BREAKING: "The Fed Made It Possible For Many People To Leak It"

Zero Hedge is publishing information from a tipster who explained how easy it was to get information into traders about the Fed monetary policy statement  before it was officially released:

I knew of the Fed decision and growth forecasts around 5-6 minutes before 2 pm last Wednesday, even though I was not there. I work at a news organization represented at the Fed statement “lockup” and the Bernanke press conference last week. This was in no way secure the way the Labor and Commerce Department lockups are. Those in the Fed statement lockup were able to communicate by text message and email after they received the statements and before 2 pm. Those in the room awaiting the press conference also were able to communicate electronically after the received the statement, several minutes before 2 pm. Everything was honor-based, but anyone in their respective newsrooms could have gotten the information early from them and passed it on. Given the large number of reporters involved, there are many ways the decision could have gotten into the market several minutes before the announcement. I am truly surprised it was only seen in gold trade. The fact is, though, the Fed made it possible for many people to leak it.

This really sounds very similar to what happened at the BLS in the old days (the 1980s). I outlined how that went down, here.

In 2009, I reported on how things have changed at the BLS:

I ran into a Bureau of Labor Statistics economist today, here in San Francisco. I told her my theory that since the BLS provides other data besides labor statistics, e.g. they put out the CPI numbers, that instead of the Bureau of Labor Statistics, it should be the Bureau of Statistics and for short we could refer to their work as the BS data.

She took it well, and said she found me interesting.

I also told her about the old days when a money manager I knew hired a reporter to go in and get BLS released data minutes before it was publicly released. The money manager would trade on this market moving data by taking his position when the reporter called him with the numbers, sometimes just seconds before they were released (This was pre-cellphone and the reporter had to run to a payphone).

She told me that reporters who get the numbers these days are literally locked in the "DOL Lockup Room" and can't leave until the numbers are officially released. There's a lot of security these days, she said.

As I recall she told me that cell phone use and laptop lose were not allowed, neither were bathroom trips.

So now the big question becomes, Was the Fed simply incompetent in not knowing how the data could be leaked or did someone at the Fed knowingly set up the program this way to provide a cover for their own leaking?

We are talking about big time money here, people made millions on the leaked information. They will also be tough to catch, especially if they used throw away phones. If no direct connection can be made between a leaker and a trader, then all a trader has to do is stick to his story that he bought on some kind of technical trading activity and who will be able to prove otherwise?

The SEC might be able to squeeze an amateur but a pro will be able to justify any kind of trade. I've seen some who keep logs justifying why they put on positions, all legal justifications, of course. Tips of any kind never make it into the logs.

(ht Richard Dale Fitzgerald II)