Fed Governor Sues Trump & Cashless Bail

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1:50Their advanced search filters allow you to explore 2 million new and used cars so that you can find the perfect car. Start your search with Cars.com. Where to next? This is Bloomberg Law with June Grosso from Bloomberg Radio. It will be an unprecedented legal battle that could reshape the Federal Reserve's longstanding political independence. No president in history has tried to fire a Fed governor. But President Trump is attempting to fire Lisa Cook, the first black woman to serve as a Fed governor. It's over allegations that she committed mortgage fraud before she joined the central bank's governing board.

2:37She seems to have had an infraction and she can't have an infraction, especially that infraction, because she's in charge of, if you think about it, mortgages, and we need people that are 100 percent above board. But Cook is fighting back by filing a lawsuit against Trump, saying he doesn't have the power to remove her from office, and that he violated the federal law that allows him to remove a Fed governor only for cause. This is a major escalation in the growing clash between the White House and the Fed, which has resisted Trump's demands to lower interest rates. It presents novel issues and will almost certainly end up before the Supreme Court.

3:19Joining me is Elliott Stein, Bloomberg Intelligence Senior Litigation Analyst. Elliott, tell us about the big picture of Cook's lawsuit. Sure. Well, I mean, you know, the four causes, obviously, the central legal focus of her lawsuit, saying that that standard hasn't been met. But bigger picture, she's arguing that the allegations of mortgage fraud are really a pretext to get rid of her for policy disagreement purposes, which, you know, goes against Fed independence, which is why you have a four cause removal restriction in the first place. And, you know, that fits into the broader theme. And they, you know, talk about all this as well in the complaint, how Trump has been pushing for lower interest rates for a long time, has been critical of Fed Chair Powell and initially was going after him for not lowering rates quickly enough.

4:14And they tried to use allegations against him of cost overruns related to the renovations of the Federal Reserve building. And so, you know, they tied allegations against Lisa Cook into sort of that broader context. Not only a lot of legal research went into this, but a lot of factual research, too, about what's been happening recently. So now let's talk about the center of the legal fight, which is the for-cause removal protection in the Federal Reserve Act. The act doesn't define what cause means. How do they define it? So that's exactly right. The Federal Reserve Act says that the president can remove a Federal Reserve Board governor for cause.

4:57But as you say, it doesn't say what cause means. It doesn't give any examples of that. So the complaint says, you know, when courts have had to grapple with this question before, they usually point to the Humphreys executor case from 1935, which is sort of the seminal case about whether for-cause removal restrictions are even constitutional. And in that case, the removal restriction said that, you know, an FTC commissioner could be removed for inefficiency or neglect of duty or malfeasance in office. So the argument in Lisa Cook's complaint is sort of twofold. One is that it can't just be bare allegations.

5:36It has to be some sort of malfeasance or some sort of, you know, neglect of duty. And the other thing is that it has to have occurred while she's been in office. And you referred to some of the factual underpinnings of the complaint. Related to that, they talk about how the mortgage applications that are being accused of, you know, being fraudulently completed, Those were filled out in 2021, and she wasn't even appointed and confirmed to the board until the following year. So part of the argument is that the for-cause removal restriction really applies to misconduct that took place while in office.

6:15Let's take a step back and look at the allegations of mortgage fraud. Trump claims that Cook fraudulently listed homes in Michigan and Georgia as her primary residences when she got mortgages in 2021. So explain where these allegations of mortgage fraud came from. They first appeared in social media posts by Bill Pulte, who is the director of the Federal Housing Finance Agency, the FHFA, which is the conservator and essentially the regulator for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Pulte posted those on social media. He made a referral to the Justice Department saying that these were indications of mortgage fraud.

7:03The president then sort of adopted those allegations as well and posted on his social media about them. And then ultimately, those documents were also used as justification for the president's letter on August 25th, attempting to fire Lisa Cook. The complaint also refers to other criminal referrals that Pulte made before, where he referred Adam Schiff, the Democratic senator from California, and Letitia James, the Democratic attorney general of New York, with similar allegations. And they say, quote, each of Director Pulte's criminal referrals have notably been at one time or another political targets of President Trump's ire prior to any mortgage fraud allegations.

7:51Both Schiff and James have denied the allegations, and there have been no criminal charges brought against either of them. And here with Cook, there hasn't even been an investigation, has there? That's exactly right. We don't know any more about these documents than we've seen in Bill Pulte's posts. And so, you know, in order for there to be fraud, you need some sort of fraudulent intent, right? You have to have intended to deceive another party, essentially. And that other party has to have relied on your misrepresentations to their detriment. We don't know any of that, right? I mean, we don't even know if these documents are accurate or if they're real.

