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2017-04-04 23:15:03
Richmond Fed President Resigns, Admitting He Violated Confidentiality

WASHINGTON — Jeffrey M. Lacker, the president of the Federal Reserve Bank of Richmond in Virginia, resigned abruptly on Tuesday, saying that he had broken the Fed’s rules in 2012 by speaking with a financial analyst about confidential deliberations.

Mr. Lacker said he also failed to disclose the details of the conversation even when he was questioned directly in an internal investigation.

The confession and resignation shed light on a nearly five-year-old mystery. In October 2012, Medley Global Advisors, a firm that tracks policy developments for financial investors, sent a note to its clients describing previously undisclosed details of the Fed’s plans for a new phase in its bond-buying campaign.

The information was potentially valuable to investors, who could have made money by anticipating the market’s reaction when the Fed’s plans were publicly disclosed.

The Fed conducted an inconclusive investigation into the source of the leak. The Commodity Futures Trading Commission opened an insider trading investigation and referred the matter to the United States attorney’s office in Manhattan, which then began a criminal investigation, two people briefed on the matter said.

But the investigation stalled in the past couple of years, one of the people said. As the various government authorities sought to resolve the matter, negotiations heated up about six weeks ago. The statute of limitations on the case was due to expire in the fall.

Mr. Lacker decided to announce his resignation after being told by the authorities that they had completed their investigation into his role, a lawyer representing him said.

“Dr. Lacker has cooperated with the Department of Justice and has been informed that no charges will be brought and that the investigation as to him is complete,” said the lawyer, Richard Cullen, a partner at McGuireWoods. (Mr. Lacker has a doctorate in economics from the University of Wisconsin.)

The Fed’s Office of the Inspector General said Tuesday that its investigation also was now complete. It is not clear whether any other investigations are in progress.

The episode occurred after the Fed said in September 2012 that it would begin to accumulate mortgage bonds until job growth improved substantially, a new chapter in its campaign to stimulate economic growth in the aftermath of the 2008 financial crisis.

On Oct. 3, a day before the Fed released an account of its deliberations, Regina Schleiger, a Medley analyst, sent a note to clients saying the Fed was likely to announce in December that it would buy Treasuries too. The note also said that Fed officials were considering a statement that the central bank would not raise interest rates before the unemployment rate fell below a threshold of 6.5 percent.

The information was accurate and valuable. On the day Ms. Schleiger published her memo, the yield on the benchmark 10-year Treasury was 1.61 percent. After the Fed’s official account was published the next day, the benchmark yield rose to 1.74 percent on the day. Investors who saw the memo — titled “Fed: December Bound” — could have profited by anticipating that movement.

Mr. Lacker said Tuesday in his statement — issued by McGuireWoods rather than the Richmond Fed — that he had not provided any confidential information about the Fed’s deliberations to Ms. Schleiger, whom he did not name.

Instead, he said that Ms. Schleiger mentioned the information and that he had failed to make clear that he could not comment. The next day, after seeing Ms. Schleiger’s memo, Mr. Lacker said, “I realized that my failure to decline comment on the information could have been taken by the analyst, in the context of the conversation, as an acknowledgment or confirmation of the information.”

He added, “I deeply regret the role I may have played.”

After the leak, the C.F.T.C. pursued an investigation under its “Eddie Murphy rule.” This rule was a nod to Mr. Murphy’s 1983 movie “Trading Places,” which humorously exposed the legality of insider trading in commodities.

In 2010, the Dodd-Frank Act adopted some restrictions on federal employees intentionally providing nonpublic government information to help other people trade in certain markets.

Yet the investigation stalled as the agency and Manhattan federal prosecutors were unable to serve a subpoena on Medley because it considers itself to be a news organization, the people briefed on the matter said. The Justice Department generally avoids issuing subpoenas to news organizations.

Separate from the insider trading rules, the Fed had announced a new policy in 2011 restricting contact between policy makers and market intelligence firms like Medley, which traded on the perception that analysts had access to inside information. Officials were instructed to avoid conversations that might contribute to such impressions.

Mr. Lacker said Tuesday that in speaking with Ms. Schleiger he may have violated this policy, too, regardless of the contents of the conversation. He acknowledged speaking with her multiple times.

Mr. Lacker, 61, was the longest-serving member of the Fed’s policy-making committee. He became president of the Richmond Fed in August 2004. He had previously announced that he planned to resign in October.

The Richmond Fed said it would continue to search for a new president, and that its first vice president, Mark L. Mullinix, would lead the bank in the interim. Mr. Lacker was not a voting member of the Fed’s policy committee this year.

The Fed has sought to limit leaks in recent years both by sharing more information with the public and by tightening its communications policies.

In a statement, the Fed said, “We appreciate the diligent efforts made to bring this matter to its conclusion.”