NEW YORK (Reuters) - The federal investigation into the collapse of MF Global MFGLQ.PK is ramping up with several more executives, including a long-time colleague of former CEO Jon Corzine, hiring criminal defense attorneys.
Executives at the failed futures brokerage house are in the process of hiring lawyers as a federal grand jury in New York recently began issuing subpoenas seeking information and records, say people familiar with the inquiries.
One of those retaining an attorney is Bradley Abelow, MF Global’s president and chief operating officer, who served as chief of staff to Corzine during his tenure as New Jersey governor, say two people familiar with the situation.
Corzine, a former head of Goldman Sachs, resigned as MF Global’s chairman and chief executive officer on November 4 -- four days after the brokerage filed for bankruptcy.
Trustee James Giddens said in a letter to commodities clients of MF Global on Thursday that the Department of Justice, the Commodity Futures Trading Commission and the Securities and Exchange Commission were investigating “complex cash movements” at MF. A big question for investigators will be how some $600 million in customer money has gone missing.
One of the issues regulators and federal authorities are trying to determine is whether the $600 million was inappropriately diverted from a segregated account maintained by MF Global at Chicago-based Harris Bank, a division of the Bank of Montreal (BMO.TO).
In the futures trading business, customer money deposited in a segregated account is not meant to be used by a broker as collateral for proprietary trades made by the firm itself. But futures firms do have broad authority to reinvest excess cash in a segregated customer account to generate additional revenue.
David Leibowitz, one of the federal prosecutors in Manhattan who is leading the investigation, was not immediately available for comment.
Abelow, who did not return a phone call seeking comment, joined MF Global a little over year ago, after being wooed by Corzine. The two people familiar with the situation said Abelow is being represented by Gary Naftalis, a New York lawyer who is currently representing former Goldman Sachs Group (GS.N) board member Rajat Gupta in a major insider trading investigation.
Abelow is a close confidant of Corzine, who already has retained his own high-powered defense attorney, Andrew Levander, a partner with Dechert LLP.
Corzine took over the job at MF Global in March 2010, a few months after he lost his bid to win a second term as governor. Soon after he joined MF Global, the former Democratic Senator for New Jersey went on a firing and hiring spree with the intent of transforming MF Global into a mini-Goldman Sachs.
Abelow and Corzine worked together at Goldman some two decades ago. During the time Corzine was the firm’s chief executive, Abelow was head of operations for the Wall Street investment house.
Other MF Global executives and employees are also in the process of retaining attorneys to represent themselves in various investigations, say sources.
MF Global itself has hired Marc Kasowitz, a partner with Kasowitz Benson Torres & Friedman, to represent the brokerage’s interest in regulatory and criminal investigations, a person familiar with the matter confirmed.
In the bankruptcy proceeding, MF Global is being represented by Skadden.
MF Global filed for bankruptcy after traders, customers, lenders and a rating agency became concerned about the firm’s exposure to $6.3 billion in European sovereign debt issued by Italy, Spain, Ireland and Portugal.
Critics have charged that in a bid to generate revenue, Corzine pushed MF Global to use too much borrowed money to invest in risky assets.
(Reported by Matthew Goldstein and Jennifer Ablan; editing by Claudia Parsons)
Corrects spelling of Marc Kasowitz in third last paragraph