Tags: hensarling | federal reserve | probe | leak

Hensarling Letter Says Criminal Probe Opened on '12 Fed Leak

Saturday, 14 March 2015 01:27 PM

House Financial Services Chairman Jeb Hensarling said he has been informed by the Federal Reserve’s inspector general that “there is currently an open criminal investigation” into the leak of confidential Fed information in 2012.

Bloomberg News previously reported that potentially market-moving inside details of the Federal Open Market Committee’s September 2012 meeting were published by Medley Global Advisors in a report to clients on Oct. 3 that year, one day before the Fed released minutes of the gathering.

Hensarling wrote to both Fed Chair Janet Yellen and Inspector General Mark Bialek on Friday requesting more information on the leak. The Texas Republican also said that Fed Board officials dropped the matter after an initial probe.

A Fed Board spokeswoman referred questions to the Office of the Inspector General. John Manibusan, a spokesman for the Fed’s inspector general, declined to comment.

“It is my understanding that although the Federal Reserve’s General Counsel was initially involved in this investigation, the inquiry was dropped at the request of several members of the FOMC,” Hensarling wrote in the letter to Yellen.

In his letter to Bialek, Hensarling wrote that “there is currently an open criminal investigation into the matter.”

Hensarling’s letters add to increasing pressure on Yellen from members of Congress to say more about how the Fed responded to the leak.

Bipartisan Pressure

Senator Elizabeth Warren, a Massachusetts Democrat; Representative Sean Duffy, a Wisconsin Republican and chairman of the House Financial Services Subcommittee on Oversight and Investigations; and Senate Finance Committee Chairman Orrin Hatch have all asked Yellen about the matter.

Hensarling’s letter said he was writing to Yellen “out of concern for your lack of response” to a Feb. 5 letter from Duffy and requested more information, such as “a list of all individuals with access to the information.”

In a separate letter to Bialek, Hensarling also referred to information requests in Duffy’s letter of Feb. 5, and said the criminal probe notwithstanding, “the subcommittee is entitled to the information it previously requested.”

Any indication of future Fed policy decisions could be highly lucrative for traders in financial markets. Medley sells intelligence on macro-economic policy to private clients, including hedge funds and other investors.

Policy Debate

The FOMC’s September 2012 policy debate about additional stimulus stemmed from Fed concern that hiring had stalled. To spur the economy, then Fed Chairman Ben S. Bernanke initiated a third round of quantitative easing on Sept. 13, announcing the Fed would buy mortgage securities at a pace of $40 billion a month.

The September meeting was a half-step toward what would become one of the most aggressive moves in U.S. monetary history.

In December, the FOMC decided to add $45 billion of Treasury purchases, and committed to holding the benchmark lending rate around zero as long as the unemployment rate remained above 6.5 percent and annual inflation was projected to rise no more than 2.5 percent.

“The minutes of September’s meeting will show, however, that the groundwork for further action in coming months has been laid and that labor-market improvement is unlikely to be substantial enough to stave off new Treasury purchases into 2013,” Medley told its clients in the Oct. 3 note.

Security Protocols

Bernanke in 2012 asked Fed General Counsel Scott Alvarez and William English, who was FOMC secretary at the time, to investigate whether information security protocols had been broken, according to a person familiar with the matter.

The central bank has never commented on that internal probe. Daniel Bogler, president of Medley Global Advisors, declined to comment. Medley is owned by the Financial Times Group, a division of Pearson PLC, which competes with Bloomberg News.

Bloomberg News previously reported that Bialek initiated his own investigation on the matter. “The Board did not request that the OIG investigate this matter; rather, we initiated our own independent investigation,” Bialek told Duffy in a Feb. 19 letter.

Bialek’s staff called House Financial Services committee staff on March 11 and informed them that the probe had been re- opened, according to Hensarling’s letter.

Criminal Conduct

Typically, the Fed’s inspector general “will look into whether there are allegations of criminal conduct,” said Gilbert Schwartz, a partner at Schwartz & Ballen LLP, a Washington law firm.

He said the Fed normally refers criminal cases to the Justice Department, and it wouldn’t be usual for the inspector general’s office to continue a criminal probe on its own.

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House Financial Services Chairman Jeb Hensarling said he has been informed by the Federal Reserve's inspector general that "there is currently an open criminal investigation" into the leak of confidential Fed information in 2012.
hensarling, federal reserve, probe, leak
Saturday, 14 March 2015 01:27 PM
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