New Documents Show the Fed’s Trading Scandal Includes Two of the Wall Street Banks It Supervises: Goldman Sachs and Citigroup

In the late eighteenth century, men gathered under a Buttonwood tree at 68 Wall in lower Manhattan and traded stocks among themselves. That’s not how it works today. Dallas Fed President Robert Kaplan had to give his “over $1 million” trades in a litany of individual stocks and his “over $1 million” transactions in S&P 500 futures to a licensed broker at a registered broker-dealer. The same thing applied to Boston Fed President Eric Rosengren in placing his $1000 to $50,000 trades 68 times in 2020 in individual stocks and publicly traded Real Estate Investment Trusts (REITs).

The safeguards that failed at the Dallas Fed and the Boston Fed to stop their Presidents from trading like hedge fund wannabes should not have failed at the SEC-regulated Wall Street broker-dealers that placed these trades. The accounts at the trading firms for these two men should have been coded to indicate that the men came into regular contact with sensitive, market moving information. The nature and level of their trading should have triggered the immediate involvement of the firms’ compliance departments and a halt to the trading. (See our earlier report on how a dozen legal safeguards failed, that should not have failed, to stop these men from humiliating the central bank of the United States around the world.)

Newly unearthed documents now put Wall Street megabanks Goldman Sachs and Citigroup at the center of this trading scandal. Both Goldman Sachs and Citigroup are bank holding companies that are supervised by…wait for it…the Federal Reserve. (Their broker-dealer units are supervised by the SEC and other securities regulators.) The documents suggest that rather than functioning as an arms-length supervisor of the banks, some Fed officials have gotten cozy with Goldman Sachs and Citigroup, receiving perks from these supervised entities.

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