bostic, the president of the Atlanta Federal Reserve, revealed multiple breaches of the Fed’s strict ethics rules. According to a September 2024 report by the Office of Inspector General (OIG), Bostic's trades and investments, executed by financial managers on his behalf, violated limits imposed by the central bank. However, the probe concluded that there was no evidence of insider trading or intentional misconduct.

The violations stemmed from trades that occurred during the Fed’s “blackout periods,” where officials are prohibited from making financial moves. Bostic, who has led the Atlanta Fed since 2017, claimed he was unaware of these transactions at the time. According to him, his investment managers handled these trades independently and exceeded permissible amounts under the bank's guidelines. Despite this, Bostic expressed regret and emphasized his commitment to abiding by ethical standards in the future.

Atlanta Federal Reserve President Raphael Bostic violated the central bank’s rules around financial disclosures and trading activity, marking the latest revelation in a series of ethics issues to rock the institution, the Fed’s internal watchdog said. https://t.co/HhBl0YOwnn

— The Washington Post (@washingtonpost) September 12, 2024

The findings come amid heightened scrutiny of financial dealings within the Federal Reserve. This issue first emerged in 2021 when two other Fed officials, Robert Kaplan and Eric Rosengren, resigned after their active trading during the COVID-19 pandemic raised ethical concerns. The subsequent public outrage forced the Fed to revise its rules, which now prohibit high-ranking officials from holding individual stocks and require them to provide 45 days' notice before making trades​.

While the OIG cleared Bostic of any intentional wrongdoing or exploitation of non-public information, the case has reignited debates about conflicts of interest among federal officials. Bostic’s explanation—that his trades were unintentional and handled without his knowledge—was accepted by the Atlanta Fed’s board. Elizabeth Smith, the chair of the board, stated that they have “confidence” in his account and do not plan further actions​.

The only reason to oppose having ethics standards is … because you don't want to behave ethically.

Ginni Thomas doesn't want SCOTUS justices, unlike every other fed'l judge in the country, to be accountable. She likes her vacations & coup plots. It's about power and… https://t.co/E004f6ylyX

— Joyce Alene (@JoyceWhiteVance) September 4, 2024

The revised ethics policies, implemented in May 2024, aim to prevent further conflicts of interest by limiting the financial activities of senior Fed officials. These new guidelines are part of broader efforts to restore public trust after the 2021 scandal. Critics argue that the Fed’s transparency measures remain insufficient, as federal employees across government agencies continue to hold stock in companies that their policies directly impact​.

This controversy underscores a growing concern over ethics violations within the federal government. A Wall Street Journal investigation found that over 2,600 senior officials across multiple agencies, from the Commerce Department to the Treasury, held or traded stocks that stood to benefit from the decisions made by their respective departments. This situation has sparked calls for tighter regulation and greater oversight of public officials' financial activities​.

Fed Chair Jerome Powell has responded to the controversy by tightening the bank’s ethical standards. Nevertheless, Powell himself has faced questions about his own financial disclosures, further complicating efforts to restore credibility to the institution. As the Federal Reserve grapples with public discontent over these scandals, critics continue to demand more stringent policies to prevent future conflicts of interest​.

Bostic, for his part, has acknowledged the seriousness of the situation and has promised to adjust his investment strategies moving forward. He emphasized his belief in transparent and accountable financial reporting, stating that he never knowingly violated any ethics guidelines. Despite this pledge, the ongoing discussion highlights the challenges of ensuring ethical conduct within the highest echelons of government.