Two prominent Democratic legislators are demanding that the Federal Reserve cough up more information about a leak to an intelligence firm that serves Wall Street hedge funds.
Sen. Elizabeth Warren (D-Mass.) and Rep. Elijah Cummings (D-Md.), the ranking member of the House Oversight Committee, on Thursday sent a letter to the Fed, asking it to explain more about the Federal Open Market Committee September 2012 disclosure to Medley Global Advisers.
Although a Bloomberg report described an internal investigation as reaching “the highest levels of the central bank,” the pair complained to Fed General Counsel Scott Alvarez that no details of the probe have ever been made public.
“We are disturbed by this lack of transparency regarding such an important topic,” Warren and Cummings said. “This leak contained key market-moving information, violated Federal Reserve policy on disclosure and may have represented a violation of federal law.”
The duo said they wanted to assess whether the Fed has taken the appropriate steps to stop future FOMC leaks, and the extent to which “legislative proposals are necessary in order to address this problem.”
They requested Alvarez come to brief staffers on the status of the inquiry, how it was carried out and by whom, FOMC policies, and the response to the disclosure.
Cummings and Warren requested that Alvarez provide the information by Feb. 15.
In December, in response to a Freedom of Information Act request filed by ProPublica, the Fed acknowledged that the leak was noted repeatedly in FOMC meetings in late 2012 and early 2013. The central bank, however, would not release transcripts of the closed-door hearings until 2018, as per its standard operating procedure.
ProPublica noted that leaks about market-moving information discussed by the FOMC are not uncommon. The Medley disclosure, however, especially raised internal hackles because the firm only distributes its reports to paying clients looking for insider tips on policy.
“Medley issued its FOMC report on Oct. 3, 2012, one day before the Fed released its minutes,” Bloomberg reported in December. “People who received the Medley report could have positioned to profit from a decline in U.S. Treasury security prices that followed the Fed’s official release.”
The October 2012 dispatch, based on non-public FOMC minutes from September, tipped Medley clients off to imminent Treasury Bond purchases carried out by the Fed amid its third round of quantitative easing. The report “was so detailed that it alarmed Fed officials,” Bloomberg noted.
Sen. Warren and Rep. Cummings might experience some pushback from central bank officials. As The Sentinel noted on Monday, the Fed has been notoriously cagey on matters of transparency, though momentum could be slowly building in Congress to subject the body to the most thorough audit it has ever faced.
The Hill reported on Thursday that Fed Chair Janet Yellen is going to fight back against the move–championed by Sen. Rand Paul (R-Ky.)–and that President Obama “would likely veto it.”
