By Steve Goldstein, MarketWatch –
WASHINGTON — A congressional committee investigating how $1.6 billion of customer funds went missing from bankrupt brokerage MF Global said Friday it’s found evidence that former CEO Jon Corzine directed a senior official to use $200 million worth of them.
In a memo from a House Financial Services Committee, the probe says it found that Corzine authorized the transfer of client money, citing an email from Edith O’Brien, the assistant treasurer.
MF Global on Friday, Oct. 28, transferred $200 million from a segregated customer account at J.P. Morgan Chase in London, the committee said. O’Brien wrote in an email the transfer was “Per JC’s direct instructions.”
Corzine has said that he would never intend to direct to have customer funds transferred, but in testimony in front of Congress has never firmly denied it.
“I never intended to break any rules whether it dealt with segregation rules or any other rules,” the former New Jersey governor and senator said to a House Agriculture Committee hearing in December. “I’m not in a position given the number of transactions to know anything specifically about the movement of any specific funds.”
But the House committee says that MF Global executives including Corzine and CFO Henri Steenkamp had been frustrated with how slow J.P. Morgan had been in transmitting sales proceeds.
J.P. Morgan sought to validate the appropriateness of the transfer, the House committee said. Chief Risk Officer Barry Zubrow called Corzine directly to seek assurances the funds transferred were not customer funds, and the bank sent Corzine a draft letter seeking assurances that all transfers — past, present and future — complied with Commodity Futures Trading Commission segregation rules.
The general counsel for MF Global, Laurie Ferber, reviewed the letter but thought it was too broad and sought to restrict it to the Oct. 28 transfer.
On Saturday, Oct. 29, there were several revised versions sent between MF Global and J.P. Morgan, but emails sent by O’Brien and Ferber and other lawyers showed Corzine was reluctant to sign them. Later that day, Corzine said Interactive Brokers and J.P. Morgan were the parties most interested in buying MF Global.
CFTC Chairman Gary Gensler, who has since recused himself from the investigation, on Oct. 30 advised CFTC staff to set specific deadlines for MF Global to provide information on customer segregated funds. Though some MF Global staff worked to get more information, emails sent by regulators revealed the firm was not forthcoming with the information.
O’Brien showed MF Global North America finance chief Christine Serwinski a document showing there were transactions that resulted in the client fund shortfall: intraday loans between MF Global futures commission merchant and its broker-dealer; the funding of outgoing broker dealer client funds; and an Oct. 28 $175 million transfer to MF Global’s London office. Those transactions totaled $909 million.
By Monday morning at 1 a.m., O’Brien and Serwinski told the CME Group there was customer fund deficiency. And by 2.m., regulators knew a pending deal to be bought by Interactive Brokers was called off.
And though the Securities and Exchange Commission expressed concern to MF Global about the firm’s calculation of excess funds, MF Global transferred $220 million of funds. MF Global also tried to transfer funds from its U.K. subsidiary but was blocked by a U.K. regulator.
