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Yesterday Treasury reported that noncompetitive TreasuryDirect tenders totaling $905 million, from one bidder, had been received but not paid for in four recent auctions. The following is additional information on these tenders and the investigation of what occurred.
The bids that were submitted and not paid for were noncompetitive tenders submitted electronically using TreasuryDirect's Internet bidding option that was introduced in 1998. The bids were submitted for a single TreasuryDirect account.
During the four auctions affected by these bids, controls were in place to limit the amount of any one TreasuryDirect tender to the maximum noncompetitive limit for the auction. Further, there were controls in place that prevented the bidder from receiving any securities without paying for them. Both of these controls have been in place since the inception of the Internet bidding option in 1998 and worked as designed. However, there was not a control to prevent multiple tenders for the same account, which in aggregate exceeded the noncompetitive limit, from being included in the auction calculations. A control to prevent this was implemented on 2/15/02 and is now in place for all auctions. This control detected and prevented an additional $410 million in tenders, entered at the end of January for the same TreasuryDirect account, from being included in the 2/27/02 2-year note auction. Treasury Direct accepts tenders for regularly scheduled securities offerings before announcement to permit efficient management of reinvestments.
As previously announced, the rate or yield, price per $100, and the percentage of tenders allotted at the high rate or yield for each of the four auctions will not be changed and stand as originally published.
The noncompetitive amounts were reduced by $84 million for the 13-week and $76 million for the 26-week bill auctions on 2/4/02. Had these noncompetitive tenders not been included, there would have been no change to the high rate or price for either of the two bill auctions. The effect of the $375 million noncompetitive reduction on the 4 3/4-year note auction (2/5/02) would have been to raise the yield by less than one-half a basis point to 4.258%. In the 10-year note auction (2/6/02), the effect of the $370 million noncompetitive reduction would have been to raise the yield by one basis point to 4.890%.
The Bureau of the Public Debt, upon learning of these events, immediately engaged the United States Secret Service to investigate these matters. The Secret Service confirms that it is pursuing an active, aggressive investigation into the bids that were not paid for, as well as the $410 million in bids submitted for the 2/27/02 auction. At the direction of the Secretary, Public Debt and Secret Service, both Treasury bureaus, are devoting all necessary resources to this investigation. Public Debt, and the relevant depository institution and Federal Reserve Banks (which act as Treasury's fiscal agent), are fully cooperating in this investigation. The Department of the Treasury is committed to vigorously pursuing this matter to federal prosecution by the appropriate U.S. Attorney's office.