Federal Reserve's Independence on Trial in High-Stakes Legal Showdown

The Department of Justice (DOJ) has initiated a criminal investigation into Federal Reserve Governor Lisa Cook over allegations of mortgage fraud, according to sources familiar with the matter. The investigation, reported first by The Wall Street Journal, stems from two criminal referral letters sent by Bill Pulte, Director of the Federal Housing Finance Agency (FHFA), to the DOJ in August 2023. These letters allege that Cook misrepresented properties in Georgia and Michigan as her primary residences at different times to secure more favorable loan terms. The DOJ is currently issuing subpoenas and utilizing grand juries in both states as part of the probe [1].

The allegations have become central to President Donald Trump’s attempt to remove Cook from the Federal Reserve Board for “cause,” a move that critics argue is an overreach of executive power and challenges the Federal Reserve’s long-standing independence from political interference. In a letter to Attorney General Pam Bondi and Special Attorney for Mortgage Fraud Ed Martin, Pulte asserted that Cook “falsified bank documents and property records,” potentially violating criminal statutes. Pulte has declined to comment on the source of the information but claims it was based on publicly available data [1].

Cook’s legal team has strongly contested both the allegations and the broader political implications of the probe. Abbe Lowell, her attorney, has described the investigation as politically motivated, stating, “This Justice Department—perhaps the most politicized in American history—will do whatever President Trump demands.” Lowell also emphasized that the so-called contradictions in Cook’s mortgage filings were already known to the Senate and the White House during her confirmation process in May 2022. He argued that the administration’s attempt to use those disclosures as grounds for removal undermines the legal and procedural standards required for such action under the Federal Reserve Act [2].

The Federal Reserve and its independence have been at the center of a broader ideological battle, with many economists warning that political control over monetary policy could lead to economically unsound decisions. The DOJ, meanwhile, has pushed for a swift ruling on Cook’s removal, arguing that the president has the discretion to act on allegations of misconduct and that such decisions are not subject to judicial review. However, Cook’s legal team has countered that the president must provide a hearing and due process before making such a removal. They also maintain that the allegations of mortgage fraud are baseless and do not meet the legal threshold for removal [2].

Separately, Pulte has continued to escalate the public narrative, sending a second referral letter to the DOJ that alleges additional misrepresentations by Cook while serving as a Fed governor. These include listing an apartment in Massachusetts as both an investment property and a second home. Pulte has also made public comments on social media calling for Cook’s prosecution, which is unusual during an ongoing investigation before any formal charges are brought. In one post, he accused Cook and Fed Chair Jerome Powell of undermining the integrity of the Federal Reserve [1].

The outcome of this legal and political struggle may set a significant precedent for the independence of the Federal Reserve and the boundaries of executive authority. The case is currently before a federal court, with the government seeking a decision before September 9 to allow for appellate review before the Fed’s next scheduled meeting. If the court rules in favor of Trump’s administration, it could reshape the balance of power between the White House and the central bank. If Cook prevails, it may reinforce the institutional safeguards that have historically insulated monetary policy from direct political influence [3].

Source:

[1] Justice Department opens criminal investigation into Federal Reserve Governor Lisa Cook (https://abcnews.go.com/US/justice-department-opens-criminal-investigation-federal-reserve-governor/story?id=125261793)

[2] Lisa Cook: Mortgage 'contradictions' don't justify removal (https://thehill.com/regulation/court-battles/5483375-lisa-cook-fights-trump-firing/)

[3] Justice Department Probes Mortgage Fraud Claims against Lisa Cook (https://www.barchart.com/story/news/34606568/justice-department-probes-mortgage-fraud-claims-against-lisa-cook-of-federal-reserve-ap-source-says)