Dallas Fed, Home to the Largest Trading Scandal in Fed History, Quietly Runs a Help-Wanted Ad for a New General Counsel and Ethics Officer

By Pam Martens and Russ Martens: December 24, 2021 ~

Robert Kaplan, President of the Dallas Fed

Robert Kaplan, Former President of the Dallas Fed

The Dallas Fed has not publicly announced the retirement or dismissal of its General Counsel, Sharon Sweeney. And yet, it is currently running a help-wanted ad to replace her. Sweeney is still listed as General Counsel on the Dallas Fed’s website. We placed a call to the bank’s media contact this morning to clarify the details and left a message. We’ll update this article if we receive further information.

Sweeney has been with the Dallas Fed for the past 36 years. She doubles as the Dallas Fed’s Ethics Officer and put her signature to former Dallas Fed President Robert Kaplan’s outrageous financial disclosure forms, year after year. Those forms indicated that Kaplan was trading in and out of S&P 500 futures contracts in “over $1 million” trades – even in 2020 when he sat as a voting member of the Fed’s Open Market Committee and was privy to sensitive, market moving operations of the Fed to deal with plunging markets and business closures as a result of the pandemic. Kaplan also made “over $1 million” trades in numerous individual stocks. (See Kaplan’s financial disclosure forms from 2015 through 2020 here.)

After news of Kaplan’s trading went viral this year, he stepped down on September 27. The same day, the President of the Boston Fed, Eric Rosengren, also stepped down. Rosengren had been trading in and out of real estate investment trusts in 2020.

S&P 500 futures allow an individual to trade almost around the clock from Sunday evening to Friday evening, while stock exchanges in the U.S. are open only on weekdays from 9:30 a.m. to 4:00 p.m. ET. S&P 500 futures gave Kaplan access to making directional bets on where the market would go after the stock market closed, which is typically when the Fed makes market-moving announcements. The most popular and liquid S&P 500 futures contract is the E-mini. A trader can get as much as 95 percent leverage on this contract – far more than the 50 percent leverage that is available for stock trades.

Kaplan is a sophisticated Wall Street veteran who worked at Goldman Sachs for 22 years, rising to the rank of Vice Chairman. As such, he would have certainly understood that the type of trading he was doing could subject him to an investigation for insider trading as well as removal from his job. But instead of avoiding all trading activity, Kaplan jumped in with both feet according to his financial disclosure form for 2020.

The year 2020 presented a prime opportunity for a nimble trader to make huge gains (or losses) in the stock market from short-term trading. As a result of the lockdowns from the pandemic, GDP fell by 31.4 percent in the second quarter of 2020– the largest decline on record. At numerous times during 2020, the Fed was making dramatic market-moving announcements of interest rate cuts and the creation of a multitude of emergency lending facilities and emergency measures. From January 1, 2020 through April 30, 2020, based in no small part on these Fed announcements, the S&P 500 Index gyrated from down 30 percent in late March to up 10 percent by the end of April.

Adding to suspicions surrounding Kaplan, and Sweeney who signed off on his trading disclosures, was the fact that Kaplan failed to follow the specific instructions on his financial disclosure forms and provide the date of each trade. Where the purchase date or sell date should have been indicated, Kaplan simply placed the word “multiple.”

Wall Street On Parade requested the specific dates of Kaplan’s trades from the Dallas Fed. They declined to provide them. We filed a Freedom of Information Act (FOIA) request with the Federal Reserve Board of Governors. After stonewalling us, it eventually said it did not possess the trading information.

The mere hint that a Federal Reserve Bank President was trading in S&P 500 futures contracts should have sent its General Counsel/Ethics Officer racing to its Board of Directors to report this serious matter. And yet, Kaplan’s financial disclosure forms show he was able to get away with this type of trading since joining the Dallas Fed as its President in 2015.

The new help-wanted ad the Dallas Fed posted this week for a new General Counsel indicates these desired character traits:

“Leads with a clear set of values, demonstrates integrity in all situations and is a role model of ethical conduct

“Expertise with current and evolving legal issues and trends in banking, financial regulation, payments, technology and governance and ethics…”

The ad also states this: “OUR BANK has one of the most recognizable brands around the world.” That is true now, thanks to Kaplan and Sweeney, but not in a good way.

To date, there has been no word that the Securities and Exchange Commission or Justice Department is involved in the investigation of Kaplan’s trading. Federal Reserve Chair Jerome Powell has indicated that he referred the Fed’s trading scandal to the Fed’s Inspector General. Unfortunately, the Fed’s Inspector General reports to the Fed’s Board of Governors and he can be terminated by them with a two-thirds vote. That’s not what the American people will accept as an “independent” investigation.

Making this trading scandal all the more urgent for the Justice Department is the fact that there is significant reason to believe that two mega banks on Wall Street, both of which are supervised by the Fed, may have been involved in the trading by Kaplan and former Boston Fed President Rosengren. See our report: New Documents Show the Fed’s Trading Scandal Includes Two of the Wall Street Banks It Supervises: Goldman Sachs and Citigroup.

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