Independent counsel sought for MF Global probe

Thu May 3, 2012 6:17pm EDT

The sign marking the MF Global Holdings Ltd. offices at 52nd Street in midtown Manhattan is seen in New York November 2, 2011. REUTERS/Shannon Stapleton

The sign marking the MF Global Holdings Ltd. offices at 52nd Street in midtown Manhattan is seen in New York November 2, 2011.

Credit: Reuters/Shannon Stapleton

(Reuters) - A U.S. congressman is pressing for the appointment of an independent counsel to take over a federal criminal probe into the collapse of the MF Global Holdings Ltd MFGLQ.PK brokerage firm.

Michael Grimm, a first-term Republican congressman from New York City and member of the House Financial Services Committee, has circulated to colleagues a proposed letter that would ask U.S. Attorney General Eric Holder to step aside.

The move comes roughly six months after a bankruptcy filing by MF Global, which had been run by former Democratic U.S. Senator and New Jersey Governor Jon Corzine.

Customers are still waiting for the return of money that disappeared from their accounts as the firm sank, as the trustee for MF's broker-dealer unit, James Giddens, leads efforts to track and recover it.

Giddens has estimated the gap at around $1.6 billion. A dispute between Giddens and MF Global's UK unit over the rights to about $700 million became the subject of litigation in the UK on Thursday.

CONFLICT OF INTEREST?

In a report in February, Giddens said the shortfall in customer funds was caused by the improper commingling of customer money with corporate funds, but it gave no indication as to whether the mixing was intentional.

Sources have told Reuters, meanwhile, that the Justice Department and other investigators, including the FBI, have not found clear evidence of criminal intent by Corzine or other MF Global leaders.

But Grimm's letter suggests that Corzine's ties to Washington, including with "highly placed individuals" in the government who are "very close" to the U.S. Department of Justice probe, warrant the appointment of an independent counsel.

Federal law authorizes such an appointment when a Justice Department probe "may result in a personal, financial or political conflict of interest," the letter said. "Clearly the case of MF Global and Mr. Corzine falls under this section."

Grimm hopes to gain broad bipartisan support for his letter before sending it to Holder next week, a spokeswoman for the congressman said on Thursday.

The Commodity Customer Coalition, an advocate group for former MF Global clients, supports the effort to push the DOJ aside as customers remain without full access to their money.

"There's 38,000 MF Global customers still missing property," James Koutoulas, the coalition's leader, told Reuters. "I don't think the DOJ is going to go up against one of the president's biggest bundlers without an independent counsel being appointed."

Coalition members, including Stanley Haar, an adviser whose clients had about $10 million tied up in MF Global, had met with congressmen and their staffs in hopes of gaining support for an independent prosecutor.

"We tried to play an information role," Haar said. "We felt like, once congressmen and others were presented with a clear picture of the facts, like anyone else, they'd see signs of cronyism and favoritism."

While there is "no direct evidence" that anyone is getting special treatment in the MF Global probe, "perception matters," Grimm's letter said.

Randall Samborn, a Justice Department spokesman, declined to comment. Andrew Levander, a lawyer for Corzine, also declined to comment.

Rep. Randy Neugebauer, a Texas Republican who chairs the House Financial Services subcommittee investigating MF Global's collapse, has not signed Grimm's proposed letter, a person familiar with the matter said on Thursday.

Rep. Michael Capuano, the ranking Democrat on the House Financial Services subcommittee, has not been contacted about signing the letter, according to his spokeswoman.

Before joining the House of Representatives, Grimm had been an FBI agent for 11 years.

MOUNTING LITIGATION

MF Global officials including Corzine have been hit with many lawsuits by former customers and shareholders.

Congress has also heard testimony from Corzine and other officials, including from the company's main bank, JPMorgan Chase & Co (JPM.N), about MF Global's last days before its October 31, 2011, bankruptcy.

Corzine testified that he did not order anyone to withdraw money from customer accounts, and did not know where the missing funds were.

Giddens last month said he is considering civil lawsuits against individuals who may have played a role in the misuse of customer funds, but did not reveal whether Corzine would be a target.

Litigation is expected to comprise a substantial portion of Giddens' efforts to return money to customers. On Thursday, he announced that a court action had commenced in Britain over a dispute between Giddens and the company's UK arm pertaining to about $700 million.

Giddens has said the money belongs to U.S. customers trading on UK exchanges, and should be returned to them. The sides reached an impasse in April after months of negotiations.

The legal issue is over whether the money was or should have been segregated for customers under English law.

In his statement, Giddens said he will press for a speedy court process, but acknowledged the matter will necessitate "robust" discovery and many hearings.

In the liquidation of Lehman Brothers' LEM.MX broker-dealer, which is also led by Giddens, similar disputes remain ongoing after more than three years.

(Additional reporting by Grant McCool in New York; Editing by; Maureen Bavdek, Gary Hill and Steve Orlofsky)

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