Insider trading conviction secured by former supervisor at Richmond Federal Reserve
In a significant case of insider trading and false statements, Robert Brian Thompson, a former senior supervisor at the Federal Reserve Bank of Richmond, has pleaded guilty to his actions. Thompson, who oversaw banks under his supervision, traded shares based on nonpublic, material information, profiting over $771,000 from such trades between 2020 and 2024.
The Federal Reserve Bank employees, like Thompson, are subject to stringent regulations against insider trading and making false statements in securities transactions. These regulations prohibit trading securities while breaching a fiduciary duty by using material nonpublic information, tipping such information to others for trading purposes, and engaging in any deceptive practices amounting to securities fraud.
Thompson's penalties include a $652,000 monetary penalty, disgorgement of profits, and permanent injunctions barring him from using interstate commerce or securities exchange facilities to commit fraud. He is also barred from the banking industry by the Richmond Fed, with limited exemption possibilities from federal regulators. If he violates these prohibitions, he faces fines up to $1 million and/or imprisonment up to five years.
The Securities and Exchange Commission (SEC) filed a lawsuit against Thompson on Nov. 8, and he faces up to 25 years in prison. Thompson is set to be sentenced on March 19. The SEC entered a consent agreement with Thompson, which will result in a disgorgement penalty and civil fine.
Prosecutors did not identify the seven financial institutions whose stock Thompson traded, but the Securities and Exchange Commission flagged New York Community Bank and Capital One in a lawsuit filed against Thompson on Nov. 8. Thompson made a 3,745.2% return on the trade involving New York Community Bank, or $505,527. He also made a profit of $79,346 from the Capital One trade.
Thompson had access to confidential information, including stress test results and unreleased earnings data, as part of his job. However, he falsely indicated on his annual Form D that he had no assets and no equities in any publicly traded financial institutions. Thompson purchased Capital One shares hours before a quarterly earnings release in October 2023. He also bought put options on New York Community Bank in January, when he learned the bank would post an unexpected $252 million loss.
The Federal Reserve's Office of the Inspector General is currently investigating the case. Thompson managed a team that conducted exams of U.S. banks with at least $100 billion in assets, except the eight largest.
These statutory and regulatory frameworks align with enforcement actions by the SEC under Exchange Act Section 10(b) and Rule 10b-5 and Securities Act Section 17(a), which focus on preventing fraudulent securities trading activities by employees entrusted with sensitive financial information.
In summary, insider trading and deceptive practices by Federal Reserve employees, like Thompson, are illegal, and violations result in significant civil penalties, criminal charges, industry bans, and possible imprisonment. The Thompson case exemplifies these enforcement measures and penalties applied for breach of trust through insider trading and false statements in securities transactions.
The Thompson case highlights the illegal nature of insider trading and deceptive practices among Federal Reserve employees, demonstrating the stringent regulations they are subject to, such as those governed by the Securities and Exchange Commission (SEC) under Exchange Act Section 10(b) and Rule 10b-5, and Securities Act Section 17(a). This incident serves as a warning about the severe consequences that include civil penalties, criminal charges, industry bans, and imprisonment for breaches of trust.
The Federal Reserve Bank's statutory and regulatory framework aims to prevent fraudulent securities trading activities by employees with access to sensitive financial information. This includes the false indication of assets and equities in publicly traded financial institutions on forms such as the annual Form D, trading while breaching a fiduciary duty with material non-public information, tipping off others for trading purposes, and engaging in deceptive practices.
