Watchdog probe says Atlanta Fed president created ‘appearance’ of impropriety

Federal Reserve Bank of Atlanta President Raphael Bostic violated the central bank’s trading rules and policies in 2022, according to a government watchdog report.

The Federal Reserve’s Office of the Inspector General, or OIG, released the findings from its review of Bostic’s investments and related disclosures made between 2017 and 2021 on Wednesday. The probe determined the trades were not made based on confidential information and did not present conflicts of interest, but they did create the appearance of impropriety.

Along with leading the regional reserve bank, Bostic also participates in the Fed’s monetary policy making arm, the Federal Open Market Committee, attending meetings and voting on policies on a rotating basis. Bostic is a current member of the FOMC but will rotate off the committee in 2025.

OIG investigators confirmed that trades were made by third-party investment managers and that neither Bostic nor his personal investment advisor had control over the moves. Still, the report notes, the Atlanta Fed president was responsible for ensuring his affairs were handled in line with Fed policies and failed to do so.

“Based on the totality of these findings, Dr. Bostic also created an ‘appearance of acting on confidential FOMC information’ under the FOMC blackout rule 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,” the report stated.

The OIG concluded that Bostic violated two FOMC trading rules and two Atlanta Fed code of conduct policies. The report, which was closed on Sept. 4, notes that as of August 2022, Bostic no longer keeps his assets in a unified managed account. Instead, they are now held in an account managed by his brokerage firm and handled in accordance with central bank protocols.

The inspector general made no recommendations for further steps by Bostic or the Fed. The matter has been referred to the Fed’s Board of Governors for further action.

A spokesperson for the Board confirmed it has received the report and is reviewing the findings.

Claire Lewis Arnold, chair of the Federal Reserve Bank of Atlanta’s Board of Directors, said the reserve bank is also reviewing the report and considering next steps.

“On behalf of the Federal Reserve Bank of Atlanta’s board of directors, I want to express appreciation for the thorough review by the Office of Inspector General of the Board of Governors of the Federal Reserve System into President Bostic’s financial disclosures,” Arnold said in a written statement. “We take these issues seriously and the full board will meet to carefully discuss the report’s details further.”

Fed Chair Jerome Powell called for the OIG to investigate Bostic’s actions in October 2022, after Bostic disclosed that he had failed to include certain financial transactions in his annual disclosure document, that some of those trades came during the FOMC’s so-called “black out period” — a window beginning two Saturdays before each committee meeting in which officials are barred from making securities trades — and that his U.S. Treasuries holding had exceeded the $50,000 limit.

Bostic made a similar disclosure in June 2023, explaining additional assets and transactions from the 2017 to 2021 time frame. 

Bostic’s disclosures came in the wake of a broader trading scandal involving Fed officials that surfaced in 2021. In that episode, several FOMC participants were scrutinized for trades made around the time of the Fed’s emergency actions in response to the Covid-19 pandemic in 2020. 

The fallout from the initial scandal led to the resignations of two reserve bank presidents: Eric Rosengren, who led the Boston Fed, and Robert Kaplan, head of the Dallas Fed. Powell and then-Fed Vice Chair Richard Clarida faced questions, too, but were ultimately cleared of any wrongdoing.

In response to the ordeal, Powell directed the central bank’s staff to examine its policies around trades and related disclosures and improve them. Still, Fed critics — including Sen. Elizabeth Warren, D-Mass. — have frequently used the episode to criticize both Powell and the Fed’s inspector general for what she sees as a failure to hold officials accountable.