A segment on yesterday’s Boom/Bust program, starting a 22:30, discusses the still-open inspector general criminal investigation into leaks from the Fed. As Ed Harrison recounts, the Fed had set up limits on meetings with officials in 2011 because former Fed staffers were profiting from these relationships. ProPublica broke the story. Huffington Post provides a summary:
The shocking leak constituted a serious breach of protocol at the normally secretive FOMC, the central bank’s main policymaking body. In October 2012, one day before the scheduled release of minutes from the Fed’s September 2012 meeting, elite clients of Medley Global Advisors, a political and economic policy intelligence firm, received valuable information about a coming innovation to the Fed’s long-established quantitative easing program. Quantitative easing attempts to stimulate the economy by keeping borrowing costs so low that businesses and households are induced to spend and invest.
Medley clients were sent a newsletter informing them of specific actions the Fed had contemplated at the meeting, such as tying the future direction of short-term interest rates to a 6.5 percent unemployment rate. The numeric thresholds of the Fed’s new policy were not publicly revealed until December 2012.
To make matters worse, an internal investigation was hidden from Congress. Huffington Post again:
The independent investigator charged with policing the Federal Reserve conducted a secret inquiry into the 2012 leak of a sensitive central bank decision, according to a person who was interviewed in the probe. It wasn’t disclosed to Congress….
Ben Bernanke had asked William English, secretary of the Federal Open Market Committee, and Scott Alvarez, the Fed’s powerful general counsel who is sometimes referred to as the “8th Governor” on the Fed’s seven-person board, to investigate the leak…
According to the person interviewed in the inspector general’s investigation, who spoke on the condition of anonymity, the probe included rounds of interviews conducted in 2013 and 2014. The IG, which acts as an in-house auditor but is supposed to remain independent of the central bank, has reported neither the inquiry nor the results in any of its regular semi-annual reports to Congress, which are publicly available. These reports serve as the unit’s accounting of its activities and enable the legislative branch to perform its oversight of the Fed….
Unlike many investigations, the existence of actual wrongdoing was not in dispute at the outset of the probe: The inquiry was tasked only with determining who was responsible.
Sen. Elizabeth Warren (D-Mass.) excoriated Federal Reserve Chairwoman Janet Yellen last month [February] over the central bank’s failure to publicize the results of English and Alvarez’s initial investigation, and demanded more information about the probe.
A June update from the New York Times:
J. W. Verret, a law professor at George Mason University, said the Fed should have referred the matter to law enforcement immediately because of the possibility that the leak amounted to insider trading. …
The review was conducted by William B. English, an economist who ran the Fed’s powerful monetary affairs division and served as the committee’s secretary, and Scott G. Alvarez, the Fed’s general counsel. The Fed’s 2011 policy for investigating leaks — formulated by a committee headed by Ms. Yellen, then the Fed’s vice chairwoman — had called for those two officials to conduct an “initial review” and then determine whether to request a full investigation. The results of that investigation would be reported to the Federal Open Market Committee, which consisted of the Fed chairman and other top monetary officials.
Instead, in March 2013, Mr. Alvarez and Mr. English reported to the committee that they had not been able to identify the source.
By then, the inspector general had received a tip about the leak, eliminating the need for Mr. Alvarez to request a full investigation.
Notice the reluctance of both stories to use the word “criminal” By contrast, consider this Bloomberg account from March:
House Financial Services Chairman Jeb Hensarling said he has been informed by the Federal Reserve’s inspector general that “there is currently an open criminal investigation” into the leak of confidential Fed information in 2012.
This segment is a reminder that the central bank has yet to make disclosures demanded by lawmakers. If nothing else, you need to see the face that Yellen makes when asked about it. Again, the relevant part begins at 22:30.