Edith O’Brien, the MF Global Holdings Ltd. (MF) assistant treasurer who has become a key figure in the disappearance of as much as $1.6 billion in customer funds, declined to answer questions from U.S. lawmakers.
O’Brien, who appeared today under subpoena before a House Financial Services subcommittee, invoked her constitutional right against self-incrimination during a hearing on the New York firm’s Oct. 31 bankruptcy, the eighth largest in U.S. history.
After saying twice that she would not answer a question on the advice of counsel, O’Brien told lawmakers she would not answer any questions during today’s hearing.
“We’re extremely disappointed that you’ve chosen to do that,” Representative Randy Neugebauer, the chairman of the Financial Services oversight and investigations panel, said before he dismissed her.
Although O’Brien was not present for the question-and- answer period, her role in the transfers was a topic lawmakers - - and the other MF Global executives present --returned to multiple times.
O’Brien was pulled from back-office obscurity onto center stage last year when former MF Global chief executive Jon S. Corzine identified her several times as an employee with knowledge of transfers that may have included customer funds.
Attention on O’Brien heightened after the March 23 release of a memo drafted by congressional staff. The memo cites an e- mail from O’Brien noting that a transfer made in the days before the firm’s bankruptcy was done “Per JC’s [Jon Corzine’s] direct instructions.”
Christine Serwinski, chief financial officer of the firm’s North American broker-dealer, said O’Brien and another employee had the authority to transfer funds from a customer segregated account. She also said that Corzine’s personal involvement in the transfer would have been “unusual.”
Vinay Mahajan, the firm’s global treasurer who was not in attendance, was identified by Serwinski as a second executive who had the authority to sign off on transfers. Mahajan also was identified in the House memo as informing colleagues in an Oct. 28 e-mail that an overdrawn account in London had to be “fully funded ASAP.”
“Mr. Mahajan worked for only 10 weeks at MF Global and we’re confident that he at all times acted appropriately,” Gregory John O’Connell, Mahajan’s attorney, said today in an statement.
Another MF Global executive, General Counsel Laurie Ferber, testified that she sought O’Brien’s assurance of the propriety of the two-stage transfer -- a $200 million transfer from a segregated account at the firm’s brokerage to a “house” account, followed by the move of $175 million from the house account to a London subsidiary’s account at JPMorgan Chase & Co. (JPM)
JPMorgan, by mid-afternoon of Oct. 28, contacted Corzine to request confirmation in writing that the transferred money was made up only of the firm’s funds, Diane Genova, a deputy general counsel for the bank, said in her prepared remarks.
“Mr. Corzine said he understood the request and would have someone in his organization review it,” Genova said. The bank then “e-mailed a proposed draft letter to Mr. Corzine.”
Corzine, 64, told lawmakers last year the firm’s back- office staff had “explicitly” informed him that the $175 million transfer made before the bankruptcy filing was legal.
“I never gave any instruction to misuse customer funds, I never intended anyone at MF Global to misuse customer funds and I don’t believe that anything I said could reasonably have been interpreted as an instruction to misuse customer funds,” Corzine told lawmakers in December.
Ferber said she spoke with O’Brien about the transfers and was was provided with copies of the transaction accounts.
“My very clear understanding was that if the compliance certificate was limited to those two transactions she would sign it,” Ferber said of O’Brien.
The letter was never returned to JPMorgan, according to Genova. Serwinski, asked if she would have approved the transfer if she knew all of the information about the funds involved, said she would not have made the transaction.
Justice Department Investigates
Serwinski, Ferber and Henri Steenkamp, the firm’s chief financial officer, told lawmakers they were all in contact with the Department of Justice, which is investigating the bankruptcy. Serwinski said she had met with the the department twice, Steenkamp said he was in contact with federal authorities through his lawyers and Ferber said she is meeting with authorities next month.
Lawmakers from both parties expressed frustration with the way the three executives responded to their questions, reminding them that MF Global’s clients included farmers and ranchers around the country who have lost money. Representative Steve Pearce, a New Mexico Republican, compared them to legendary thieves “Bonnie and Clyde.”
“Looks like there’s been a great effort to maintain plausible deniability,” said Representative Nan Hayworth, a New York Republican.
Representative Michael Capuano of Massachusetts, the top Democrat on the panel, told the executives that criticism from lawmakers is the least of their problems.
“Here’s your concern: The people sitting next to you,” Capuano said. “Because somebody is going to say something to the appropriate investigators to say this is the person who had final responsibility. And when that happens, there’s going to be problems for those individuals.”