Ex-Director of N.Y. Fed Subject of U.S. Probe

A federal grand jury is investigating charges that a former director of the Federal Reserve Bank of New York leaked secret information on the bank’s interest-rate policy to a brokerage that used it to profit in securities trading, sources said Friday.

Robert A. Rough, a New Jersey bank president and member of the regional Fed bank board from 1982 to 1984, has been accused by former officials of the bankrupt Bevill, Bresler & Schulman Inc. brokerage of passing on the information to Gilbert C. Schulman, former president of the brokerage. In return, Rough allegedly received a $47,000 loan from the Livingston, N.J., firm, which sought bankruptcy court protection in April, 1985, amid one of the nation’s largest securities frauds.

The allegations--the first such charges ever leveled at a Fed director--came to light during the trial of Schulman in federal court in New Jersey on accusations that he conspired with colleagues to cover up the brokerage’s losses.

Like other regional Fed banks, the New York branch participates in decisions to raise or lower the so-called discount rate, which is the interest rate that the central bank charges member banks for loans. By knowing which way the discount rate was headed, traders could anticipate changes in the price of bonds and profit from trades.

‘Vehement’ Denial

Rough, who is president of National Bank of Sussex County and also chairman of the New Jersey Bankers Assn., declined to comment. Earlier in the week, he told a local newspaper, the Sussex County Herald of Newton, N.J., that he “vehemently denied” the allegations.

Schulman, the former brokerage president, has also denied them.

Rough could be prosecuted for wire fraud and insider trading, as well as sued for damages by the Federal Reserve for breach of faith. The FBI, the Securities and Exchange Commission, federal prosecutors and the New York Fed have been gathering evidence on the case.

The allegations were made in testimony by three officials of the defunct brokerage: Robert A. Levine, an owner; John Rooney, the treasurer, and John Bevill, the former treasurer.

Forecasting the Market

The Fed regional boards discuss a wide range of subjects that could yield useful information for market traders. For example, they try to forecast the general direction of the economy and gather information on which way the markets are heading.

While witnesses in the case said that other “general information” from meetings was passed on, they said trading was based exclusively on discount-rate information, according to Paul A. Weissman, an assistant U.S. attorney. He said witnesses have given no testimony on the brokerage’s profits or losses from the trades.

He declined to confirm or deny existence of the grand jury investigation.

Confidentialty Oath Required

The Federal Reserve Board goes to some length to keep its meeting secret and requires oaths of confidentiality from incoming directors, said Richard Hoenig, a spokesman for the New York Fed.

The New Jersey Bankers Assn. said Friday that it had not changed earlier plans to have Rough address its convention next Tuesday in Palm Beach, Fla. In a statement, the association cited Rough’s “reverence” for the Federal Reserve Board and said it is “confident of his integrity.”

“We have been getting a lot of calls from bankers, and most have been very supportive of him,” said Robert C. Forrey, the association’s president.