Photographer: Andrew Harrer/Bloomberg

Just Read Janet Yellen's Daybook to See What Happened to Newsletter Behind Fed Leak

The name used to pop up regularly in Janet Yellen’s daybook: Regina Schleiger, an economic analyst writing for a boutique newsletter, presided over a 2010 speech by the Federal Reserve’s then vice-chair. The two met twice in 2011. They met again, one-on-one, the next year.

Then came Schleiger’s October 2012 report that relayed uncanny details of what were supposed to be secret Fed deliberations, uncorking internal reviews, lawmaker ire and a federal investigation into how the information leaked to an outsider. Schleiger hasn’t had a meeting with Yellen since, according to calendars provided by the Fed.

Schleiger, a former reporter known for provocative questioning, hasn’t fallen under public scrutiny for her newsgathering. Yellen, for her part, met with Schleiger months before the Fed meeting from which details were leaked and said she didn’t divulge anything confidential.

What U.S. investigators want to know, though, is how possibly market-moving information reached Schleiger from among the scores of insiders privy to policy makers’ thinking. Last week, House Financial Services Committee Chairman Jeb Hensarling, a Texas Republican, pressed the Fed to comply with requests for records about the leak probe, including all communications between Fed staff and Schleiger’s company, accusing the central bank of obstructing his panel’s probe.

Political Intelligence

That sort of scrutiny of the Fed’s relationships with outsiders has been among the hurdles that in recent years have faced political intelligence firms including the one employing Schleiger, Medley Global Advisers. It charges $100,000 and up, according to people familiar with it, for an annual service that includes newsletters, reports and access to the firm’s strategists. Clients have included Tudor Investment Corp. and Moore Capital Management.

Medley’s calling card is exclusive information its analysts glean through access to government officials and influencers. Yellen, now the Fed chair, included a backhanded testimonial to that influence in a letter she wrote to lawmakers in April: In that 2012 meeting, Yellen was the one seeking information, writing that she was seeking Schleiger’s “perspectives on international developments.”

The ground started shifting for political intelligence firms’ coverage of U.S. economic policy in 2011, when then-Fed Chairman Ben Bernanke embraced greater openness and communications with the public, stripping a little of the mystery away from the central bank. At the same time, more firms have cropped up, analyzing actions like Fed moves, congressional hearings and government agency rule-making deliberations, said Michael Mayhew, founder of Integrity Research Associates LLC.

Yellen’s Calendar

One former Fed official, who declined to be cited by name, also described becoming more leery of meeting with outside analysts, especially one-on-one. Yellen’s calendar, obtained under a Freedom of Information Act request, shows a similar pattern. She had more than a half-dozen meetings with Medley and its rivals from 2011 through 2013, and none since she became chair last year.

“Political intelligence firms are certainly less of a hot source of information than what they used to be,” said Mayhew. The industry, including policy-research arms of big investment banks such as Goldman Sachs Group Inc., had revenue of about $400 million in 2008, Mayhew said. After contracting sharply during the financial crisis, it has slowly been climbing back.

Medley, a part of Pearson Plc’s Financial Times Group, doesn’t disclose financial information, and its overall results over previous years couldn’t be determined.

Schleiger didn’t respond to requests for comment. “Regina is an experienced journalist and longstanding employee of MGA who adheres to the highest editorial standards,” said Christopher Chafin, a spokesman for Medley.

Fed’s Minutes

On Oct. 3, 2012, Medley reported that the Fed’s minutes, to be released the following day, would show the central bank on a path to begin new Treasury bond purchases in December. The report also described “thresholds” -- conditional pledges to keep the benchmark interest rate near zero until certain targets for inflation and unemployment were met.

At the end of trading that day, yields on 10-year Treasury notes stood at 1.61 percent.

The next afternoon, the Fed published its minutes, which showed many meeting participants leaning toward exactly such thresholds as a better way to give guidance on rates. Yields in 10-year notes rose to 1.67 percent that day, and to 1.74 the next.

Criminal Probe

Bernanke swiftly ordered the Fed’s top lawyer and board secretary to conduct a probe into who leaked the information. The Fed’s inspector general began a separate investigation in March 2013. After lawmakers demanded this year to know why two years had passed without any consequence, Yellen revealed in a May letter that the Justice Department was conducting a criminal probe into the leak to Medley, alongside the agency’s inspector general.

Schleiger, an Australian, worked as a reporter in her home country before moving to New York in 1994 with her husband -- a writer who did scripts for the children’s band and TV group “The Wiggles” -- according to former colleagues. In the U.S., she covered banking and macroeconomic policy for Knight-Ridder Financial News, where two then-colleagues said she was known for aggressive reporting and striking up engaging conversations with prospective sources to pique their interest.

Business Pioneer

In 2003, she joined one of a small knot of political intelligence firms -- Medley, then an independent firm founded six years earlier by Richard Medley. A chief economist for the U.S. House Banking Committee and an adviser to financier George Soros, Richard Medley published similar newsletters in the 1980s and was considered a pioneer in the business.

“Back in the late ’90s, all the big, famous macro hedge funds listened to Richard Medley because of his contacts at the Fed,” said Raoul Pal, a former hedge-fund manager who now writes a newsletter about global macroeconomic trends.

Medley’s annual revenue grew to about $20 million by the mid-2000s. Until staff members moved to an office around 2007, they worked in a loft in Manhattan’s Tribeca neighborhood that had the trappings of Silicon Valley firms -- a foosball table, in-office massage sessions and lunches brought in from one of three different restaurants, one former staff member recalled.

The firm’s reports included details meant to convey the proximity of its analysts to their sources. It was a technique Schleiger reprised in her 2012 note when she said that the policy options for the September meeting weren’t finished until after midnight.

‘Business Model’

“There is an inevitable perception that there is special or inside info that Medley is getting,” said Ben Hunt, chief risk officer at Salient Partners, a Houston-based asset-management firm. “Medley plays that up. That’s their business model.”

Richard Medley sold the company in 2006, five years before his death, to two private-equity firms. Medley later added Goldman Sachs as a minority investor, and in 2010 was bought by the Financial Times. (Bloomberg News, a unit of Bloomberg LP, competes with the FT in providing news and information.)

Around that same time, the Fed was reassessing its communications policies. In 2004, it accelerated the release of minutes, making them public three weeks after Federal Open Market Committee meetings, down from about six weeks before. In 2011, then-chairman Bernanke began holding quarterly news conferences, and in 2012 the Fed began publishing policy makers’ projections for when rates will begin to rise.

Some Fed officials began to question the value in speaking with Medley, traditionally used as a conduit both to clarify thinking for the large investors who were Medley’s clients, and to get information on how the market perceived Fed policies, said one former official. He said he stopped speaking with Medley analysts in 2010 because he felt they were no longer providing useful information.

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