SEC charges ex-Fed examiner insider trading

The Securities and Exchange Commission filed a lawsuit against a former Federal Reserve Bank of Richmond supervisor this month for trading bank stocks on inside information.

In its complaint, the SEC accused Robert Thompson of Mosely, Virginia, of illegally trading securities for New York Community Bancorp and Capital One Financial Corp., both of which were within his supervisory purview. The agency also alleged that Thompson submitted false disclosure statements about his conflicts of interest.

Thompson worked as the deputy central point of contact for the Large & Foreign Banking Organizations, or LFBO, group within the Fed, the supervisory team responsible for U.S. firms with assets of $100 billion or more and foreign banking organizations with combined U.S. assets of $100 billion or more. The program is a shared responsibility between regional reserve banks — in this case, the Richmond Fed — and board of governors. 

In his position, Thompson regularly received, reviewed and discussed information about all 18 banks within the LFBO portfolio, the SEC said, including documents known as material nonpublic information. This included unreleased earnings; data about capital, liquidity and risk levels; bank examination records, stress tests and other regulatory events.

According to the SEC’s complaint, Thompson purchased shares of Capital One in October 2021 after previewing the bank’s earnings report, which showed earnings per share significantly above expectations. He later sold those shares for a profit of nearly $80,000. 

Then, in January of this year, Thompson was told NYCB would be announcing substantial losses as part of its acquisition of the failed Signature Bank, the lawsuit claims. He then purchased 1,600 out-of-the-money put option contracts — effectively bets against the company’ stock — that were later sold for a profit of more than $500,000.

In addition to the illegal trades, the agency also accused Thompson of falsifying disclosures to the Fed. He allegedly claimed to hold no bank securities when he actually held more than $500,000 of banking stocks in self-guided accounts under his and his wife’s names.

When reached by phone on Monday afternoon, Thompson declined to comment on the allegations against him.

The charges against Thompson were first reported by Law360 on Nov. 8. As of Monday afternoon, the SEC has yet to make a formal announcement about the charges. An agency spokesperson declined to comment on the matter.

Both the Richmond Fed and the Federal Reserve Board in Washington issued statements about the charges against Thompson.

“We fully cooperated with the authorities during this investigation,” a Richmond Fed spokesperson said. “The former employee’s alleged actions are a direct violation of our well-established and well-communicated policies on ethics and conflicts of interest.”

The board of governors, in a separate statement, also condemned Thompson’s alleged actions and stood by its policies around preventing insider trading.

“There is no place at the Federal Reserve for the misuse of confidential information,” it stated. “We have robust safeguards in place to ensure that those who have access to supervisory information understand their responsibilities and obligations, including the outright prohibition on trading in bank stocks. We require regular training, as well as affirmations by our staff that each person understands and is committed to the highest standards of professional behavior.”

The Federal Reserve System is no stranger to accusations of insider trading. In September 2021, two reserve bank presidents — Robert Kaplan, head of the Dallas Fed, and Eric Rosengren, head of the Boston Fed — both resigned amid a public outcry against trades they initiated the year before. 

Along with the resignations, the episode also led the Fed to change its policies around disclosures. Since then, Atlanta Fed President Raphael Bostic has disclosed multiple transactions carried out on his behalf that were in violation of those rules, though the Fed’s Office of the Inspector General found that those trades had not been made using confidential information and amounted to an “appearance” of impropriety. 

The repeated issues have made the Fed a target for Sen. Elizabeth Warren, D-Mass., who has repeatedly criticized the board of governors as well as its inspector general.