Banks including Citigroup Inc. and Goldman Sachs Group Inc., along with congressional staff members and trade groups, received potentially market-moving Federal Reserve information 19 hours before the public in a release the central bank called accidental.
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. yesterday Washington time, according to an e-mail obtained by Bloomberg News. Gross referred questions to Fed spokeswoman Michelle Smith.
The release to more than 100 people was “entirely accidental,” Smith said. “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 this morning, according to the central bank.
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 Fed’s most closely scrutinized documents as the panel debates when to stop its third round of bond purchases.
“It’s a credibility issue that the Fed should have addressed much quicker,” said Edward Lashinski, the Chicago-based director of global strategy for futures trading at RBC Capital Markets LLC, a primary dealer that trades government securities directly with the Fed. “The Fed is remiss in not taking action sooner to ameliorate potentially market-moving information being released to a select few.”
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. in Washington instead of the planned time of 2 p.m.
Stocks rose, sending the Standard & Poor’s 500 Index 1.2% higher to a record 1,587.73 at the close of trading in New York. The yield on the benchmark 10-year Treasury note climbed to 1.80% from 1.75% late yesterday.
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.
Bloomberg News Executive Editor Daniel Moss 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.”
Today the premature release 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. “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 earl 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.
Some members of the Senate Banking Committee and the House Financial Services Committee received the minutes early, according to staff members who declined to be identified because they weren’t authorized to discuss the matter.
Lobbyists for trade groups that represent some of the country’s biggest banks, such as Citigroup Inc. and JPMorgan Chase & Co., also were among the recipients.
The Fed’s congressional liaison routinely keeps congressional leaders and bank lobbyists informed about Fed policy with copies of testimony and other documents after they are made available to the public. Gross is a former staffer of former Senator Phil Gramm, a Texas Republican who chaired the Banking Committee from 1999 to 2001.
A Fed spokesman declined to comment on why the minutes weren’t distributed more widely until 9 a.m. today.
“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.
In August, the Labor Department posted jobless claims data to the agency’s website about 15 minutes 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.
Time to Prepare
Reporters in lockups at the Labor Department and elsewhere are given market-sensitive data 30 to 60 minutes before their broader release. The system gives journalists time to prepare stories and headlines that are published when a government employee opens communications lines to the news organizations’ computer systems.
The early release of sensitive financial information has become more common at U.S. corporations over the 15 years with the proliferation of new ways to disseminate data.
Chipmaker Intel Corp. inadvertently e-mailed its results in January to a group of reporters about five minutes before the end of regular trading. Google Inc., operator of the world’s biggest Internet search engine, prematurely released an earnings report in October, leading Chief Executive Officer Larry Page to apologize on the conference call for what he called the “scramble” of the early release.
Walt Disney Co. shares dropped in early November 2010 after the media company posted results prior to the market close. Computer maker Dell Inc., a year earlier, accidentally posted an earnings announcement on its website before the close, causing its stock to climb as results topped analysts’ estimates.
During the dot-com bubble’s peak year of 2000, Sun Microsystems Inc., Novellus Systems Inc., Electronic Data Systems Corp. and Compaq Computer Corp. all posted results online before their intended release.