by Chris Clayton, DTN Ag Policy Editor
WASHINGTON (DTN) — A key executive at MF Global Holdings Ltd who may have been involved in transferring funds from segregated customer accounts invoked her constitutional right against self-incrimination rather than answer questions from congressmen about the bankruptcy that left as much as a $1.6 billion shortfall in customer accounts.
Edith O’Brien, an assistant treasurer at the company, offered no opening statement Wednesday at a House Financial Services Subcommittee hearing on MF Global. Chairman Randy Neugebauer, R-Texas, then asked O’Brien about her involvement in a $200 million wire transfer sent on Oct. 28 to the United Kingdom to cover an overdraft, just three days before the company filed for bankruptcy protection.
“On advice of counsel I respectfully decline to answer based on my constitutional rights,” O’Brien told the subcommittee.
O’Brien was asked about a news article stating she was negotiating criminal immunity with federal prosecutors, but she again cited her constitutional rights before Neugebauer excused her from the panel.
O’Brien had been considered a potentially key witness for lawmakers trying to understand how segregated funds were lost at MF Global. Former CEO Jon Corzine had specifically identified O’Brien as an employee who understood how account transfers were occurring in the final days of the company before declaring bankruptcy.
Interest around O’Brien grew last week when a memo put together by congressional staff stated O’Brien had written an email to release the $200 million in funds to J.P. Morgan Chase specifically “per JC’s (Corzine’s) direct instructions.”
Losses were estimated as high as $1.6 billion in the bankruptcy, but farmers and other MF Global customers have received slightly more than 70{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f} of their funds back from the bankruptcy court. It’s unknown whether more funds will be made available for farmers or what the final dollar figure on the losses will be.
After O’Brien’s departure on Wednesday, lawmakers on the subcommittee spent the next two hours unleashing their wrath on MF Global’s general counsel, a former chief financial officer for the American division run by Corzine, and the current CFO of MF Global Holdings. None of the three could explain to congressmen how money could be removed from segregated accounts or why internal controls did not stop such transfers. All three executives also said they had no knowledge of how company funds were lost.
Rep. Michael Capuano, D-Mass., said the testimony reminded him a lot of the Enron hearings more than a decade ago.
“Apparently no one did anything wrong but there’s $1 billion missing,” Capuano said.
The executives also could not bring themselves to describe the losses by MF Global customers as theft.
“Something terrible happened, but I don’t know how to describe it,” said Laurie Ferber, general counsel for MF Global Holdings.
Christine Serwinski, former CFO for MF Global Inc. in North America, said she was on vacation the week the company began to unravel but came home early and could not believe that the company was having a problem trying to find $900 million in lost funds. Serwinski was asked if it was unusual for a CEO to make specific instructions on wire transfers. “Yes, I believe that would be an unusual event,” she said.
Later in the hearing, Diane Genova, deputy general counsel for JP Morgan Chase, told lawmakers she had spoken with Ferber and another MF Global attorney before the wire transfer, wanting assurances that funds were not coming from segregated accounts. A letter was sent to MF Global by JP Morgan that Ferber thought was too broad in terms of making sure all transactions between the two companies were in compliance. So JP Morgan sent a second letter, seeking signatures from MF Global executives. That letter was never signed, but Genova said, “We believed we had been given clear, credible assurance that the transfers were lawful.”
Lawmakers became increasingly frustrated during the hearing as Ferber, Serwinski and MF Global Holdings CFO Henri Steenkamp repeatedly indicated they were not involved in basic accounting work regarding company liquidity or played any role in key decisions at the company before the collapse.
“There is sure one helluva lot you guys don’t know,” said Rep. Bill Posey, R-Fla.
Steenkamp said he had not seen reports from outside auditors months before the bankruptcy that expressed concern about decisions to “override of internal controls” at MF Global. Further, he had said in an analyst call just a week before the collapse that “MF Global’s liquidity and capital has never been stronger” and the company was “in the strongest position it could be.” Steenkamp had also been part of a strategic document created by the company just weeks before the bankruptcy called “Break the Glass” that examined what would happen if MF Global were downgraded.
Steenkamp and Ferber would not say whether they deserved bonuses being proposed by MF Global’s bankruptcy trustee for executives, but Steenkamp said executives worked hard and should be “adequately compensated.” When asked how customers could feel about that, Steenkamp said, “I believe the customers want all of their money returned.”
To read the full March 23 House Financial Services memo, go to http://financialservices.house.gov/…
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Posted with DTN Permission by Haylie Shipp
