By Pam Martens and Russ Martens: May 12, 2022 ~
Yesterday, Thomas Falk and Claudia Aguirre, who were co-chairing the Dallas Fed’s Search Committee, announced that they had found the ideal candidate to become the new Dallas Fed President. They said it was a person who would “understand the economic issues and needs of the residents of Texas, northern Louisiana and southern New Mexico,” the areas served by the Dallas Fed.
Given that criteria, one might have suspected that their candidate would have some relationship with Texas or its neighboring states. But no. Falk and Aguirre selected a person who works 1500 miles from the Dallas Fed, Lorie Logan, the head of the trading desks for the New York Fed, the only one of the 12 regional Fed banks to have trading desks (one in New York near the New York Stock Exchange and one in Chicago near the futures exchange). Logan’s official title at the New York Fed is System Open Market Account Manager and Executive Vice President. According to the statement released by the Dallas Fed, she will assume her duties as President on August 22.
The search for a new President of the Dallas Fed resulted from the fact that the last one, Robert Kaplan, became a central figure in a trading scandal. How typical that the Fed would now poke a finger in the public’s eye by selecting a replacement from the New York Fed, which has turned scandals surrounding its own trading relationships into an art form. (While the Board of the Dallas Fed selects its own President, that person must also be approved by the Board of Governors of the Federal Reserve. That appears to have already happened since Logan was given a glowing endorsement yesterday by Fed Chair Pro Tempore Jerome Powell.)
The selection of Logan is rendered even more specious by the fact that Falk and Aguirre made a big show of asking the public for their suggestions for the next President of the Dallas Fed at a Town Hall they held in January. We think it’s highly unlikely that the good people of Texas were clamoring for a New York trading desk guru to fill the top slot at the Dallas Fed after its reputation had been dragged through the mud for months over a trading scandal perpetrated by a New York veteran of Goldman Sachs.
Kaplan triggered the largest trading scandal in the 109-year history of the Federal Reserve on September 7 of last year when Michael Derby of the Wall Street Journal broke the story of Kaplan’s “million-dollar-plus stock trades in 2020” while sitting as a voting member of the Fed’s monetary policy group known as the Federal Open Market Committee (FOMC).
But stock trading was the least of the scandal surrounding Kaplan. As Wall Street On Parade reported, Kaplan’s financial disclosure forms showed that Kaplan was trading in and out of S&P 500 futures in lots of “over $1 million.” (See Kaplan’s financial disclosure forms from 2015 through 2020 here.)
S&P 500 futures trade around the clock from Sunday evening to Friday evening while the U.S. stock markets are open only from 9:30 a.m. to 4:00 p.m. ET on weekdays. The S&P 500 futures trades can be highly leveraged and used to make directional bets on which way the market will move. A voting member of the FOMC, sitting on inside information, could make a fortune trading in the S&P 500 futures market – particularly if that person had a trading background.
Kaplan was a sophisticated trader who previously worked at Goldman Sachs for 22 years, rising to the rank of Vice Chairman. His financial disclosure forms suggest that Kaplan maintained a trading relationship with Goldman Sachs after joining the Dallas Fed, since he lists proprietary products in his investment portfolio that were created by “GS,” short for Goldman Sachs. It would be highly inappropriate for Kaplan to have a trading relationship with Goldman Sachs since it is a bank holding company supervised by the Fed.
The Dallas Fed has refused to release the dates of Kaplan’s trades, even though the dates were required on his financial disclosure forms that were open to public inspection. Requests for those dates have been made by multiple media outlets, including Wall Street On Parade, to no avail. The Dallas Fed has also refused to answer Wall Street On Parade’s question as to whether Kaplan shorted S&P 500 futures. (Shorting is a bet that makes money when prices decline.)
Kaplan stepped down from the Dallas Fed last September on the same day that Wall Street On Parade revealed that Kaplan had been making his S&P 500 bets for the entire five years he had been President of the Dallas Fed, including the pivotal year of 2020 when the Fed was rescuing one market after another with bailout programs. See our September 27, 2021 report: Robert Kaplan Was Trading Like a Hedge Fund Kingpin for Five Years while President of the Dallas Fed; a Dozen Legal Safeguards Failed to Stop Him.
Other Fed officials have also been implicated in the trading scandal. The President of the Boston Fed, Eric Rosengren, stepped down the same day as Kaplan. Rosengren had been trading in and out of Real Estate Investment Trusts (REITs) and his wife had a margin loan relationship with Citibank, part of Citigroup which is a Fed-supervised entity. The Fed’s Vice Chairman, Richard Clarida, also stepped down after questions about his trading and financial disclosures emerged. Fed Chair Pro Tempore Jerome Powell has also come under scrutiny.
Lori Logan has worked at the New York Fed since graduating college in 1999. She lists no other jobs outside of the New York Fed on her LinkedIn profile. That means she has been completely ensconced in the culture at the New York Fed for the past 22 years and 11 months.
Corrupt activities occurring inside the New York Fed were chronicled in a book in 2018 by one of its own former bank examiners, an attorney named Carmen Segarra. Her book, Noncompliant: A Lone Whistleblower Exposes the Giants of Wall Street, describes the culture inside the New York Fed as follows:
“…nothing I had seen during my decade of legal work had prepared me for what I witnessed in just a few short months at the New York Fed.
“In those months I discovered a disorienting world full of hidden clues, where people said one thing but meant another. Beneath the public face of the Fed laid a web of incompetence, corruption, rampant mismanagement, secrets, and lies. In the ‘fake work’ culture of the Fed, where supervision was a job title, not a job, the most important thing was to control the process to serve the ultimate master. The New York Fed was not simply failing to stop the banks; it was actually enabling their bad behavior.”
Our reporting on the New York Fed over the past decade very much confirms the assessment of Carmen Segarra. (See related articles below.)
Both Wall Street On Parade and others have called on the Justice Department to open a criminal investigation. Neither the SEC nor the Justice Department disclose when an investigation has been opened. What is known at this time is that the Inspector General of the Federal Reserve (who, unfortunately, reports to the Board of the Fed) has an open investigation.
Dennis Kelleher, President and CEO of the watchdog, Better Markets, released this statement in January:
“We again call on the Fed to end its cover up and come clean with the American people, disclosing all the facts related to all those who traded during the pandemic while in possession of material nonpublic information. We again also call on the Justice Department to join the SEC in investigating that trading to determine if any laws were broken. There should also be a genuinely independent, thorough investigation lead by credible outside experts into the trading and a public disclosure by them of all information related to that trading.
“Anything less than these long overdue actions will continue to undermine the trust and faith of the American people in the Fed and its leadership. Given the historic challenges facing the Fed and the upcoming unprecedented policy decisions it has to make, which will impact the lives and livelihoods of every American, the Fed simply must have the full confidence of the American people. But it cannot while this cloud hangs over the Fed and when it looks like a number of its leaders may have used inside information and broken the law to enrich themselves during the pandemic.”
For Wall Street On Parade’s in-depth archive on the trading scandal, see here.
Related Articles on the New York Fed: