Whistleblower says 16 big TR clients saw data early

The complaint alleges that this select group of customers received the widely watched consumer-sentiment index distributed by Thomson Reuters under a contract with the University of Michigan anywhere from 10 minutes to an hour ahead of the rest of the markets.

“The identity of these 16 firms has not been made public yet, but sources describe the firms as major financial institutions, many of them well-known to the general public. Their inclusion in this case would significantly expand the scope of the scandal,” Rolling Stone said in a report on Thursday.

The Economist, reporting on what it called “a continuing kerfuffle over releases of privately sourced data”, said on Friday that Mark Rosenblum, a Thomson Reuters salesman from 2005 to 2012, claims he was fired after querying whether the release violated insider-trading laws because it went to high-speed traders, paying $6,000 a month for their feeds, two seconds before regular subscribers saw it. The firm says he was sacked for falsely claiming credit for sales. It is trying to get his wrongful-termination suit dismissed because he took his case to the FBI, not the SEC, and so does not qualify as a whistleblower.

The case has attracted the interest of New York’s attorney-general, Eric Schneiderman, who is investigating whether this and other cases “undermine fair play” in markets. Thomson Reuters suspended the high-speed feed in July at Schneiderman’s insistence.

“In an affidavit seen by The Economist, Mr Rosenblum says a colleague warned him that ‘chasing down who is getting the numbers ahead of time’ would affect profits, and that his line manager advised him to ‘stop being a hero’. He also claims that a colleague in India, who helped disseminate the data, suggested that a group of 17 banks, brokers and hedge funds – among them some of the biggest names in American finance – were getting the headline number up to one hour, not just seconds, before the 9:55am release time. Thomson Reuters says it believes Mr Rosenblum’s case to be ‘unsubstantiated and without merit’.”

Legally, this is a grey area, The Economist said. “To some it may seem unfair that deep-pocketed trading outfits can buy an early look at market-moving numbers. But there are no regulations governing selective disclosure of private data, unlike sensitive corporate information or government data. The SEC can act only if it suspects securities fraud (though Mr Schneiderman wields New York’s Martin Act, which has a lower burden of proof).

“Meanwhile, traders will continue to pay for early looks, even though, as one regulatory source puts it: ‘Some feel it’s extortion. They could happily do without it and instead rely on the speed of their machines for an edge.’ But that doesn’t help when others are getting the number whole seconds or minutes earlier.”

Rolling Stone added that by May 2012, Rosenblum began asking his superiors about the possibility that the early-release practice violated rules. “Over the course of the next few months, he claims, he was told in various ways to stop asking meddlesome questions, among other things being informed that his inquiries would affect his bonus, and that he was ‘sticking [his] nose where it does not belong.’

“To make a long story short, Rosenblum finally became frustrated in his efforts to get superiors to listen to his concerns, and went to the FBI on June 29th, 2012. A little over a month later, on August 3rd, 2012, he was fired.” ■