Photographer: Andrew Harrer/Bloomberg

Lawmakers Step Up Fed Leak Scrutiny With Interview Requests

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Lawmakers intensified their scrutiny of a leak of confidential Federal Reserve deliberations, asking to interview central bank officials who could have supplied the information.

The House Financial Services Committee “intends to thoroughly investigate both the disclosure of confidential” policy information as well as an internal Fed probe of the leak, which it called “inadequate,” according to an April 15 letter to Fed Chair Janet Yellen.

Lawmakers are seeking the source of Federal Open Market Committee deliberations published in a research report by Medley Global Advisors on Oct. 3, 2012, a day before the Fed released minutes of the session. The Fed’s own probe failed to identify possible leakers.

House Financial Services Committee Chairman Jeb Hensarling and Representative Sean Duffy, head of the Oversight and Investigations Subcommittee, asked for the names of the “small few” employees who the Fed found had prior contact with Medley, as well as the names of all officials who attended the September 2012 FOMC meeting.

In a separate letter to Medley, Duffy and Hensarling asked for “all records” of information provided by any federal government employee that was used to draft the company’s report on the FOMC session.

Michelle Smith, a spokeswoman for the Fed, declined to comment. Christopher Chafin, a spokesman for The Financial Times, which owns Medley, also declined to comment.

Lawmaker Determination

The letters underscore lawmakers’ determination to find the source of the potentially market-moving information along with their broader unhappiness with the central bank’s perceived lack of transparency and accountability. The Fed’s leak probe was first reported by Bloomberg News last December, and the Fed didn’t tell Congress about it until lawmakers demanded more information.

As congressional pressure mounted this year, the Fed’s Inspector General revived an independent probe of the leak.

Hensarling has asked for more information on the leak probe from the Fed’s Inspector General. In a March 13 letter to Yellen, the Texas Republican said the Inspector General’s staff had told him there was “an open criminal investigation.”

Yellen, responding to a question at a March 18 press conference, said, “we welcome that review and are looking forward to its conclusions.”

In its 2012 report, Medley, which sells policy intelligence to hedge funds and other investors, described the FOMC’s September, 2012 meeting, when the committee decided to buy $40 billion a month of mortgage securities in the third round of so-called quantitative easing.

‘December Bound’

The report, titled “Fed: December Bound,” telegraphed the possibility that $45 billion of U.S. Treasury purchases would be added to the program, as well as the possible adoption of guidelines on levels of unemployment and inflation that officials would seek to achieve before raising interest rates from near zero.

The minutes to be published the next day would show “the groundwork for further action in coming months has been laid,” the Medley analyst, Regina Schleiger, wrote in her note to clients. Both of the actions were adopted in December.

On Oct. 4, 2012, the day the minutes were published, then-Chairman Ben S. Bernanke asked General Counsel Scott Alvarez and then-FOMC Secretary William English to investigate the leak, Bloomberg has reported.

Alvarez told House staff last month that he was “unable to determine the source of the leak,” according to the April 15 letter to Yellen.

Possible Crime

Although Alvarez “conceded” that the leak could constitute a crime, “at no time did he or any member of the FOMC” refer the matter to the inspector general, the Federal Bureau of Investigation, the Department of Justice, the Securities and Exchange Commission or the Commodity Futures Trading Commission, the lawmakers wrote.

After his findings were presented to FOMC members in March 2013, the committee “decided not to proceed further with the investigation,” Duffy and Hensarling wrote.

“Mr. Alvarez was unable to recall whether any members of the FOMC objected to discontinuing the investigation at that time,” the letter said. “Though he did recall” that former Fed governor Sarah Bloom Raskin expressed a desire “that the investigation be thorough.”

Raskin, a former Maryland state financial regulator, is deputy secretary of the U.S. Treasury. Treasury spokeswoman Victoria Esser referred questions to the Fed.

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