POLITICS

Federal Reserve Under Fire For Secret Leak Investigation

03/11/2015 03:40 pm ET | Updated Mar 11, 2015
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WASHINGTON -- Senate Finance Committee Chairman Orrin Hatch (R-Utah) sent scathing letters to Federal Reserve Chair Janet Yellen and the central bank's top independent investigator on Wednesday, demanding information about a secret investigation into the leak of a major monetary policy decision.

The letters come one day after The Huffington Post reported that the Fed's inspector general didn't inform the public or Congress of its investigation.

"The notion that the Board and [the Federal Open Market Committee] can cloak any information that it pleases and shield it from transparency and accountability is unacceptable," the letters read.

In the fall of 2012, advance details surrounding a major Fed stimulus program were improperly released to a newsletter that serves wealthy investors. Medley Global Advisors' revelation of the central bank's plans ahead of schedule presented elite clients with an opportunity to cash in on the Fed's move before the broader markets could.

The Fed did not disclose that it had investigated the breach, and did not even acknowledge that the leak had occurred until ProPublica filed a Freedom of Information Act request over it. Bloomberg News also reported on the matter.

In the past, the Fed has responded aggressively to leaks of decisions by the FOMC, the panel that makes decisions about interest rates and inflation. Former Fed Chair Alan Greenspan asked the FBI to investigate one such leak in 1996.

This time around, however, the central bank assigned its top lawyer, Scott Alvarez, and FOMC Secretary William English to investigate. According to reports, their inquiry involved little more than a questionnaire sent to Fed staff who were involved in the September 2012 monetary policy decision.

On Tuesday, HuffPost reported that the Fed IG also spent at least a year investigating the breach without informing the public or mentioning the inquiry in its semi-annual reports to Congress. In his letter to Fed Inspector General Mark Bialek on Wednesday, Hatch said the IG's office had been "reluctant" to meet with Hatch's staff and demanded a "full briefing" on the leak and subsequent IG investigation. Hatch also asked for the same details from Yellen regarding the Alvarez-English inquiry.

There has been no public disclosure of anyone at the Fed being formally sanctioned for the breach. A source who was interviewed for the IG inquiry told HuffPost that the investigators had pulled phone and email records relating to the leak. Since relatively few Fed staffers and officials had access to the leaked information, the investigation likely could have been wrapped up within a few weeks.

Sen. Elizabeth Warren (D-Mass.) has been publicly critical of the Fed's leak-policing. She sent a letter to Alvarez in early February, and interrogated Yellen over the issue during a Senate Banking Committee hearing a few weeks later.

The Fed and the Fed IG declined to comment for this article.

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