It’s likely that Lisa Cook will prevail in the short term, for three reasons.

T here is a good deal of confusing analysis regarding developments in President Trump’s effort to fire Federal Reserve governor Lisa Cook. The issue is pressing because the Federal Open Markets Committee (FOMC) is scheduled to meet on Tuesday and Wednesday of this week.

The FOMC is the Fed’s main monetary-policymaking body. There is anticipation about this week’s meeting because the president has been pressuring for a rate cut, a cut — probably of 250 basis points — is expected (despite some disturbing inflation news last week), and because Cook is a Biden-appointed voting member whom Trump is hoping to block from participation in the meeting.

Cook has sued to retain her position. She won the first round before Judge Jia Cobb, a Biden appointee to the federal district court in Washington, D.C., and the Justice Department has appealed to the D.C. Circuit.

With that as background, let’s try to unwind what’s happening.

As I’ve previously outlined, the president has sought to remove the heads of various “independent” administrative agencies (“independent” in the sense that they are not part of the executive branch, even though they exercise some executive power) based on his inherent power under Article II. With respect to Cook, however, he has also cited the Fed statute, under which a board member may only be removed for “cause.” Unlike the statutes that control other independent agencies, which define cause to mean misfeasance or malfeasance in office, the Fed’s statute does not define cause. In the Fed’s century of existence, no president has ever tried to remove a Fed board member, so there is no controlling precedent.

The president seeks to remove Cook for an alleged cause that is unrelated to her performance in office. Specifically, he is relying on claims by Bill Pulte, the loyalist he installed as head of the Federal Housing Finance Agency (FHFA), that Cook committed bank fraud — a serious federal felony, punishable by up to 30 years’ imprisonment.

Pulte’s principal function at FHFA appears to be to peruse the mortgage records of Trump’s political foes in search of irregularities, which he publicly announces as likely criminal fraud and refers to the Justice Department for prosecution. Prior to referring Cook, Pulte referred Senator Adam Schiff (D., Calif.) (Trump’s impeachment and Russiagate nemesis) and New York Attorney General Letitia James (who sought to bankrupt Trump and destroy his family business with a massive civil fraud lawsuit).

Notwithstanding the Trump Justice Department’s habitual haste to please the boss and fuel administration political narratives, no one referred by Pulte has been charged with a crime to date. (I’ve explained why I don’t think there is a basis to indict Senator Schiff.) In part, that is because establishing the crime of bank fraud is not as simple as showing inconsistencies in mortgage documents.

Pulte has focused on his targets’ alleged claims of multiple homes as their primary (or principal) residences. As a matter of law, a person can have only one primary residence; a person could be motivated to misrepresent a second home — or an investment or vacation property — as a primary residence to obtain a lower mortgage interest rate and various tax advantages.

On the other hand, the apparent claim of two different properties as primary residences could be an innocent mistake. Or there could be additional facts that show the person was not intentionally trying to defraud the bank. No one knows this better than President Trump. In James’s civil fraud lawsuit, the state proved, for example, that he had grossly exaggerated the size of his Manhattan luxury apartment (claiming it was 30,000 square feet and valued at approximately $327 million when it was less than 11,000 square feet and worth far less); but (1) the evidence also showed that Trump had advised his counterparties to do their own due diligence, (2) there was no convincing proof that his misstatement duped his counterparties — including banks — into doing business with him or giving him better terms, and (3) prosecutors declined to bring criminal charges. The Wall Street Journal’s chief economics correspondent, Nick Timiraos, reports that Pulte’s own father and stepmother claimed tax exemptions on primary residences in two different states; Michigan has revoked the exemption, but there’s no indication at this point that a tax fraud prosecution is in the offing. Schiff’s mortgage counterparties knew he was (then) a House member who maintained homes in California and Washington, D.C. — neither residence was for vacation or investment. (I’ve opined that the statute of limitations has lapsed on any criminal case arising out of Schiff’s mortgages, but Pulte’s disclosures, by themselves, do not establish that any alleged misstatements caused material harm.)

In any event, Pulte’s allegations against Cook have been weakened in the last few days. In 2021, the year before she was appointed to the Fed, Cook purchased homes in Michigan and, a few weeks later, in Atlanta. Pulte says that her mortgage documents represented both homes as her primary residence. Perhaps so, but it now appears that when Cook applied for the loan on the Atlanta property, she disclosed to her credit union that it would be a vacation home (not her primary residence). Moreover, when she was nominated for the Fed and subject to the confirmation process, she similarly explained to the government that the Atlanta property was a “second home” (again, not her primary residence).

