Can Trump fire Lisa Cook for cooking the books?

President’s Trump’s efforts to reign in the administrative state and prod the Federal Reserve to adopt more Trumpian policies took a dramatic turn when he ousted Dr. Lisa D. Cook, an alleged miscreant, from the Federal Reserve’s Board of Governors last week.

The drama, and there’s always high drama in Trump World, unfolded after Federal Housing Finance Agency Director Bill Pulte made a criminal referral to the U.S. Department of Justice based on Cook’s apparently falsified mortgage documents for homes in both Ann Arbor, Michigan as well as Atlanta, Georgia. Cook claimed the Ann Arbor house as her primary residence, which would allow her to obtain more favorable financing terms. Just two weeks later, Cook claimed her Atlanta condominium as her primary residence as well.Pulte made another criminal referral when he discovered Cook described a third Cambridge, Massachusetts property as a second home, but used it as an investment property and so described it in contradictory government filings.Pulte released footage of a reporter visiting Cook’s Michigan residence, where the reporter encountered renters who redirected comment to the “homeowner.”

On August 25, the President sent Cook a letter notifying her of her termination, citing as authority Article II of the Constitution of the United States and the Federal Reserve Act of 1913. The President noted the Federal Reserve’s authority to set interest rates and regulate reserve and member banks. President Trump questioned Cook’s character and fitness for her job and fired her “for cause”:

“The American people must be able to have full confidence in the honesty of the members entrusted with setting policy and overseeing the Federal Reserve. In light of your deceitful and potentially criminal conduct in a financial matter, they cannot and I do not have such confidence in your integrity. At a minimum, the conduct at issue exhibits the sort of gross negligence in financial transactions that calls into question your competence and trustworthiness as a financial regulator.”

On August 28, Cook filed a lawsuit seeking a temporary restraining order in the United States District Court for the District of Columbia to deny that she had committed “inefficiency, neglect of duty, or malfeasance in office” which she claimed constituted the “for cause” standard; obtain notice and a hearing; and retain her position. In a court hearing the next day, Cook’s lawyers also claimed that Cook’s firing was pretextual. The President’s true motive, they asserted, was to (i) obtain a majority on the Federal Reserve’s seven seat Board; and (ii) force a rate drop. Cook has not yet been charged with any civil violation or crime. She has not publicly responded to the allegations lodged against her.

Neither the Federal Reserve Act nor any other statute define the “for cause” standard. The question for the courts to consider is whether Cook can be fired for potentially criminal conduct that (i) preceded her public service and (ii) stands outside the scope of her duties to the Federal Reserve. Does cooking the books in her personal life, when Dr. Cook sets national banking policy in her professional life, give President Trump “cause” under the Federal Reserve Act to fire her? To be clear, nothing in the statute limits the definition of “cause,” so the President may yet win this battle of wills.

A related and overarching question is what authority the President should have over independent agencies such as the Federal Reserve, which raises separation of powers issues. The Federal Reserve exercises both legislative and executive powers, but it is allegedly autonomous. The Trump administration is keen to change the status quo. To do that, the President needs to take his fight to the high court and persuade the United States Supreme Court to reconsider its landmark decision in Humphrey’s Executor v. United States (1935), the ruling that first embraced the notion of independent agencies and simultaneously limited the chief executive’s ability to remove agency leaders. Reversing course is not unheard of for the Court, but it will not be a light lift either. If the President succeeds, he will have remade the executive branch in his own image. Presidents for years to come will have greater authority over those who rule in their name.

Even if Cook somehow retains her position as a Governor on the Board, her legal troubles may be just beginning. Mortgage fraud, tax evasion and wire fraud are all potential criminal charges the Justice Department may be contemplating given the allegations Pulte has aired publicly. For all the misfortunes Cook has brought upon herself, she is one piece on a chessboard much larger than just one purported mortgage fraudster.