* 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 (Reuters) - 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 failed.
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 Committee.
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.
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 signed.
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 day before.
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 first transfer.
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 bargain.
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.