Pulte has tried to put the best spin on this news: arguing that the newly disclosed information just underscores that Cook knew the Atlanta home was not her primary residence, and therefore, by his lights, the description of it as her primary residence in other mortgage documents is all the more damning. That’s one way of looking at it. Yet, it might be at least as likely that she made an error but wasn’t trying to defraud anyone; or that, even if she wasn’t as transparent as she should have been, any irregularity does not rise to the level of criminal misconduct.

That said, the talk about criminal fraud misses the point.

The New York Times report on the matter quoted Georgetown law professor Adam Levitin as explaining that the new revelation should make it “case closed on the Cook mortgage issue” because “there is no way to maintain a criminal prosecution.” Maybe. But as the professor and the Times reporters must know, it is not necessary to establish criminal liability in order to demonstrate that a person is unfit for office. The Fed statute says the president has to have cause; cause is not synonymous with criminal misconduct. (Some 14 paragraphs into their report, the Times reporters concede that the new revelations do not establish that Cook did nothing wrong or was sufficiently “transparent”; rather, the uncovered documents “suggest that she may have told her lender about her plans at least once.” That would give a prosecutor pause; it wouldn’t mean Cook is clean as a whistle.)

There is no doubt, though, that the new information improves Cook’s position. That is why Cook’s attorneys rushed to make it known to the D.C. Circuit after it appeared in the press. (Aside: The fact that it first appeared in the press — via a Reuters report — rather than in a proffer to the court from Cook and her counsel is a two edged sword: (1) it shows that the Trump administration did not give Cook a process in which she could gather evidence in her defense before the president tried to remove her; (2) but it also implies that, upon being confronted with apparent misrepresentations on mortgage documents, Cook may have thought she’d been caught and didn’t realize that there might be some exculpatory information.)

The aforementioned Judge Cobb had already ruled in Cook’s favor before the new revelations. Obviously, then, the revelations can only help. Yet, I wouldn’t pop the champagne open just yet. In my view, Cobb’s lengthy opinion is not persuasive on the central question, to wit: What does “cause” mean?

With no definition in the statute, Cobb tried to fill in the void with (1) legislative history (Congress wanted the Fed’s role in steering monetary policy to be insulated from political pressure) and (2) analogies to “for cause” provisions in other statutes. From this, she concluded that the only cause justifying removal would be incompetence or misconduct committed while in office — i.e., during and in connection with Cook’s work on the Fed, not alleged personal misconduct prior to joining the Fed.

Maybe that’s where the higher courts will come out — and few doubt that this case is headed for the Supreme Court. But the justices frown on the judicial razzmatazz of mining legislative history to insert important provisions that Congress has not included — often quite intentionally — in statutory text. Perhaps Congress — or at least some members of Congress — did not want a limiting definition of cause in the Fed statute because lawmakers believed, given the unique history and structure of the Fed, that the president should have more leeway in removing Fed board members than other administrative agency heads. I doubt that, but it’s a blank slate, so we’re all engaged in surmise.

With the FOMC meeting just two days away, the D.C. Circuit directed the Justice Department to respond to Cook’s submission by Sunday (today). The immediate question is whether Cook should be permitted to continue in her Fed board position while the litigation moves forward.

I think it’s likely that Cook will prevail in the short term, for three reasons.

First, let’s assume for argument’s sake that (1) a president has broad discretion to remove a board member for cause, (2) he may do so based on private conduct that goes to character and fitness rather than malperformance in office, and (3) the decision is the president’s — no judgment of criminal conviction or civil liability is necessary. Still, the congressional mandate of cause implies that there must be some process that establishes some objective rationale for removal. If the president could just remove “at will,” then the statute’s cause requirement would be nullified.

Second, by his own account, Trump relied entirely on Pulte’s information to rationalize firing Cook. It now appears that Pulte’s information is either wrong or materially incomplete. Even conceding that a president’s discretion may be broad, it is an abuse of discretion to decide a significant matter based on flawed information.

Finally, there is Humphrey’s Executor v. United States, the 1935 case that upheld Congress’s power to restrict the president’s authority to remove agency heads who wield some executive power. We noted again last week that Humphrey’s is in its death throes. But in May, the Supreme Court signaled that, even if it overrules Humphrey’s, it will insulate the Fed from such a decision because of the Fed’s unique history and structure (and, unsaid but looming, because of the possibility that the markets will crater if Fed independence from politics is lost). I’m thus convinced that a majority of the justices have already come to the conclusion that the president should have less power to remove Fed board members than other heads of administrative agencies.

It’s not a reach, then, to deduce that if the Court is going to limit the president’s firing authority, then the justices will reject the notion that Trump can remove Cook based on allegations that have not been proved, reliant on information that might be wrong, involving conduct that had nothing to do with Cook’s official duties.