What would you do if you got your hands on a closely watched report that often moves stocks, bonds and currency markets, and it was sent to you by the Federal Reserve the day before its official release?
Would you trade on the information it contained? If you did, would that be insider trading?
Some bank employees were faced with that dilemma on Tuesday when a member of the Fed's congressional liaison office accidentally sent emails to more than 100 people with the normally closely guarded minutes of the Fed's March 19-20 policy meeting, 24 hours before the official release time.
There was no immediate sign that anyone traded improperly, and markets did not move much on the minutes, either on Tuesday or after the Fed released them officially on Wednesday.
While most of the recipients were congressional staff and trade groups, some worked at banks, raising questions about whether their employers could have gotten an unfair advantage.
Legal experts say that whether the recipients knew that the information was confidential, how they stumbled upon it, and whether anyone in fact traded on the contents would be big factors in determining any liability for insider trading.
Among the early recipients were people who worked for Barclays Plc, Citigroup Inc, Goldman Sachs Group Inc, JPMorgan Chase & Co, UBS AG and Wells Fargo & Co.
The banks declined to comment, and it was not clear what positions the recipients at all the banks held.
One early recipient was an employee in Goldman's government affairs office, who did not forward the email or use its contents inappropriately, a person familiar with the matter said.
"One could argue that the dissemination was wide enough that the news wasn't a secret anymore," said Michael MacPhail, a partner at Faegre, Baker & Daniels in Denver and a former senior lawyer at the U.S. Securities and Exchange Commission. "I would if I were defending someone caught up in this kind of situation."
STATE OF MIND
The Fed learned of the leak early Wednesday morning, and then released the minutes five hours ahead of schedule.
It said it would review what happened, and had alerted the SEC and Commodity Futures Trading Commission. The SEC confirmed discussions with the Fed but declined further comment.
"We don't know the state of mind of the people involved," said Mark Fickes, a partner at the law firm BraunHagey & Borden in San Francisco and a former SEC senior trial lawyer.
"It would be hard to imagine liability if the early release were totally accidental and the recipient didn't know the release was early," he added.
MacPhail said investigators could look for possible misappropriation - the idea that something in the Fed minutes would have alerted anyone that trading would be wrong.
In this case, an attachment to the leaked email noted that the information was not for release until 2 p.m. on Wednesday.
But MacPhail said this can go only so far.
While the government will go "far down the food chain" to uncover illegal trading, he said "the evidence is often difficult to establish, given that the ultimate recipients may have been far removed from the initial tip."
Brad Simon, a white-collar criminal defense lawyer at Simon & Partners in New York, said that absent "nefarious" activity at the Fed, the key question is whether a recipient "knows he got information that most people don't have."
Lawyers said legal problems could arise if a recipient of the information were to provide it to a third party who then traded on it. They pointed to Dirks v. SEC, a 1983 Supreme Court decision, for guidance.
There, the court said receivers of inside tips about a company could be liable for insider trading if they knew or should have known an insider breached a fiduciary duty to shareholders in providing the tips.
This depends in large part on whether the insider received a personal benefit for the disclosure.
MacPhail also noted that one difference between a Fed leak and other kinds of leaks is that the Fed is a government agency, not a corporation. He said it might be tough for prosecutors to show a recipient had any duty to the Fed.
That likely wouldn't be the case if the Fed insider who released the information traded on it.
In March 2012, former Food and Drug Administration chemist Cheng Yi Liang was sentenced to five years in prison after pleading guilty to trading on confidential information he learned there. His trades led to $3.77 million of illegal gains.
Here, however, the Fed said the release was "entirely accidental." A copy of the email indicates it was sent by Brian Gross, a member of the Fed's congressional liaison staff. He has not been accused of wrongdoing.
Gross declined to comment on Thursday.
The Fed releases minutes of its meetings to the public a few weeks after each of its eight regular annual meetings. They can shed light on monetary policy, such as when the Fed might begin winding down its monthly bond purchases.
Thousands of professional and amateur traders depend on getting market-moving data instantly. Getting the minutes early could be a huge advantage for traders in stock, bond, currency, commodity, derivative and other markets.
(Reporting by Jonathan Stempel in New York; Additional reporting by Lauren Tara LaCapra, Jonathan Spicer and Sarah N. Lynch; Editing by Claudia Parsons)