Bloomberg LP at center of storm over snooping on Wall Street

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By Staff reports

Bloomberg News is finding itself under the regulatory microscope Monday after it admitted its reporters had access to some proprietary client information on the company's data terminals, which sit on the desks of many bankers and government officials the world over.

Both the Federal Reserve and the U.S. Treasury Department are examining the extent to which Bloomberg-terminal usage by top officials might have been tracked by Bloomberg journalists, CNBC has learned. The European Central Bank said Monday it "takes the protection of confidentiality in the usage of data products by ECB management and staff very seriously, adding that its experts are in close contact with Bloomberg.

And former SEC Chairman Harvey Pitt told CNBC Monday that an independent review is needed because the admission shows an oversight failure at the company.

"All we know is what the people who put all of this terrible activity in place are now telling us," Pitt said in a "Squawk Box" interview. "We just have Bloomberg's denials. And at this point, those aren't very credible."

In an op-ed published on Bloomberg View late Sunday, Matthew Winkler, editor-in-chief of Bloomberg News, wrote that the news division is holding itself accountable. He acknowledged, "Our reporters should not have access to any data considered proprietary. I am sorry they did. The error is inexcusable."

A Fed spokesperson told CNBC that the central bank is looking into the situation and has been in touch with Bloomberg to learn more. A source said the Treasury Department is taking similar action.

CNBC, a part of the NBC Universal family, is a competitor of Bloomberg in reporting and distributing business news on the web and on television.

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The issue of Bloomberg journalists' access to individual data from the terminals was revealed in recent days when a reporter called a Goldman Sachs Group employee inquiring about a partner's employment status and noting the partner had not logged on to the terminal lately.

The incident prompted a complaint from Goldman and led Bloomberg to terminate the ability of reporters to monitor subscribers.

(Read More: Wall Street: How Much Does Bloomberg Know?)

In a statement on its website, Bloomberg said, "Having recognized this mistake, we took immediate action. Last month we changed our policy so that all reporters only have access to the same customer-relationship data available to our clients."

The escalating controversy over Bloomberg reporters accessing private information on Wall Street through the company's terminals puts the data and media empire founded by New York City Mayor Michael Bloomberg into strange, new territory. It is now in the rare position of having to explain its actions to an industry that puts billions of dollars into its coffers every year.

Since news of the privacy breach broke on Friday, some of Bloomberg LP's biggest customers on Wall Street are re-examining their agreements with the company to see how much information the company can access from desktop terminals, say sources at those firms. Goldman Sachs Group and JP Morgan Chase so far have complained about the practice of Bloomberg reporters being able to see when one of their employees is signed on and what kinds of functions they use through keystrokes on the terminal.

"It's pretty surprising that an organization this big has given that kind of open access to user information," said Larry Tabb, founder of Tabb Group, a financial markets research and advisory firm. "This is going to be a challenge for Bloomberg. This hole should have been locked down."

Beyond Wall Street firms, customers of the more than 300,000 leased Bloomberg terminals across the globe include clients as prominent as the Federal Reserve and the Vatican.

The origins of this access may have started first when Bloomberg, as a demanding CEO, mandated that every employee in the company, from sales persons to journalists, call a client once a quarter and ask them if they were having any issues, or needed any help. "It gave employees a feeling that they had something to do with the clients," the former executive said. "That was around the time this kind of access was put in place." Some clients, however, such as European central banks, stipulated that none of their information be shared. And a decade ago, Swiss banks raised questions about whether certain shared data violated Swiss bank secrecy laws.

Since being elected mayor in 2001, Bloomberg has removed himself from the daily operations of his company. As of Saturday night, he had not commented on the breach. The current CEO, Daniel Doctoroff, once a managing partner at private equity firm Oak Hill Capital Partners, told employees in a memo Friday "client trust is our highest priority."

At its core, the controversy underscores the paradox of the 32-year-old Bloomberg LP, a privately-held company that is vigilant in not disclosing information about its own finances and operations while generating $8 billion a year in revenue providing and collecting massive amounts of data. The terminal, with its countless functions, may just serve as a window into Wall Street's second-to-second operations. While coveted by traders and other professionals as an indispensable tool, the terminal and its ubiquity in the financial sector may turn this into a much bigger headache for Bloomberg, Tabb said.

CNBC senior editor Tom Lowry and senior economics reporter Steve Liesman contributed to this report.