The U.S. Supreme Court recently heard arguments regarding the Trump administration’s bid to remove Federal Reserve Governor Lisa Cook, accused of engaging in mortgage fraud. This drew unprecedented national attention. More fundamentally, it poses important separation of powers and due process concerns regarding the balance of power among the Federal Reserve’s leadership and the due process rights of federal officials. In August, President Trump announced his intention to fire Cook, alleging misconduct linked to her mortgage application for a property in Alabama.
Lisa Cook’s legal team argues that the allegations against her are based on “cherry-picked, incomplete snippets of the full documents.” They emphasize that a single reference in her mortgage application does not reflect the entirety of her disclosures regarding the property’s use. The attorneys vehemently deny that the application lacks “truthful and more detailed disclosures.” They further argue that the fraud claims lack any basis.
Additionally, Cook has contended that she was not provided sufficient due process to dispute the accusations made against her. And as her attorneys have to say, “There is no fraud, no intent to defraud. There is nothing criminal – not even a whiff of mortgage fraud. This case has heavy stakes. It explores key questions, such as whether President Trump is undermining the independence of the Federal Reserve.
Lower courts had blocked Cook’s removal while the case played out in court. This decision has kept her afloat in the storm of controversy. During oral arguments at the Supreme Court, Justice Brett Kavanaugh displayed considerable empathy for Cook’s position. In fact, he challenged the administration’s claims that they had to act right away.
“What’s the fear of more process here?” – Justice Brett Kavanaugh
Justice Amy Coney Barrett cared enough to probe for an explanation from the government’s lawyer. She was looking for some explanation of why waiting for an ultimate resolution from lower courts would be detrimental to President Trump. Of caution, she said, “In an area as high stakes as this one…that kind of caution is warranted.”
“Doesn’t that counsel… caution on our part?” – Justice Amy Coney Barrett
Defending the administration’s position was Solicitor General D. John Sauer. He understood that everyone can make mistakes, but issued a strong warning that for the very serious error in this case, there is no room for error. And even if it’s inadvertent, or a mistake, he said, “That’s a pretty darn big mistake”.
The justices appeared to have carefully studied every angle of the case. Specifically, they zeroed in on whether the truth of the Cook’s mortgage filing claims would justify a “for cause” termination. Justice Sonia Sotomayor’s point about allowing lower courts to tackle these issues first being the smarter approach. First, the thorny question of procedural fairness was raised by Justice Samuel Alito. He noted that President Trump had publicly alerted Cook about the alleged misconduct prior to her firing.
Justice Kavanaugh was eloquent about the dangers this case posed to the Federal Reserve’s independence. He announced that these changes would “compromise, if not destroy, the autonomy of the Federal Reserve.”
The Supreme Court’s decision, expected in June of 2023, will have profound consequences on Lisa Cook’s career. It would set a damaging standard regarding presidential control over critical federal roles and due process tenets. As this regulatory independence high-profile legal battle unfolds, stakeholders in government, industry and academia argue it will set important precedent either way for governance and regulatory independence.