Trump Blocked by Judge From Ousting Lisa Cook During Lawsuit (3)

A judge temporarily blocked President Donald Trump from ousting Federal Reserve Governor Lisa Cook over allegations of mortgage fraud, ruling that the unproven claims against her likely do not amount to the necessary “cause” for removal under US law.

In an early victory for the embattled economist, US District Judge Jia Cobb in Washington granted Cook’s request to continue working for now. The ruling means Cook can likely attend a highly anticipated Fed policy meeting Sept. 16-17 to vote on whether to lower interest rates.

Cobb also concluded that “the public interest in Federal Reserve independence weighs in favor of Cook’s reinstatement.”

The Justice Department is likely to swiftly appeal the ruling and the US Supreme Court may ultimately have the final say.

The judge said that the alleged mortgage misconduct likely wasn’t enough for Trump to fire Cook under the Federal Reserve Act, because lawmakers intended for such cause to relate to behavior in office and “whether they have been faithfully and effectively executing their statutory duties.”

The government’s interpretation of the crucial phrase in the Federal Reserve Act “would allow the president to remove individuals even for arbitrary reasons provided that the president viewed the reasons as relevant to the individual’s ability or fitness to do the job,” Cobb wrote.

“Moreover, it would incentivize the president and subordinates to dig up prior conduct, however insubstantial, to justify removal from the board, even where the board member has been up to that point performing their statutory duties impeccably,” the judge said.

Cobb also ruled that the way in which Cook was dismissed — via a social media post by the president — likely violated her due process rights under the Constitution.

In a statement early Wednesday, White House spokesman Kush Desai said the president “lawfully removed Lisa Cook for cause due to credible allegations of mortgage fraud from her highly sensitive position overseeing financial institutions on the Federal Reserve Board of Governors.”

Cook’s lawyer Abbe Lowell said in a statement that Cobb’s decision “recognizes and reaffirms” the Fed’s independence from political interference.

“Allowing the president to unlawfully remove Governor Cook on unsubstantiated and vague allegations would endanger the stability of our financial system and undermine the rule of law,” Lowell said.

A Fed spokesperson declined to comment. The agency hasn’t taken a side in the legal fight and has said it will respect the court’s decision.

The Justice Department said that it doesn’t “comment on current or prospective litigation including matters that may be an investigation.”

Cook has alleged that Trump’s move to oust her is part of a politically motivated pattern. The president had previously considered an attempt to force out Fed Chair Jerome Powell after attacking him for not moving quickly enough to reduce interest rates.

Trump on Wednesday morning took to social media to again criticize the Fed and call for lower interest rates, without mentioning the ruling.

“Just out: No Inflation!!! ‘Too Late’ must lower the RATE, BIG, right now. Powell is a total disaster, who doesn’t have a clue!!!” Trump said.

Meanwhile, Trump’s pick to fill a vacancy on the Fed’s Board of Governors, Stephen Miran, is on track for a Senate confirmation vote as soon as Wednesday. It’s a temporary arrangement to fill the remaining months left in Adriana Kugler’s term after her unexpected resignation.

Explainer: Can Trump Take Control of the Federal Reserve?

Trump said last month he was firing Cook after Federal Housing Finance Agency Director Bill Pulte accused her of fraudulently listing homes in Michigan and Georgia as a “primary residence” when she obtained mortgages in 2021 to secure more favorable terms on loans. Pulte later added a claim involving a third mortgage in Massachusetts.

The fight over whether Cook can keep her job has quickly emerged as the main flash point in Trump’s bid to assert more control over the Fed, which he has repeatedly called on to lower interest rates. In her lawsuit, Cook’s lawyer cast his attempt to fire her as a power grab that could cause “irreparable harm” to the US economy. Her lawyer has also said she never committed mortgage fraud.

Unintentional ‘Clerical Error’

Cook’s lawyers said that if there were any errors, she didn’t mean to deceive anyone, and no one was harmed. They have also suggested that an unintentional “clerical error” may be to blame and that the allegations were a pretext by Trump to remove her.

Following Pulte’s allegations, which he referred to the Justice Department, Trump wrote a letter to Cook saying that he was removing her immediately in light of her “deceitful and potentially criminal conduct in a financial matter.”

Meanwhile, the Justice Department has opened a criminal probe into whether Cook committed mortgage fraud.

In the ruling, the judge said that Pulte’s allegations in a social-media post, and Trump’s later social media post announcing his intention to dismiss Cook, didn’t amount to a proper notice of the allegations against Cook.

Cobb denied a request by the Justice Department to pause her ruling while it pursues an expected appeal, immediately teeing it up for the administration to take the case to higher courts.

(Updates with Trump call for lower interest rates, details from ruling.)

--With assistance from Jennifer A. Dlouhy and Amara Omeokwe.

To contact the reporters on this story:
Erik Larson in New York at elarson4@bloomberg.net;
Zoe Tillman in Washington at ztillman2@bloomberg.net

To contact the editors responsible for this story:
Sara Forden at sforden@bloomberg.net

Elizabeth Wasserman, Anthony Aarons

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