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12 08 2015 | by Victor Xing | Central Banks

Federal Reserve Code of Conduct and nonpublic information

Research on Federal Reserve System’s Code of Conduct in regards to material nonpublic information is quite an eye opener.  In essence, improper usage of nonpublic information (especially given FOMC policy information are “record or things of value” of the United States) carry severe penalties:
I would like to refer to the following responses from the Federal Reserve Board of Governors, Legal Division to minimize risk of miscommunication – please see footnote for references to the United States Code.
Source: Federal Reserve Board, Legal Division
During and after their employment with the Federal Reserve System, examiners and other staff are prohibited from misusing or disclosing a range of nonpublic information including confidential examination or supervision records, financial institutions’ nonpublic business information, personally identifiable information about financial institutions’ employees or customers, and nonpublic information from other regulators.
For example, all current and former Board and Reserve Bank employees are subject to 18 USC 641, the criminal law that broadly prohibits any person from knowingly converting for personal use any records or things of value of the United States.  Confidential supervisory information and nonpublic FOMC information or other confidential FRB data are considered to be records or things of value to the United States.  In addition, 18 USC 655 is a criminal law that prohibits Federal Reserve bank examiners from unlawfully taking/stealing any confidential bank information or other property.
Board employees are also subject to a host of other restrictions.  For example, section 9(a) of the 2012 STOCK Act reaffirms that the Securities Exchange Act’s insider trading restrictions, 15 USC 78j(b), apply to Board employees, who are prohibited from using nonpublic information to “make a private profit.”  Outside of the insider trading realm, the Trade Secrets Act, 18 USC 1905, is a criminal law that prohibits Board employees from publishing, divulging, or disclosing any confidential commercial information that they access during their Board employment.  Separately, the Privacy Act of 1974 prohibits Board employees from misusing individuals’ confidential personal information.   Finally, Board regulations and policies (see 12 CFR 261.22) generally forbid disclosing confidential supervisory information, and federal ethics regulations, 5 CFR 2635.702-703, prohibit Board employees from using their public office for private gain and from improperly using nonpublic information to further any private interest.
In summary: profiting (or attempting to profit) from material nonpublic information (such as FOMC materials) is a serious crime, especially if it involves current and former employees of the Federal Reserve System.
Please also refer to: Ex-N.Y. Fed Employee Pleads Guilty to Leaking Documents (which involved current and former Federal Reserve employees)
nonpublic information - violation of U.S. Code.
United States of America vs. Jason Gross
References:
Whoever embezzles, steals, purloins, or knowingly converts to his use or the use of another, or without authority, sells, conveys or disposes of any record, voucher, money, or thing of value of the United States or of any department or agency thereof, or any property made or being made under contract for the United States or any department or agency thereof; or
Whoever receives, conceals, or retains the same with intent to convert it to his use or gain, knowing it to have been embezzled, stolen, purloined or converted—
Shall be fined under this title or imprisoned not more than ten years, or both; but if the value of such property in the aggregate, combining amounts from all the counts for which the defendant is convicted in a single case, does not exceed the sum of $1,000, he shall be fined under this title or imprisoned not more than one year, or both.
The word “value” means face, par, or market value, or cost price, either wholesale or retail, whichever is greater.
Whoever, being a bank examiner or assistant examiner, steals, or unlawfully takes, or unlawfully conceals any money, note, draft, bond, or security or any other property of value in the possession of any bank or banking institution which is a member of the Federal Reserve System, which is insured by the Federal Deposit Insurance Corporation, which is a branch or agency of a foreign bank (as such terms are defined in paragraphs (1) and (3) of section 1(b) of the International Banking Act of 1978), or which is an organization operating under section 25 or section 25(a) [1] of the Federal Reserve Act, or from any safe deposit box in or adjacent to the premises of such bank, branch, agency, or organization, shall be fined under this title or imprisoned not more than five years, or both; but if the amount taken or concealed does not exceed $1,000, he shall be fined under this title or imprisoned not more than one year, or both; and shall be disqualified from holding office as a national bank examiner or Federal Deposit Insurance Corporation examiner.
This section shall apply to all public examiners and assistant examiners who examine member banks of the Federal Reserve System, banks the deposits of which are insured by the Federal Deposit Insurance Corporation, branches or agencies of foreign banks (as such terms are defined in paragraphs (1) and (3) of section 1(b) of the International Banking Act of 1978), or organizations operating under section 25 or section 25(a)
1
of the Federal Reserve Act, whether appointed by the Comptroller of the Currency, by the Board of Governors of the Federal Reserve System, by a Federal Reserve Agent, by a Federal Reserve bank, or by the Federal Deposit Insurance Corporation, or appointed or elected under the laws of any State; but shall not apply to private examiners or assistant examiners employed only by a clearing-house association or by the directors of a bank.