8:35In this day and age, it's impossible to know whether a social media post is real or made up. But taking the director at his word that these are accurate documents and reflect what's on them, We don't know what Lisa Cook meant when she signed both of them. We don't know if it was a clerical error, which is what her complaint suggests. And we don't know what kind of communications she may have had with the mortgage lenders on the other side and whether they were deceived or whether they were harmed, because you also need that in order for there to be mortgage fraud. Now, the lawsuit doesn't provide an explanation for why she might have listed two residences as her primary residence, but it does suggest that she could have, quote, mislabeled a home's purpose unintentionally.

9:22And that wasn't in the complaint. That was in the motion for a TRO. So are they trying to offer an innocent explanation and to blunt the fraudulent intent? Yeah, they're sort of hinting at that. They're sticking primarily to sort of the legal standard in this complaint, right, that essentially the actual facts of what happened aren't necessary at this point in order to allow Lisa Cook to continue and to basically render ineffective President Trump's termination letter. They're arguing in their complaint that on these unsubstantiated allegations alone, that is not enough to meet the four cause standard.

10:05You know, if the case does go forward in some capacity to determine what cause means and whether at least conduct rises to that level, then I expect development of the facts in a more fulsome way, in which case we'll probably know more about, you know, what happened with these documents. The Trump administration is going to respond. I mean, would one of their arguments be that the way for cause is being described by Cook's lawyers is incorrect? Yeah, I mean, they'll say, look, the statute only says for cause. When Congress inserted that language into the Federal Reserve Act in 1935, and the complaint talks about this, how they inserted that language after the Humphreys' executor decision, right, sort of as a response to that.

10:57The president's argument will be Congress knew that it could have articulated what for cause means. It could have limited it to inefficiency, neglect, and malfeasance, but it chose not to. And as a result, what actually constitutes cause is broader than just those three things. That is most likely what the president is going to argue. And then he's also going to argue that it's within his discretion to determine what cause is because he's the president and the statute gives the president the power to remove a Federal Reserve Board governor for cause. I think that's what the president's team is going to argue.

11:36After the lawsuit was filed, the White House said that Trump was acting lawfully, quote, the president determined there was cause to remove a governor who was credibly accused of lying in financial documents from a highly sensitive position overseeing financial institutions. Lisa Cook is obviously going to contest a lot of what's in that statement, right? She's going to say these aren't credible accusations because, you know, there's been no investigation related to them. She's going to take issue with the fact that she's being accused of lying when there's been no development or investigation to bolster that accusation.

12:10So we know what each side is going to say. I think what's going to be interesting is what the courts say. And, you know, eventually this will go up to the Supreme Court. I think the Supreme Court's decision in May in the Wilcox case, which concerned the termination of commissioners at the National Labor Relations Board and the Merit Systems Protection Board, I think that decision is going to be key because there the Supreme Court sort of went out of its way to distinguish the Federal Reserve from these other agencies. because for those other agencies, it seems like the Supreme Court is leaning towards finding the for-cause removal restrictions in those statutes unconstitutional, but it seems like it distinguished the Federal Reserve with the intent of allowing the Federal Reserve Act's for-cause removal restriction to be deemed constitutional.

13:00And then, you know, if you allow the president to make that decision unilaterally as to what causes, you're really rendering toothless and meaningless the for-cause removal restriction in the statute. Coming up next on the Bloomberg Law Show, I'll continue this conversation with Bloomberg Intelligence Senior Litigation Analyst Elliot Stein. Cook is asking a judge for an emergency injunction to block her firing and confirm her status as a member of the Fed's governing board. I'm June Grosso, and this is Bloomberg. The thing about AI for business, it may not automatically fit the way your business works.

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15:05No president in history has tried to fire a Fed governor, but President Trump is attempting to fire Lisa Cook, the first black woman to serve as a federal governor. It's over allegations that she committed mortgage fraud before she joined the central bank's governing board by listing homes in both Michigan and Georgia as her primary residences when she got mortgages in 2021. Cook is fighting back by filing a lawsuit saying Trump doesn't have the power to remove her from office and that he violated the federal law that allows him to remove a federal governor only for cause. It's an unprecedented legal battle that could reshape the Federal Reserve's long-standing political independence.

15:52Scott Alvarez, a former general counsel at the Federal Reserve Board expressed his concerns if the president is allowed to fire a federal board member without proper cause. It's definitely worse for the institution if the president can fire a member of the board at will or based solely on an allegation that's unproven, undemonstrated. I think in that situation, there really is no independence of the Federal Reserve and its ability to act. And that's got to set markets, make markets uneasy. I've been talking to Bloomberg Intelligence Senior Litigation Analyst Elliot Stein. There are so many interlocking issues here.

