by Pam Martens and Russ Martens, Wall St On Parade:
Dallas Fed President, Robert Kaplan, wasn’t just trading like an aggressive hedge fund kingpin in 2020, he’s been doing the same thing for five years at the Dallas Fed while simultaneously having access to non-public, market moving information from the Federal Reserve’s interest-rate setting FOMC meetings and other confidential communications.
In 2017 and 2020, Kaplan was a voting member of the FOMC. In the other years since he joined the Dallas Fed in 2015, he sat in on the confidential FOMC deliberations and was allowed to participate in the discussions.
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Each of Kaplan’s financial disclosures forms dating back to when he first became Dallas Fed President on September 8, 2015 (which we obtained directly from the Dallas Fed), show that Kaplan was trading in and out of S&P 500 futures, a highly speculative form of trading used by hedge funds and day traders. Each of Kaplan’s S&P 500 transactions are listed at “over $1 million.” The phrase “over $1 million” could mean anything from $1,000,001 to tens of millions of dollars per transaction. The phrase is a form of opacity that leads to more loss of credibility at the Dallas Fed.
Unlike other regional Fed bank presidents and all Federal Reserve Board Governors, Kaplan did not list the dates of his transactions for any year of his financial disclosures. He simply placed the word “multiple” where the specific dates should have gone on his financial disclosure forms. For how the Schedule B/Transactions part of the form is supposed to be prepared, see the financial disclosure form filed by Tom Barkin, President of the Richmond Fed. Each purchase and each sale are supposed to be entered on a separate line, with the date next to each. Kaplan’s financial disclosure forms lump purchases and sales together on the same line, putting the word “Multiple” where the actual dates of the trade are supposed to be listed.
In the early part of Kaplan’s career, he was a CPA for Peat Marwick Mitchell. He should certainly know that how he listed his trading transactions is improper.
In addition to speculating in stock index futures, Kaplan has also made tens of millions of dollars in purchases and sales of a litany of individual stocks over the last five years, including Big Tech and fossil fuel companies, rather than adhering to the customary ethical standard by Fed officials of employing a buy and hold position in diversified mutual funds. In 2020, the vast majority of Kaplan’s individual stock trades were also for “over $1 million.”
The Federal Reserve had rules against this very type of speculative trading for decades, but those rules have now somehow managed to vanish into thin air.
On August 12, 1977, the Comptroller General of the U.S., Elmer Staats, filed a report with Congress in which he warned that the Federal Reserve’s financial disclosure system was woefully lacking. Staats specifically called out the Fed’s failure to define with specificity what constituted prohibited “speculative dealings” for its employees.
Staats notes in the report:
“Federal Reserve regulations on standards of conduct are issued to each Board employee. Specific Board prohibitions on financial interest state that an employee may not: Have a direct or indirect financial interest that conflicts substantially, or appears to conflict substantially, with his duties and responsibilities; Engage in speculative dealings (as distinguished from investments) in securities, commodities, real estate, exchange, or otherwise. Frequency of trading, the use of credit, and particularly transactions to take advantage of short-term price fluctuations would be significant indications that dealings were speculative.”
That last sentence in the above paragraph is the quintessential definition of trading in S&P 500 futures.
This Federal Reserve rule prohibiting speculative dealings was still in force at the Federal Reserve on December 19, 1995 because the following reference appears in the Federal Register for that date:
“A provision of the Board’s current ethics rules prohibits Board employees from engaging in speculative dealings. See 12 CFR 264.735–6(d)(iii).”
Looking at the current Federal Reserve Board of Governors’ ethics rules and those that have been published for each of the 12 regional Federal Reserve banks, we found zero references to “speculative dealings.”
What we did find, however, was the following sentence in 11 of the 12 regional Federal Reserve banks’ codes of conduct: (The Atlanta Fed words the statement differently but with the same overall meaning.)