NEW YORK, Jan 22 (Reuters) - The Federal Reserve's internal watchdog said on Monday the former Dallas and Boston Federal Reserve presidents created the appearance of a conflict in interest in how they reported their investing activity.
Robert Kaplan, who stepped down as head of the Dallas Fed in September 2021 amid a controversy over the trading, did not break any laws or regulations in his trading, but documented his investing in a way that "did not support public confidence in the impartiality and integrity" of the U.S. central bank, the report from the Fed's Inspector General said.
Then-Boston Fed leader Eric Rosengen failed to properly account for his trading and also created the appearance of a conflict of interest, the document said.
The report arrived more than two years after it became public that some regional U.S. central bank officials had been actively trading stocks and other investments while helping set monetary policy.
The controversy led to the departures of the Boston and Dallas Fed presidents in late September 2021 following comments by Fed Chair Jerome Powell after that month's monetary policy meeting that "no one is happy, no one on the (Federal Open Market Committee) is happy to be in this situation, to be having these questions raised."
Kaplan's financial disclosure forms during his tenure at the Dallas Fed showed that he'd traded many millions of dollars in stocks and other securities while declining to provide dates and precise amounts for those trades. Rosengren traded in markets to a much lesser degree.
The trading happened under a Fed ethics code that forbade ownership of bank stocks, banned trading from happening close to monetary policy meetings, and commanded officials and the Fed's top staff not to engage in investing that would create the perceptions of conflicts of interest.
The trading activity of Kaplan and Rosengren had been approved by the boards of directors of their respective regional Fee banks, bank lawyers and by ethics officials at the Fed's Board of Governors in Washington.
A spokesperson for Kaplan reiterated the former Dallas Fed president's Sept. 27, 2021 statement in which he said he had adhered to all Fed ethical standards and policies and that his securities investing activities and disclosures met Fed compliance rules and standards.
The spokesperson also referred to a statement on the same day by the Dallas Fed's board of directors which stated that Kaplan also conducted his investment activities in accordance with the rules and policies of the Fed system.
Rosengren was not immediately available for comment.
In the wake of the resignations the Fed substantially tightened its ethics code to tightly limit how officials, top staff and their families could trade and invest in financial markets, formally adopting that policy in February 2022.
Questions about trading also extended to Powell and to Richard Clarida, who at the time was Fed vice chair, the central bank's second-in-command. They were cleared by the Inspector General in a report in July 2022.
Mark Bialek, the IG, is selected for his job by the Fed chief and has faced questions about how independent he can be in its investigations, including in a contentious hearing from U.S. senators in May 2023. Bialek said then that "no Board Chair has resisted or objected to our oversight work since I have been the IG."
The IG's report does not resolve issues around trading activity by Atlanta Fed President Raphael Bostic, who has acknowledged inadvertent problems with some of his investing activity. He is also facing an IG investigation. (Reporting by Michael S. Derby and Ann Saphir; Editing by Dan Burns and Paul Simao)