16:34The complaint also says that Trump violated Cook's right to due process and her right to notice and hearing under the Federal Reserve Act. That argument really revolves around the fact that she has a property interest essentially in her role as a Federal Reserve Board governor, and that by taking away that seat from her without any notice or opportunity to be heard, her due process rights are being violated. So that's a constitutional argument. They also have a statutory argument related to that, which says that for roles where you have a fixed number of years in service and you're terminated, that you're entitled to some sort of notice an opportunity to be heard as well.

17:18Cook is seeking an emergency injunction to block her firing and confirm her status as a member of the Fed's governing board. And D.C. federal judge Gia Cobb has scheduled an emergency hearing for tomorrow. Explain the reasons Cook gives for asking for a temporary restraining order. So, you know, right now, this is the question I get from clients a lot is, is she actually still a Federal Reserve Board governor? You know, if there were a meeting tomorrow, could she participate? You know, if you asked the president, he would say, no, she's been fired. If you asked her, she would say, you know, the purported termination was improper.

17:59So yeah, it's void. I'm still a Federal Reserve Board governor. This TRO application is a way to get the court to opine on that quickly, right? It's an emergency application essentially to say that President Trump's termination letter on August 25th has no effect, right? And, you know, what's interesting is that in addition to President Trump being named as a defendant, the Federal Reserve Board is named as a defendant, as are the governors, as is Fed Chair Powell, because part of Lisa Cook's TRO application is to stop the Federal Reserve Board from effectuating President Trump's termination letter.

18:38Who has the stronger argument for the TRO? Well, I think Governor Cook got a very good judicial draw, so to speak. The judge, as you said, is a Biden appointee. I think it's likely that the judge is going to view favorably Lisa Cook's arguments for Fed independence and going to view unfavorably President Trump's arguments saying that allegations alone are enough for cause and that the president alone can make that determination. So I would not be surprised to see Judge Cobb grant the TRO potentially as soon as the end of the hearing tomorrow, which starts at 10 a.m. or perhaps later in the day, just given the magnitude of this case, I think a very quick decision is warranted.

19:23The Supreme Court in May blocked the reinstatement of NLRB and Merit Systems Protection Board commissioners while their suits played out, did the same for Consumer Product Safety Commission heads in July. Might the court do the same here? I think this is where that decision in May is so important because the Supreme Court really went out of its way to distinguish the Federal Reserve from these other agencies. It wasn't a definitive ruling. It was sort of dicta, but it didn't even need to include that language. And when you talk about whether, you know, someone like Lisa Cook or these other commissioners should serve while the litigation plays out, you know, the factors you consider are likelihood of success on the merits, whether there's irreparable harm to either side.

20:10And you also look at the public interest. In terms of likelihood of success on the merits, I think Lisa Cook has very good arguments that the for-cause provision can't be satisfied by mere allegations alone, because then that really, again, renders meaningless the standard, because anyone could drum up accusations. In terms of irreparable harm, I think it's important that, again, in the May ruling, the Supreme Court essentially carved out the Federal Reserve from the executive branch in the sense that it suggested strongly that the Federal Reserve is quasi-private. It has a unique historical structure, and as a result, it doesn't really wield executive authority like other agencies do.

20:58So in terms of the president's executive authority being harmed by her continuing to serve on the board, I think it's unlikely that the court is going to say that he is suffering harm like it did in the Wilcox case. And then in terms of the public interest, you know, I think the Supreme Court is likely to consider things like Federal Reserve independence very strongly. And so all these things, I think, weigh in favor of Lisa Cook's arguments. Elliot, tell us what the Fed's response to the lawsuit has been. The Fed is sort of staying silent and not picking a side and saying they'll abide by any court decision, which is why Lisa Cook's complaint names the Federal Reserve Board governors both collectively and in their individual capacity as defendants, along with Fed Chair Jay Powell.

21:48Explain why timing might be important for Trump here. In the near term, you have an FOMC meeting in mid-September, right, where everyone's expecting some sort of rate cuts, it seems. I actually don't think that's the most important date because for that date, Lisa Cook is just one seat on the FOMC out of 12. In July, when they met and they didn't lower rates, you only had two dissenting votes. So I don't think her vote is necessarily going to sway anything in September. But to me, the more important dates to keep in mind are the end of February when the Federal Reserve Board gets to reappoint or block reappointment of the regional Federal Reserve Bank presidents who rotate onto the FOMC.

