By Pam Martens and Russ Martens: December 9, 2021 ~
On October 12, Wall Street On Parade filed a Freedom of Information Act (FOIA) request with the Federal Reserve Board of Governors seeking the specific dates on which former Dallas Fed President, Robert Kaplan, had made purchases and sales in S&P 500 futures contracts in 2020. According to Kaplan’s financial disclosure forms, he had made “multiple” transactions of over $1 million in S&P 500 futures during 2020, the year that he sat as a voting member of the Federal Open Market Committee and was privy to the Fed’s unprecedented interventions in the market during the economic upheaval from the pandemic. (See Kaplan’s financial disclosure forms from 2015 through 2020 here.)
Kaplan was under very precise instructions on his annual financial disclosure form to provide the “month, day, year” of each of his purchases of securities and each of his sales. But throughout his tenure at the Dallas Fed, Kaplan listed only the word “multiple” where the specific date should have appeared on the form.
Kaplan is a sophisticated Wall Street veteran who worked at Goldman Sachs for 22 years, rising to the rank of Vice Chairman. He should have certainly been able to follow the simple instructions on his financial disclosure form. By Kaplan eliminating the dates of his trades, it is impossible to know if Kaplan made two trades of over $1 million each in S&P 500 futures in 2020 or if he made dozens of trades of over $1 million. It is also impossible to track if his trades were conducted around the time that the Fed had made a major announcement about a Fed intervention to prop up the market.
Because Kaplan sat on insider information throughout much of 2020, he should not have been trading at all, let alone in S&P 500 futures which allow an individual to trade after the U.S. stock exchanges have closed – almost around the clock from Sunday evening to Friday evening. A member of the Federal Reserve system engaging in “multiple” “over $1 million” trades in a market-timing device like S&P 500 futures should have set off alarm bells at the Dallas Fed and at the Fed’s Board of Governors – which includes Jerome Powell, the man that President Biden has just nominated to serve another four years as Chairman of the Fed.
But, somehow, with no explanation to date, the General Counsel of the Dallas Fed, Sharon Sweeney, signed off each year on Kaplan’s financial disclosure form. Even worse, on January 21 of this year, the Federal Reserve Board of Governors announced that following a “rigorous process,” it was giving its approval for the reappointment of all 12 Presidents of the Federal Reserve Banks – which included Robert Kaplan, despite his outrageous trading during a declared national emergency in 2020.
Following our FOIA request to the Fed on October 12 for the dates of Kaplan’s trading, which would have allowed Americans to decide for themselves just how corrupt the Fed has become, on October 22 we received the following response from Margaret McCloskey Shanks, the Deputy Secretary of the Federal Reserve Board of Governors who serves in the dual role of Chief FOIA Officer for the Fed:
“I have determined to grant your request for expedited processing in light of the fact that the topic of your request concerns a matter that has recently been the subject of news reporting. Accordingly, your request will be accorded priority treatment and processed as soon as practicable. By granting expedited treatment, your request will be processed ahead of other FOIA requests.”
We were skeptical but kept an open mind. Our skepticism was borne out on November 9 when we received a very strange communication, not from Margaret McCloskey Shanks, the Chief FOIA Officer for the Fed, but from the “Information Disclosure Section” of the “Board of Governors of the Federal Reserve System.” The letter informed us that:
“Pursuant to section (a)(6)(B)(i) of the FOIA, we are extending the period for our response until November 24, 2021, in order to consult with two or more components of the Board having a substantial interest in the determination of the request.”
Why should “two or more components of the Board” have a “substantial interest in the determination” of our request? Shouldn’t the Federal Reserve Board of Governors have to follow FOIA law and turn over documents that are legally owed to Americans?
Yesterday, we learned how those “two or more components” of the Fed Board had fared in guiding the determination of our request for transparency at the Fed. In an emailed letter from Margaret McCloskey Shanks, the Deputy Secretary of the Federal Reserve Board of Governors and Chief FOIA Officer for the Fed, we learned the following:
“Staff searched Board records and consulted with knowledgeable staff but did not locate any documents responsive to your request.”
If that were true, why initially grant expedited processing instead of simply saying we have no such documents? Why let us know that two components of the Fed Board had intervened in the normal processing of our request? Why take almost two months (instead of the mandated 20 business days) to give us a final answer?
To date, there has been no word that the SEC or Justice Department is involved in the investigation of Kaplan’s trading. Powell has indicated that he referred the Fed’s broader 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.
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 may have been involved in the trading by Kaplan and former Boston Fed President Eric Rosengren. Both men stepped down from their posts on September 27. See our report: New Documents Show the Fed’s Trading Scandal Includes Two of the Wall Street Banks It Supervises: Goldman Sachs and Citigroup.
The Federal Reserve lost the trust and confidence of the American people during and after the financial crisis of 2008 when it battled the media in court for more than two years attempting to draw a dark curtain around the names of the banks and trading houses (both domestic and foreign) it had bailed out. It took the Fed losing its case in a District and Appellate Court and the Supreme Court refusing to hear the matter, along with an amendment attached to the Dodd-Frank financial reform legislation by Senator Bernie Sanders for a Fed audit, to finally get at the truth. The truth was very ugly. The Fed had infused a cumulative $29 trillion over more than two years to teetering banks – some of which it had failed miserably to supervise. In the case of Citigroup, the bank was actually insolvent and the Fed was not legally allowed to make loans to it. That didn’t stop the Fed from propping up Citigroup to the tune of more than $2.5 trillion in secret, cumulative loans from December 2007 through at least July 2010.
It’s time for Congress to grow a backbone and meaningfully restructure the Federal Reserve, ending its myriad abuses of the public’s right to know and its chronic failures to supervise its own officials as well as the mega banks on Wall Street.