Top Federal Reserve Watchdog Recently Reopened Stalled Inquiry Over 2012 Leak

03/11/2015 06:33 pm ET | Updated Mar 12, 2015
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WASHINGTON -- The independent investigator who oversees the Federal Reserve recently reopened what had been a failed investigation to determine the source of a 2012 leak of a major central bank decision, according to people familiar with the inquiry.

The move comes one day after The Huffington Post reported that investigators had spent at least a year on the secret inquiry and had not disclosed it to the public or Congress.

In the fall of 2012, someone at the Fed with access to secret deliberations of the central bank's interest rate-setting committee delivered advance details about its stimulus program to Medley Global Advisors, a political and economic policy intelligence firm that caters to hedge funds and other investors. Medley transmitted the leaked information to its clients one day before minutes from the Fed's September 2012 meeting were made public, and some two months before certain further details of the stimulus plan were made public in December 2012.

The revelation of the central bank's plans ahead of schedule presented Medley's elite clients with an opportunity to cash in on the Fed's move by trading stocks and bonds before the news reached the broader markets.

The Fed didn’t disclose that it had internally investigated the leak, and didn’t acknowledge that the breach had even occurred until it responded to a Freedom of Information Act request by ProPublica, the news outlet reported in December 2014. Bloomberg News also reported on the leak at the time.

Both outlets revealed that the Fed itself had instructed its top staffers, including its powerful longtime general counsel, Scott Alvarez, to investigate the leak of the Federal Open Market Committee’s deliberations. The results of that internal inquiry have not been made public, and news reports suggest it amounted to little more than a questionnaire sent to Fed staff.

On Tuesday, however, HuffPost reported that, separately, the Fed's inspector general spent at least a year investigating the disclosure -- without informing the public or mentioning the inquiry in its regular semi-annual reports to Congress. The IG, which serves as the Fed's in-house auditor, is not legally required to report details of open criminal investigations to lawmakers. No one at the Fed has been publicly reprimanded for the breach.

The inspector general initiated its investigation of the Medley leak in March 2013 after receiving a tip, people familiar with the inquiry said. Notably, the sources said the investigation wasn’t requested by the Federal Reserve -- a crucial detail that suggests the Fed wasn’t interested in getting its internal watchdog to further probe the leak. It's unclear who requested the probe.

The sources, who spoke on the condition of anonymity, said the investigation continued over the next year and a half, until the IG closed it last December after failing to gather enough evidence to determine the identity of the leaker.

Then, earlier this month, the investigation was reopened for reasons that are unclear. John Manibusan, a spokesman for the IG, declined to comment, as did Joe Pavel, a Fed spokesman.

Central bank watchdogs have been flabbergasted by the apparent lack of action even after a year and a half of investigation: Since only a small number of Fed insiders had access to the meeting deliberations, the probe most likely could have been completed relatively quickly.

Sen. Elizabeth Warren (D-Mass.) and Senate Finance Committee Chairman Orrin Hatch (R-Utah) have both demanded answers from the central bank about the breach. In February, Warren sent a letter to Alvarez requesting information about the Fed's internal leak investigation, which he led along with FOMC Secretary William English. A few weeks later, she sharply questioned Fed Chairwoman Janet Yellen about the same inquiry during a Senate Banking Committee hearing.

Earlier on Wednesday, Hatch sent letters to both Yellen and Mark Bialek, the Fed’s inspector general.

In the past, the Fed has been aggressive in responding to leaks from its interest rate-setting committee. Former Fed Chairman Alan Greenspan in 1996 asked the FBI to investigate a leak.

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