* House oversight panel looking into missing customer money
* Several MF Global officials, JPMorgan lawyer to testify
* MF Global assistant treasurer may decline to testify
March 28 MF Global officials who
played critical roles in the final days of the futures brokerage
are due to tell U.S. lawmakers that the discovery of a huge
shortfall in customer money caught them by surprise.
A House of Representatives panel has called General Counsel
Laurie Ferber, Assistant Treasurer Edith O'Brien, and North
America chief financial officer Christine Serwinski, among
others, to appear before it Wednesday afternoon. Congressional
investigators continue to probe why more than a $1 billion of
customer money is still missing and who is responsible.
The prepared testimony provided some fresh clarity about
funds desperately being shifted around in late October, but adds
to the frustration of thousands of MF Global customers who are
trying to get their money back, five months after the brokerage
There has so far been no smoking gun to suggest criminal
intent. Former Chief Executive Jon Corzine, who is also a former
U.S. senator and a governor of New Jersey, has maintained that
he "never intended" to break any rules and did not give
instructions to misuse customer funds.
Much of the focus is on a $175 million transfer by MF Global
to a JPMorgan Chase & Co account on Oct. 28, just three
days before MF Global filed for bankruptcy protection.
Investigators are looking at whether any of this sum
represented money from customers, who face an estimated total
shortfall of $1.6 billion. Raiding customer funds is a violation
of federal regulations.
Diane Genova, JPMorgan's deputy general counsel, in written
testimony for Wednesday, said Corzine "assured" the bank that
matters were being handled properly.
A critical figure is MF Global's O'Brien, believed to have
been involved in authorizing the questionable transfer.
O'Brien, however, did not provide written testimony and is
expected to invoke her constitutional right against
self-incrimination at the hearing, the third into MF Global's
collapse by the oversight panel of the House Financial Services
Corzine, who is not testifying on Wednesday, specifically
named O'Brien on Dec. 15 before the same panel, saying she
assured him that the transfer was proper.
Several other MF Global officials are due to testify on
Wednesday that either the company did not believe it was raiding
customer funds to shore up liquidity, or that they did not know
of a shortfall until just hours before the bankruptcy filing.
MF Global filed for bankruptcy on Oct. 31 after investors
and customers became rattled over the firm's $6.3 billion bet on
European sovereign debt and downgrades by credit rating
agencies, resulting in a liquidity crunch.
ASSURANCES AMID WORRY
Ferber said in prepared testimony that she resisted
providing broad written assurance to JPMorgan that MF Global was
complying with rules to segregate customer funds. She said a
letter suggesting narrower language was drafted, but never
Serwinski said in her prepared remarks that by Oct. 27 she
was "not comfortable" with putting customer funds at risk even
overnight, after having learned that there had been a
"substantial deficit" in one metric on the company's books the
Oct. 26 is when James Giddens, the court-appointed trustee
for the MF Global brokerage unit, said the customer funds
shortfall became apparent and began to grow.
Genova, meanwhile, said in her prepared testimony that
JPMorgan had noticed overdrafts in MF Global accounts on Oct.
28, but was assured by Corzine that the company had "ample"
funds to cover them.
Addressing the overdrafts was needed so JPMorgan could run a
$4.9 billion bond auction to give MF Global needed liquidity.
Genova also said that MF Global gave JPMorgan multiple oral
assurances that it was complying with Commodity Futures Trading
Commission rules on customer-segregated accounts.
MF Global had transferred $200 million from a
customer-segregated account to an MF Global house account in the
United States, and then $175 million from that U.S. account to
an MF Global account at JPMorgan in London. It is unclear how
much of that second transfer represented customer funds from the
Genova said that JPMorgan "promptly" provided its $73.5
million share of a $1.2 billion credit line from 23 banks, which
MF Global drew down in its final week before entering
bankruptcy, but that other banks did not uphold their end of the
MF Global executives believe the largest U.S. bank, which
handled much of the day-to-day transactional activity keeping MF
Global in business, was slow to deliver urgent funding in the
final, frantic days leading up to the bankruptcy filing.