Banks on Fed Staffer E-Mail List Get Leak of FOMC Minutes

Citigroup Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. were among at least 15 financial companies that received potentially market-moving Federal Reserve information 19 hours before the public in a release the central bank called a mistake.

Brian Gross, a member of the Fed’s congressional liaison staff, distributed the March 19-20 minutes of the Federal Open Market Committee meeting at 2 p.m. Washington time on April 9, according to an e-mail obtained by Bloomberg News. The list also included congressional staff members and trade groups. Gross referred questions to Fed spokeswoman Michelle Smith.

FOMC minutes, which include comments on the committee’s discussions about the direction of monetary policy and its outlook for the economy, are among the most closely scrutinized Fed documents as the panel debates when to stop its third round of bond purchases. The inadvertent release raised questions about the central bank’s internal controls among attorneys and disclosure experts.

“The Fed’s controls over its sensitive, market-moving information are just too weak,” said Dennis Kelleher, president and chief executive officer of Better Markets Inc., a nonprofit Wall Street watchdog. “The fact that it could happen at all is inexplicable, particularly given how sensitive and market-moving this information is.”

‘Thorough Review’

Kelleher, a former chief counsel under former Senator Byron Dorgan of North Dakota, said the Fed needs an “immediate, thorough review of all procedures” on how they handle information that can affect market prices.

The release was “entirely accidental,” said Smith, the Fed spokeswoman. “This was a list of professional contacts that one individual had,” she said. “This group of individuals does not in any normal course receive any information early.” The mistake was discovered about 6:30 a.m. yesterday, and no recipient on the list contacted the Fed about the early release, according to a Fed spokesman.

Gilbert Schwartz, a former associate general counsel at the Fed Board, said it would be normal for the Fed’s congressional liaison to have fluid e-mail contact with key members of Senate and House committees. Having private parties on the list is another matter, Schwartz said.

“If you are public company, everybody gets it at the same time,” said Schwartz, a partner at Schwartz & Ballen LLP, a Washington law firm. “I am not sure why private parties are on that list. Why do they have a special in at the Federal Reserve?”

154 Recipients

The Fed initially said recipients were primarily congressional staffers and trade organizations. A list of 154 recipients released later by the Fed show that banks also were among them.

The list also included individuals from Barclays Plc, BB&T Corp., BNP Paribas SA, Capital One Financial Corp., Fifth Third Bancorp, HSBC Holdings Plc, Nomura Holdings Inc., PNC Financial Services Group Inc., Regions Financial Corp., U.S. Bancorp, UBS AG and Wells Fargo & Co.

“It comes at a bad time for the Fed, they are viewed as being too close to a lot of these big financial institutions,” said Simon Johnson, an economics professor at the Massachusetts Institute of Technology’s Sloan School of Management and a Bloomberg View columnist. “It looks bad, it looks like this is some sort of information edge these people are getting.”

Carlyle, S&P

Other financial firms included IntercontinentalExchange Inc., the Atlanta-based owner of the world’s largest credit-default swap clearinghouse that has agreed to buy NYSE Euronext for $8.2 billion; buyout firm Carlyle Group LP; and financial-market data provider Standard & Poor’s.

After learning of the mistake, the Fed released the minutes to news media at about 8:35 a.m. under embargo for publication at 9 a.m. yesterday in Washington instead of the planned time of 2 p.m.

The yield on the benchmark 10-year Treasury note climbed yesterday to 1.80 percent from 1.75 percent a day earlier.

The Fed and the Labor Department have been at the forefront of efforts to tighten distribution of information to the media, which often operate under pledges not to release data, speeches and other news before an agreed-upon time. Bloomberg News and other news organizations last year opposed a Labor Department proposal to use government equipment for reporting economic statistics, a plan the agency said was aimed at preventing early release.

‘Unfettered Access’

Daniel Moss, a Bloomberg News executive editor, testified at a hearing in June before the House Oversight and Government Reform Committee that the shift to federal computers “gives the government unfettered access to reporters’ notes and drafts.”

In August, the Labor Department posted jobless claims data to the agency’s website 15 hours before the scheduled release. At least one firm, Stone & McCarthy Research Associates in Princeton, New Jersey, accessed the figures before the embargoed release time. Investors and economists monitor unemployment benefits data for clues on the labor market’s health.

The premature release two days ago involved the Fed itself rather than the media.

“The next time they point a finger at the media for being the bad guys this is going to be example ‘A’ that mistakes get made all the time,” said Lucy Dalglish, dean of the Philip Merrill College of Journalism at the University of Maryland in College Park. “This is not just a media issue.”


The Fed contacted the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission about the early release. The Fed Board also asked its inspector general to review its procedures.

“Certainly, for a public company, if disclosure was made selectively of material non-public information, the appropriate response for the company would be to, as soon as possible, put the information out to the public at large,” said David Martin, a partner at Covington & Burling LLP in Washington.

The Fed’s public affairs office has explored for several months ways to increase the security around the release of Fed documents with the press, and this year narrowed the time between the FOMC statement publication and Chairman Ben S. Bernanke’s press conferences.

Gross is a former staffer of former Senator Phil Gramm, a Texas Republican who was chairman of the Banking Committee from 1999 to 2001. Among the recipients of his e-mail were staff members of the Senate Banking Committee and the House Financial Services Committee.

2 1/2-Hour Lag

A Fed spokesman declined to comment on why the minutes weren’t distributed more widely until 9 a.m. yesterday even though they knew about the breach more than two hours earlier.

“They should have released it as soon as they discovered the error,” said Julia Coronado, chief economist for North America at BNP Paribas in New York. “It is not fair to give anybody an information advantage on policy deliberations.”

The minutes of the March FOMC meeting showed that several Fed officials said the central bank should begin tapering its quantitative easing program later this year and stop it by year end.

The members “thought that if the outlook for labor market conditions improved as anticipated, it would probably be appropriate to slow purchases later in the year and to stop them by year-end,” the minutes showed.

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