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Jake Bernstein: Fed Inspector General Reopens Leak Investigation

Senate Finance Committee Chairman demands more information about how a private newsletter obtained confidential details of Fed discussions.

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Image from Flickr user Lance McCord.

By Jake Bernstein
By arrangement with ProPublica.

The Federal Reserve Board’s inspector general has reopened an investigation into a two-year-old leak of confidential monetary information amid rising Congressional scrutiny into how the Fed has handled the matter, ProPublica has learned.

Sources told ProPublica that the IG’s action came March 4 and was based on new information. Investigators had closed the leak inquiry last December after initiating it in March 2013.

Congressional attention to the leak has grown in recent weeks. On Wednesday, Senate Finance Committee Chairman Orrin Hatch (Republican, Utah), joined those demanding more details about how the leak investigation was handled.

Hatch sent strongly worded letters to Fed Chairwoman Janet Yellen and to the board’s inspector general, Mark Bialek, expressing frustration over the fact that the original investigation and its results had remained private. He also complained that Bialek’s staff had been reluctant meet on the subject.

Fed protocol requires that in the event of a leak, the FOMC secretary and the Fed general counsel are to perform a preliminary review.

“Of course, that’s unacceptable,’’ Hatch said in the letter to Bialek, accusing his office of trying to “cloak information” by contending the investigation was a confidential “pre-decisional” matter of the Federal Open Market Committee (FOMC), which sets monetary policy that guides the economy.

ProPublica reported earlier on the October 2012 leak, in which confidential information about key moves in the Fed’s bond-buying program found its way into a financial analyst’s newsletter. The information went to the analyst’s clients one day before the scheduled public release of the open market committee’s meeting minutes.

“There is no record on the OIG’s public website to indicate that any investigation occurred.”

The newsletter revealed some of what the minutes would say as well as fresh details about the Fed’s internal plans and deliberations—information that could have provided traders with an edge.

Spokesmen for Bialek’s office and the Fed acknowledged receiving the letters from Hatch but declined to comment on them.

Fed protocol requires that in the event of a leak, the FOMC secretary and the Fed general counsel are to perform a preliminary review. Results are to be reported to the Fed chairman. The general counsel then decides if the matter warrants further investigation by the Fed’s inspector general.

After becoming aware of the leak, then-Chairman Ben Bernanke instructed Scott Alvarez, the Fed’s general counsel, and William English, the committee’s secretary, to conduct an internal inquiry. They sent a questionnaire to people who had access to the information that was disclosed.

Hatch’s letter to the IG asks for a briefing on the investigation, who at the Fed was interviewed, whether the IG gathered phone or email records to look for contacts with the newsletter analyst and why there has been no report about it.

“It does not appear that the Board has publicly disclosed any of its findings from its investigation”

“There is no record on the OIG’s public website to indicate that any investigation occurred, or of any attendant audit or audit report, or results of any investigation that may have occurred,” Hatch wrote.

The Fed never revealed the inquiry and only publicly acknowledged the leak in response to a public records request by ProPublica.

In the letter to Yellen, Hatch wrote: “It does not appear that the Board has publicly disclosed any of its findings from its investigation into the potential severe breach of information security in this matter.”

Hatch’s interest adds a more bipartisan cast to concerns on Capitol Hill about the leak.

Sen. Elizabeth Warren (Democrat Massachusetts), and Rep. Elijah Cummings (Democrat, Maryland), have also asked the Fed for more information about the leak. At a recent hearing on monetary policy, Warren sharply questioned Yellen about whether the Fed would provide a briefing. Yellen promised it would.

Jake Bernstein is a business and financial reporter for ProPublica.

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