22:32So if the president can oust Lisa Cook by February, he essentially on the Federal Reserve Board will have three sympathetic votes. You'll have Waller, Bowman, and presumably Stephen Maron, who is probably going to start his confirmation process next week to replace Adriana Kugler, who resigned earlier in August. And on the other side, you'd have three votes that probably don't align with the president, Powell, Michael Barr, and Vice Chair Jefferson. And you wouldn't have all these other regional reserve bank presidents who, for the most part, have been voting consistently with Jay Powell against lowering rates.

23:14So, you know, February is important because it starts to potentially change the composition of the FOMC in a direction that's more favorable to President Trump. And Trump is continuing to fire board members. We learned that Trump has fired one of two Democratic members of the U.S. Service Transportation Board to break a two-to-two tie before the board considers the largest railroad merger ever proposed. Board member Roger E. Primus was the only board member to oppose Canada Pacific's acquisition of Kansas City's Southern Railroad when it was approved two years ago. You know, I think the hallmark of this investigation when the history books are written is its efforts to expand executive authority over almost every aspect of the government.

24:04You know, we do have the Supreme Court decision in May that suggested the Federal Reserve is a little different. We'll sort of see how that plays out. We'll certainly be watching this closely. Thanks so much, Elliot. That's Bloomberg Intelligence senior litigation analyst Elliot Stein. Coming up next on the Bloomberg Law Show, President Trump wants to get rid of cashless bail. I'm June Grosso, and you're listening to Bloomberg. The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands of hours for strategic work.

24:50Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business, IBM. Sophistication, class, restraint, dignity. None of these words have anything to do with Super Troopers 3. One, two, three, go. Barber in the house. Hope you guys aren't too drunk already. This Friday, no new info on the guy who did it. Oh, so it couldn't have been a woman? Sexist. You ever see Ocean's 8? Enough. Super Troopers 3. Only in theaters. Friday. Rated R. Under 17. Not admitted without payment. Everyone's talking about how AI is transforming work, especially in sales.

25:34While the landscape shifts, one thing remains the same. The thrill of closing a deal. Whether it's a gong or a confetti machine, every team has its celebration rituals. Adio is designed for that moment. It's the agentic CRM that turns customer signals into actionable insights, helping you close deals faster. With revenue agents and automations working around the clock, you'll have everything you need to scale your go-to market efforts. Elevate your wins with Adio. Start your free trial at adio.com slash iHeart. President Trump has signed an executive order threatening to revoke federal funding to local and state governments that allow cashless bail, arguing that it's a threat to public safety.

26:15Cashless bail, they thought it was discriminatory to make people put up money because they just killed three people lying on a street. Any street all over the country, cashless bail, we're ending it, but we're starting by ending it in D.C. But defense attorneys and criminal justice advocates say ending cashless bail will negatively impact lower-income defendants who could be behind bars unlawfully. And Washington, D.C. Mayor Muriel Bowser points out that this is not a new policy for many of these cities. Cashless bail is not a new phenomenon in the district. I think it's been in place since the mid-90s.

26:56My guest is Vita Johnson, a professor at Georgetown Law and co-director of the school's criminal justice clinic. She was formerly a public defender in D.C. Vita, will you explain what is cashless bail exactly? Sure. So D.C.'s bail system is identical to the federal bail statute. And what it does is it takes a person's ability to pay out of the equation in deciding whether someone should be held before trial or not. So DC's system, just like the federal one, is based on whether someone is a danger or a risk of flight. And that helps a judge determine whether or not someone should be held rather than the amount of money in their bank account.

27:48So if the person is charged with a dangerous crime or a violent crime, the judge can hold him. So it's a way of helping the judge make a decision that is most closely related to public welfare while still preserving the accused person's presumption of innocence. There are other ways that a person can be held. If they are on probation or parole or supervised release for another matter, or if they have a pending case, they can be held without bond. So again, money is not part of the equation because in D.C., we've decided that it is important to make a determination about bail based on the accusations and the person's history and characteristics rather than their ability to pay.

28:42Was D.C. the model for other states and cities who have cashless bail? Yes, absolutely. And we've had this since the 90s. So it's not anything new. And it has truly been the model for criminal legal reform. Again, we don't want a system where rich people, you know, get to wait for their trial in the luxury of their homes while poor people are held at taxpayer expense, no less, at the jail just because they don't have bail money. President Trump has talked a lot about cashless bail and how it's the problem leading to crime in the Democratic-led cities. And he said, no cash, come back in a couple of months, we'll give you a trial.