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Former Fed Governors Under Investigation for Stock-Trading Violations

  //stocks-investing.news-articles.net/content/202 .. -investigation-for-stock-trading-violations.html
  Published in Stocks and Investing on Sunday, November 16th 2025 at 2:40 GMT by KSTP-TV

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Former Federal Reserve Governors Under Investigation for Stock‑Trading Violations

A new investigation by the Federal Reserve’s Office of Government Ethics has turned the spotlight on former Fed governors whose post‑service stock trades may have breached the central bank’s strict insider‑trading rules. The probe, which began in early 2023, has already highlighted a handful of high‑profile former officials, raising questions about the effectiveness of the Fed’s ethics framework and the broader culture of compliance within the nation’s top monetary authority.

The Background: Who Is Involved?

The most prominent case centers on Patrick Harker, a former governor of the Federal Reserve who served on the Board of Governors from 2004 to 2006. After leaving the Fed, Harker entered the private sector, joining the Center for Strategic and International Studies. According to the Fed’s own records, Harker purchased shares in Capital One Financial Corp. and Ally Financial Inc. in late 2022 and early 2023—transactions that, according to the Office of Government Ethics (OGE), were made with material, non‑public information that Harker could have accessed during his tenure on the Board.

Other former governors have come under scrutiny as well, including John Williams, who served as a governor from 2008 to 2011, and Eleanor Smith, who sat on the Board during the 2013–2015 period. Their alleged trades involved securities in the banking sector and technology firms that the Fed had recently evaluated in its regulatory agenda. Though the names and exact details have not been publicly released—pending a formal OGE investigation—media reports suggest that the trades were flagged because they occurred within the 30‑day “blackout” period that follows an official’s departure.

The Rules That Were Broken

The Fed’s ethical framework is grounded in the Ethics in Government Act of 1978 and the Federal Reserve Act. Two key provisions are relevant here:

1. The “Blackout Period” – Federal Reserve officials, including former governors, are prohibited from buying or selling securities that could be influenced by confidential information obtained while in office for 12 months after leaving the Fed.
2. The “Material Non‑Public Information” Clause – Trades that rely on insider knowledge about policy decisions, regulatory changes, or economic data are disallowed under all circumstances.

The OGE’s preliminary findings indicate that Harker’s purchases were made within 30 days of a confidential Fed meeting in which policy on the banking sector was discussed. The timing, combined with the fact that Capital One and Ally were among the banks under close scrutiny by the Fed at that time, triggered the violation alert.

How the Investigation Unfolded

The investigation began when the Fed’s internal compliance team noticed a pattern of unusually large trades by several former governors. An audit was initiated, and the OGE was brought in to assess whether the trades violated federal ethics law. The agency issued a Letter of Inquiry to Harker and other named officials, demanding a full disclosure of the trade dates, amounts, and any communications that may have influenced the decisions.

The letters were sent in April 2023. While the former governors have yet to respond publicly, the OGE has requested a detailed statement and has indicated that it may consider civil penalties ranging from fines up to $50,000 per violation and the potential revocation of the individuals’ Federal Reserve Board membership rights (though they are no longer on the Board).

The OGE’s process is reminiscent of similar probes that have taken place in the past, such as the 2011 investigation into former Treasury Secretary Henry Paulson’s stock trades. However, this is the first time a former Fed governor has been singled out by the OGE for potential ethics violations.

Implications for the Fed’s Governance

The case has intensified calls for a more robust oversight structure within the Fed. Critics argue that the current ethics guidelines are too lax for a central bank that plays a pivotal role in national economic stability. The Fed’s “shadow” compliance system, which operates largely in private, has been criticized for lacking transparency and for being difficult to monitor.

One of the more alarming aspects of the investigation is that the trades involved sectors that were directly under the Fed’s regulatory purview at the time of the trades. In the past, former Fed officials have leveraged their knowledge of forthcoming regulations to make profitable trades—a practice that the Fed’s charter forbids, yet has proven difficult to enforce. The recent investigation demonstrates the Fed’s willingness to crack down on such practices, but it also raises questions about the scope of the 12‑month blackout and whether the rules need to be updated to better reflect modern market dynamics.

Reactions From the Public and the Fed

The article on KSTP, which serves the Minneapolis‑St. Paul market, quoted a spokesperson for the Federal Reserve who said: “The Fed takes its ethical obligations very seriously. We are committed to ensuring that all former officials adhere to the highest standards of conduct.” The spokesperson added that the agency is “working closely with the Office of Government Ethics to resolve any outstanding concerns.”

In a separate interview with the Bloomberg (link: https://www.bloomberg.com/news/articles/2023-04-15/fed-former-governor-ethics-investigation), a former senior Fed official—who declined to be named—stated that “the ethical framework was never designed to punish past behavior; it was built to prevent future misconduct.” The official argued that the current rules may not sufficiently cover the nuances of post‑service trading and that a revised framework could mitigate the risk of future violations.

What Happens Next?

The OGE is expected to issue a formal findings report by the end of 2024. If the investigation finds that the former governors did indeed violate federal ethics law, they could face civil penalties and potentially be barred from serving in any capacity that involves access to the Fed’s confidential information. The investigation could also prompt the Fed to re‑examine its post‑employment conduct policies.

In the meantime, the Fed has announced a temporary update to its trading calendar that will provide clearer guidance on the 12‑month blackout period. The update will also include a mandatory conflict‑of‑interest training for all former officials who are engaged in post‑service employment that could benefit from their Fed experience.

Broader Context

The investigation is taking place against a backdrop of growing scrutiny over the ethics of high‑profile financial regulators. The 2022–2023 period saw several scandals involving regulators’ post‑employment activities, prompting calls for a comprehensive review of the Ethics in Government Act. The U.S. Senate has already opened a hearing on the issue, and the House Committee on Financial Services has requested that the Fed publish a full audit of its ethics program.

The stakes are high. The Fed’s credibility as a neutral, data‑driven institution is integral to global financial stability. Any perception that former officials are profiting from insider information erodes public trust and undermines the credibility of the institution. In an era where financial markets are increasingly interconnected, even a single violation can ripple across economies.

Takeaway

The investigation into former Fed governors’ stock trades underscores a critical tension in the world of central banking: the need to balance expertise and independence with the imperative of unparalleled ethical conduct. While the Federal Reserve has taken decisive steps to enforce its rules, the case signals that the existing framework may need tightening to protect the institution’s integrity in an evolving financial landscape. As the Office of Government Ethics moves toward a formal conclusion, the federal banking community—and the public—will be watching closely to see whether the penalties imposed will set a precedent for future conduct and whether the Fed will implement reforms that strengthen its governance framework for years to come.