(Dow Jones) — Jon S. Corzine gave specific instructions to an MF Global Holdings Ltd. employee in Chicago to move $200 million from a segregated customer account that contributed to an estimated $1.6 billion shortfall in customer funds when the securities firm collapsed, congressional investigators said Friday.
(This story and related background material will be available on The Wall Street Journal website, WSJ.com.)
Edith O’Brien, an assistant treasurer, wrote in an e-mail Oct. 28 that the transfer, to cover a $175 million overdraft at an MF Global London account at J.P. Morgan Chase & Co. (JPM) was “Per JC’s [Jon Corzine’s] direct instructions,” according to a memo prepared by a House Financial Services subcommittee.
A deal to rescue MF Global collapsed the following weekend and the financial firm filed for bankruptcy protection Oct. 31. Corzine resigned as MF Global’s chief executive soon after the bankruptcy filing.
The email suggests Corzine, the former Goldman Sachs Group Inc. (GS) chairman and New Jersey governor, gave direct instructions to dip into MF Global’s segregated customer funds, which aren’t supposed to be touched under federal regulations. In previous testimony to lawmakers in December, Corzine said he never directed anyone to misuse customer funds.
The Wall Street Journal reported on Feb. 23 that Corzine asked O’Brien to fix the overdraft at J.P. Morgan and that she subsequently ordered the funds moved. But the congressional subcommittee’s memo for the first time reveals an email from O’Brien asserting she was moving the funds at Corzine’s specific instructions.
After MF Global moved the money, J.P. Morgan’s chief risk officer, Barry Zubrow, called Corzine to seek assurances that the funds belonged to MF Global and not to customers, according to the subcommittee’s memo. J.P. Morgan then sent Corzine a drafted letter to be signed by O’Brien and give “broad assurances” that all transfers “past, present and future” complied with federal regulations stipulating that customer funds mustn’t be comingled with a financial firm’s own money.
Laurie Ferber, MF Global’s general counsel at the time, reviewed the letter but thought it too broad and sought to restrict its scope to only the Oct. 28 transfer, according to the congressional memo. Other emails revealed O’Brien was reluctant to sign a letter giving assurances about the Oct. 28 transaction, the memo said.
A spokesman for Corzine had no immediate comment. A J.P. Morgan spokeswoman declined to comment. A lawyer for O’Brien couldn’t immediately be reached.
The memo comes ahead of a hearing being held Wednesday by the House Financial Services Oversight and Investigations subcommittee further probing the events surrounding MF Global’s collapse, which left thousands of hedge funds, farmers, ranchers and other investors with losses after the firm dipped into customer funds as it struggled to survive.
O’Brien has been subpoenaed and plans to invoke her constitutional rights against self-incrimination, according to people familiar with the matter. Other witnesses, who have agreed to testify, include Ferber, the firm’s former general counsel; Henri Steenkamp, the former finance chief; and Christine Serwinksi, the former North American finance chief.
Lawyers for Ferber, Steenkamp and Serwinksi couldn’t immediately be reached.
The $200 million transfer is among three key transactions that led to the large shortfall in customer funds, the subcommittee found. The others are intraday loans between MF Global’s futures commission merchant and its broker-dealer and transactions related to the funding of outgoing broker dealer client money, the subcommittee found.
Source: Dow Jones
Posted by Haylie Shipp