* More than 100 people got Fed minutes a day early
* Fed says not sure if anyone traded on information
* Incident marks rare lapse on sensitive Fed communications
By Alister Bull
WASHINGTON, April 10 (Reuters) - The Federal Reservelaunched an investigation on Wednesday into the U.S. centralbank's worst security lapse in years, but said it appeared theearly release of market-sensitive minutes of a policy meeting,including to some banks, was accidental.
Minutes of Fed meetings can shed vital light on the futurepath of U.S. monetary policy and frequently impact financialmarkets worldwide. As such, they are normally guarded byelaborate security measures.
"At this time, we do not know whether there was any tradingrelated to inadvertent early distribution of the minutes," a Fedspokesman said. "We will be working with market regulators, theSEC and CFTC, to ensure they have the information they need toevaluate the incident."
Securities and Exchange Commission spokesman John Nester confirmed the SEC had been contacted by the Fed, but declinedfurther comment. A spokesman for the Commodity Futures TradingCommission also confirmed that the agency had been informed bythe Fed.
The Fed's inspector general is also investigating.
The central bank said it discovered the error around 6:30a.m. (1030 GMT) on Wednesday. More than 100 people, primarilycongressional staffers and employees of trade associations, hadreceived the minutes of its March policy meeting around 2 p.m.(1800 GMT) on Tuesday - about 24 hours before their scheduledpublic release.
Among those who received the minutes early were people withemail addresses that identified them as working for a number offinancial firms, including Goldman Sachs, Barclays Capital,Wells Fargo, Citigroup, UBS and JPMorgan, which regularly tradeon new information about U.S. monetary policy.
After discovering the breach, the Fed decided it wouldpublish the minutes at 9 a.m. (1300 GMT).
"We discovered the early distribution on our own early thismorning and we released the minutes publicly as early aspracticable," the Fed spokesman said. "Every indication at thistime is that the early release of the minutes was entirelyaccidental."
The spokesman said the people who got the minutes on Tuesdayhad been on a list of professional contacts held by anindividual at the central bank.
A copy of the email obtained by Reuters showed it was sentby Brian Gross, a member of the Fed's congressional liaisonstaff. The minutes were sent as an attachment to the email thatwas labeled as being embargoed for release at 2 p.m. (1800 GMT);the attachment referenced both Wednesday and the date April 10.
Long-time watchers of the central bank could not recallanother incident when such a highly sensitive document wasreleased a day early.
"It's certainly an embarrassment for the Fed," said RobertBrusca, chief economist at Fact and Opinion Economics in NewYork. "It will make the Fed mind its technology better."
Several other congressional staffers contacted by Reuterssaid that they had received the email of the minutes on Tuesday,but had not noticed until after the story broke.
SENSITIVE RELEASE
The minutes detail discussions between the 19 members of thepolicy-setting committee over each of the Fed's regular two-daymeetings, held eight times a year, plus Fed staff forecasts forthe U.S. economic outlook.
Although they do not name individual officials' policypreferences, the minutes give a pretty clear sense of where theconsensus at the Fed lies around key issues, such as if and whenit plans to taper monthly Fed bond purchases.
Such insight into possible future Fed actions can move theprices of stocks, bonds and currencies. The release of theminutes three weeks after each policy meeting has become a keytrading event in the financial markets calendar.
Indeed, the latest set of minutes, which suggestedpolicymakers were nearing a decision on tapering their bondpurchases, pushed prices for U.S. government debt lower andhelped lift the dollar to a four-year high against the yen afterthey were released broadly on Wednesday morning.
The minutes of the previous two meetings had an even biggerimpact. Minutes released in late February led to the biggestdrop in U.S. stocks in three months, while minutes in Januarysparked a selloff in the Treasury market that drove benchmarkyields to their highest level since May 2012.
Premature disclosures of sensitive U.S. government data isunusual but not unprecedented. Last August, the U.S. LaborDepartment accidentally posted weekly jobless claims data to itswebsite the afternoon before the report was due to be released.
Lawyers and former federal prosecutors said that any insidertrading case based on the early release of the minutes wouldhinge on whether the recipient of the information specificallyknew the details were provided on a confidential basis.
"The major issue is whether the recipients understood thatthe information that was leaked early was confidential," saidMark Fickes, a partner in BraunHagey & Borden LLP in SanFrancisco, and a former senior SEC trial counsel. "It would behard to imagine liability if the early release were totallyaccidental and the recipient didn't know the release was early."
Barclays (BARC)
