Yellen Throwin Shade

REUTERS/Robert Galbraith

Federal Reserve Chair Janet Yellen looks at a colleague.

US prosecutors have started an insider-trading investigation into a leak from the Federal Reserve in 2012, according to the Wall Street Journal, which cites people familiar with the matter.

The probe is investigating Medley Global Advisors, a financial research firm, which published a note in 2012 that may have contained leaked information from Fed officials.

Medley is claiming that it is a media company and therefore entitled to First Amendment protections that would shield it from insider-trading accusations.

If investigators are able to find sufficient evidence to show Medley obtained the leaks improperly, an interesting legal question will come into play: Are research organizations that publish content directly to clients legally different from traditional media organizations?

At issue is a series of Fed meetings in September 2012, during which the Federal Open Market Committee voted to buy $ 40 billion worth of mortgage-backed securities each month. Details of the Fed’s confidential meetings in September were due to be disclosed in October.

On September 28, however, the Wall Street Journal reported that Fed officials were considering further economic stimulus. The story suggested that there was a “strong possibility” the Fed would start buying large quantities of Treasury bonds.

On October 3, Medley Global Advisors released a research note saying that the Federal Reserve was “likely to vote as early as its December meeting” on starting monthly purchases of Treasury bonds. Medley’s note contained specific information from the meeting that suggested Medley had received inside information. 

ben bernanke

REUTERS/Gary Cameron

Chairman of the Federal Reserve Bank Ben Bernanke attends the Treasury Department’s Financial Stability Oversight Council in Washington, April 25, 2013.

Then-Fed Chairman Ben Bernanke ordered an investigation to determine whether any information was leaked by Fed employees to the Wall Street Journal or Medley.

In March 2013, the investigation concluded that the information given to the Journal “appeared to be unintentional or careless.” The investigation also found that nearly everything in the Medley note was previously included in the Journal article.

That didn’t end the episode.

House Financial Services Committee chairman, Rep. Jeb Hensarling (R-Texas) called the investigation “inadequate” and issued a subpoena to the Federal Reserve, asking for more details.

According to the Journal, the Commodity Futures Trading Commission, an independent US government agency that regulates futures and options markets, launched its own investigation soon after and asked Medley to turn over information regarding the research note. Medley refused.

The Justice Department has been investigating Medley in connection with the matter since at least May.

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