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange—
(a)
(1) To effect a short sale, or to use or employ any stop-loss order in connection with the purchase or sale, of any security other than a government security, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
(2) Paragraph (1) of this subsection shall not apply to security futures products.
(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement [1] any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
(c)
(1) To effect, accept, or facilitate a transaction involving the loan or borrowing of securities in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
(2) Nothing in paragraph (1) may be construed to limit the authority of the appropriate Federal banking agency (as defined in section 1813(q) of title 12), the National Credit Union Administration, or any other Federal department or agency having a responsibility under Federal law to prescribe rules or regulations restricting transactions involving the loan or borrowing of securities in order to protect the safety and soundness of a financial institution or to protect the financial system from systemic risk.
Rules promulgated under subsection (b) that prohibit fraud, manipulation, or insider trading (but not rules imposing or specifying reporting or recordkeeping requirements, procedures, or standards as prophylactic measures against fraud, manipulation, or insider trading), and judicial precedents decided under subsection (b) and rules promulgated thereunder that prohibit fraud, manipulation, or insider trading, shall apply to security-based swap agreements to the same extent as they apply to securities. Judicial precedents decided under section 77q(a) of this title and sections 78i, 78
o
, 78p, 78t, and 78u–1 of this title, and judicial precedents decided under applicable rules promulgated under such sections, shall apply to security-based swap agreements to the same extent as they apply to securities.
Whoever, being an officer or employee of the United States or of any department or agency thereof, any person acting on behalf of the Federal Housing Finance Agency, or agent of the Department of Justice as defined in the Antitrust Civil Process Act (15 U.S.C. 1311–1314), or being an employee of a private sector organization who is or was assigned to an agency under chapter 37 of title 5, publishes, divulges, discloses, or makes known in any manner or to any extent not authorized by law any information coming to him in the course of his employment or official duties or by reason of any examination or investigation made by, or return, report or record made to or filed with, such department or agency or officer or employee thereof, which information concerns or relates to the trade secrets, processes, operations, style of work, or apparatus, or to the identity, confidential statistical data, amount or source of any income, profits, losses, or expenditures of any person, firm, partnership, corporation, or association; or permits any income return or copy thereof or any book containing any abstract or particulars thereof to be seen or examined by any person except as provided by law; shall be fined under this title, or imprisoned not more than one year, or both; and shall be removed from office or employment.
§ 261.22 Other disclosure of confidential supervisory information.
(a) Board policy. It is the Board’s policy regarding confidential supervisory information that such information is confidential and privileged. Accordingly, the Board will not normally disclose this information to the public. The Board, when considering a request for disclosure of confidential supervisory information under this section, will not authorize disclosure unless the person requesting disclosure is able to show a substantial need for such information that outweighs the need to maintain confidentiality.
(b) Requests for disclosure—(1) Requests from litigants for information or testimony. Any person (except agencies identified in §§ 261.20 and 261.21 of this regulation) seeking access to confidential supervisory information or seeking to obtain the testimony of present or former Board or Reserve Bank employees on matters involving confidential supervisory information of the Board, whether by deposition or otherwise, for use in litigation before a court, board, commission, or agency, shall file a written request with the General Counsel of the Board. The request shall describe:
(i) The particular information, kinds of information, and where possible, the particular documents to which access is sought;
(ii) The judicial or administrative action for which the confidential supervisory information is sought;
(iii) The relationship of the confidential supervisory information to the issues or matters raised by the judicial or administrative action;
(iv) The requesting person’s need for the information;
(v) The reason why the requesting person cannot obtain the information sought from any other source; and
(vi) A commitment to obtain a protective order acceptable to the Board from the judicial or administrative tribunal hearing the action preserving the confidentiality of any information that is provided.
(2) All other requests. Any other person (except agencies identified in §§ 261.20 and 261.21 of this regulation) seeking access to confidential supervisory information for any other purpose shall file a written request with the General Counsel of the Board. A request under this paragraph (b)(2) shall describe the purpose for which such disclosure is sought.
(c) Action on request—(1) Determination of approval. The General Counsel of the Board may approve a request made under this section provided that he or she determines that:
(i) The person making the request has shown a substantial need for confidential supervisory information that outweighs the need to maintain confidentiality; and
(ii) Disclosure is consistent with the supervisory and regulatory responsibilities and policies of the Board.
(2) Conditions or limitations. The General Counsel of the Board may, in approving a request, impose such conditions or limitations on use of any information disclosed as is deemed necessary to protect the confidentiality of the Board’s information.
(d) Exhaustion of administrative remedies for discovery purposes in civil, criminal, or administrative action. Action on a request under this section by the General Counsel of the Board shall exhaust administrative remedies for discovery purposes in any civil, criminal, or administrative proceeding. A request made pursuant to § 261.12 of this regulation does not exhaust administrative remedies for discovery purposes. Therefore, it is not necessary to file a request pursuant to § 261.12 to exhaust administrative remedies under this section.
