I'm looking for a succinct verb for "to direct attention away from" or "to cause others to ignore" something.
The regulators' own report contains a clue to the fraud, which they not only ignored, but actively [XXX].
Undermine, undercut, discredit, suppress, bury, and cover up are too strong. In the hypothetical, the regulators weren't trying to gainsay or hide their own fact (which after all they didn't need to include). They were just effectively saying, "move along, nothing to see here!" In other words, they were comfortable with the clue, but perhaps not what the clue might lead to.