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New Fed Documents Raise Questions Over How 2012 Leak Was Handled

Christopher Condon and Craig Torres
·5 min read

(Bloomberg) -- Newly released documents from the Federal Reserve show that investigators at its Office of Inspector General were frustrated by what they viewed as a lack of cooperation from senior officials at the central bank as they sought to uncover the source of a 2012 leak of confidential information.

The documents raise fresh questions about the Fed’s handling of inquiries into how market-moving details of a pending policy shift found their way into the hands of Wall Street investors. The incident was the most serious Fed leak to come to light in years and led to the resignation of Richmond Fed President Jeffrey Lacker in 2017.

Yet the picture that emerges from more than 400 pages of heavily redacted material is incomplete and sometimes contradictory. Some documents seem to convey a clear frustration over an apparent lack of cooperation from top officials, including the bank’s general counsel, with the OIG, which is an independent watchdog within the Fed. It never identified any leakers.

One memo, related to the OIG’s first failed attempt to identify the leaker, states that a Fed official’s decision not to provide timely information “may have impacted the ability of the OIG to thoroughly pursue this matter.”

Some of the professed frustration at the OIG, however, is difficult to explain while other assertions of a lack of cooperation are undermined by other documents in the release.

Fed Spokeswoman Michelle Smith and OIG spokesman John Manibusan declined to comment.

Two officials the documents point to as uncooperative appear to be the former general counsel, Scott Alvarez, and the former secretary of the Federal Open Market Committee, William English. At that time, the Fed’s internal rules put them in charge of the first inquiry into any suspected leak of confidential information.

No Obstruction

Alvarez and English gave a joint statement to Bloomberg News saying they cooperated fully with OIG investigators, and did not obstruct them.

“The OIG has broad powers to investigate any leak of confidential information -- indeed broader powers than were available to us,” they said. “In this case, the OIG used its broad powers to conduct two investigations into this matter. And we cooperated with the OIG in its investigation and did not impede it in any way. The heavily redacted documents released by the Fed do not show the full level of our cooperation with the OIG.”

The initial OIG investigation was prompted by a tip-off to one of its officers in February 2013.

The documents were released late on Friday in response to requests filed by Bloomberg News and other media outlets under the Freedom of Information Act. Bloomberg filed its request in April 2017.

The leak in question followed the Sept. 12-13, 2012 meeting of the FOMC. Highly sensitive details of the meeting were published soon after in The Wall Street Journal and in a newsletter published by Medley Global Advisors, whose subscribers were mainly investment fund managers. Medley is owned by FT Group.

Both articles provided details about the FOMC’s plans to extend large-scale asset purchases, and both appeared before minutes of the meeting were released to the public on Oct. 4, 2012. Neither the Journal, Medley nor any of its employees have been accused of wrongdoing.

Produced Alarm

The articles produced alarm among many Fed policy makers, including then-Chair Ben Bernanke. The documents show that Alvarez began a review of the incident almost immediately. It included interviews with 60 Fed employees, but failed to identify any leakers.

OIG frustration surfaced even before Alvarez completed his review. A memo examining its initial investigation stated “the decision of the [redacted] not to report both leaks to the OIG may have impacted the ability of the OIG to thoroughly pursue this matter.”

That apparent complaint suggests the OIG’s investigation was delayed by a lack of information. But that is contradicted by other documents showing the OIG was informed of the leak by an anonymous complaint before Alvarez completed his review. That tip triggered the OIG’s decision to investigate.

As its inquiry proceeded, other points of contention emerged. The OIG received the names of 60 individual already interviewed by Alvarez’s staff, but an August 2014 OIG memo recommending the investigation’s closure says Fed officials were not cooperative on requests for notes and reports of their investigation, or access to central bank staff.

On this point, Alvarez said the OIG had access throughout their investigations to any Fed personnel employed by the Fed Board in Washington and that no interviews were ever blocked.

‘Not Entitled’

The documents also show the OIG requested the final report on the Fed’s initial internal review of the leak but were denied “because it contained FOMC information the OIG was not entitled to receive.”

The decision to withhold that final report, if taken by Alvarez, was in line with internal Fed rules at the time, but the chair or the FOMC could authorize the release of confidential FOMC information to the OIG. It’s unclear from the documents whether Bernanke or the committee were asked to make such a release or whether they complied

The OIG closed the investigation on Dec. 1, 2014. While the documents show the probe found the journalist and analyst who received the leaks had numerous contacts with members of the FOMC and with senior Fed staffers, the OIG failed to identify any leakers. The investigation was re-opened just three months later after the Fed received new information in an anonymous letter, according to a communique from the OIG to the FBI.

The letter alleged that “[redacted] of the Fed leaked confidential FOMC information to Medley Global Advisors and other firms before the September 2012 decision.”

It’s unclear who the letter pointed to.

Lacker abruptly resigned in April 2017. He said he improperly confirmed confidential information already in the hands of the Medley analyst -- but was not the initial source of the leak -- and failed to disclose his contact with the analyst when interviewed by the Fed’s general counsel. He was not charged with any crime.

The Wall Street Journal’s source was never identified.

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