(e) Other disclosure prohibited. All confidential supervisory information made available under this section shall remain the property of the Board. Any person in possession of such information shall not use or disclose such information for any purpose other than that authorized by the General Counsel of the Board without his or her prior written approval.
§ 2635.702 Use of public office for private gain.
An employee shall not use his public office for his own private gain, for the endorsement of any product, service or enterprise, or for the private gain of friends, relatives, or persons with whom the employee is affiliated in a nongovernmental capacity, including nonprofit organizations of which the employee is an officer or member, and persons with whom the employee has or seeks employment or business relations. The specific prohibitions set forth in paragraphs (a) through (d) of this section apply this general standard, but are not intended to be exclusive or to limit the application of this section.
(a) Inducement or coercion of benefits. An employee shall not use or permit the use of his Government position or title or any authority associated with his public office in a manner that is intended to coerce or induce another person, including a subordinate, to provide any benefit, financial or otherwise, to himself or to friends, relatives, or persons with whom the employee is affiliated in a nongovernmental capacity.
Example 1:
Offering to pursue a relative’s consumer complaint over a household appliance, an employee of the Securities and Exchange Commission called the general counsel of the manufacturer and, in the course of discussing the problem, stated that he worked at the SEC and was responsible for reviewing the company’s filings. The employee violated the prohibition against use of public office for private gain by invoking his official authority in an attempt to influence action to benefit his relative.
Example 2:
An employee of the Department of Commerce was asked by a friend to determine why his firm’s export license had not yet been granted by another office within the Department of Commerce. At a department-level staff meeting, the employee raised as a matter for official inquiry the delay in approval of the particular license and asked that the particular license be expedited. The official used her public office in an attempt to benefit her friend and, in acting as her friend’s agent for the purpose of pursuing the export license with the Department of Commerce, may also have violated 18 U.S.C. 205.
(b) Appearance of governmental sanction. Except as otherwise provided in this part, an employee shall not use or permit the use of his Government position or title or any authority associated with his public office in a manner that could reasonably be construed to imply that his agency or the Government sanctions or endorses his personal activities or those of another. When teaching, speaking, or writing in a personal capacity, he may refer to his official title or position only as permitted by § 2635.807(b). He may sign a letter of recommendation using his official title only in response to a request for an employment recommendation or character reference based upon personal knowledge of the ability or character of an individual with whom he has dealt in the course of Federal employment or whom he is recommending for Federal employment.
Example 1:
An employee of the Department of the Treasury who is asked to provide a letter of recommendation for a former subordinate on his staff may provide the recommendation using official stationery and may sign the letter using his official title. If, however, the request is for the recommendation of a personal friend with whom he has not dealt in the Government, the employee should not use official stationery or sign the letter of recommendation using his official title, unless the recommendation is for Federal employment. In writing the letter of recommendation for his personal friend, it may be appropriate for the employee to refer to his official position in the body of the letter.
(c) Endorsements. An employee shall not use or permit the use of his Government position or title or any authority associated with his public office to endorse any product, service or enterprise except:
(1) In furtherance of statutory authority to promote products, services or enterprises; or
(2) As a result of documentation of compliance with agency requirements or standards or as the result of recognition for achievement given under an agency program of recognition for accomplishment in support of the agency’s mission.
Example 1:
A Commissioner of the Consumer Product Safety Commission may not appear in a television commercial in which she endorses an electrical appliance produced by her former employer, stating that it has been found by the CPSC to be safe for residential use.
Example 2:
A Foreign Commercial Service officer from the Department of Commerce is asked by a United States telecommunications company to meet with representatives of the Government of Spain, which is in the process of procuring telecommunications services and equipment. The company is bidding against five European companies and the statutory mission of the Department of Commerce includes assisting the export activities of U.S. companies. As part of his official duties, the Foreign Commercial Service officer may meet with Spanish officials and explain the advantages of procurement from the United States company.
Example 3:
The Administrator of the Environmental Protection Agency may sign a letter to an oil company indicating that its refining operations are in compliance with Federal air quality standards even though he knows that the company has routinely displayed letters of this type in television commercials portraying it as a “trustee of the environment for future generations.”
Example 4:
An Assistant Attorney General may not use his official title or refer to his Government position in a book jacket endorsement of a novel about organized crime written by an author whose work he admires. Nor may he do so in a book review published in a newspaper.
(d) Performance of official duties affecting a private interest. To ensure that the performance of his official duties does not give rise to an appearance of use of public office for private gain or of giving preferential treatment, an employee whose duties would affect the financial interests of a friend, relative or person with whom he is affiliated in a nongovernmental capacity shall comply with any applicable requirements of § 2635.502.
(e) Use of terms of address and ranks. Nothing in this section prohibits an employee who is ordinarily addressed using a general term of address, such as “The Honorable”, or a rank, such as a military or ambassadorial rank, from using that term of address or rank in connection with a personal activity.
Original Quora article

Next article12 06 2015 | by Victor Xing | Capital Markets

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