Lawmakers find few answers in MF Global hearing over firm's final days
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WASHINGTON, March 28, 2012- Frustrated lawmakers attempted to “conduct an autopsy” Wednesday on how MF Global, a major global financial derivatives broker, failed last year. The demise caused farmers, ranchers and other customers to lose roughly $1.6 billion from their supposedly segregated customer funds.
“Its utterly disgraceful what has happened here and you sit there and say you know nothing about it,” said Rep. Stephen Lynch (D-Mass.) to the panel of MF Global witnesses. “It's not believable. I've got to tell you.”
Assistant Treasurer to MF Global Inc., Edith O'Brien, immediately invoked the Fifth Amendment when the House Financial Services Subcommittee on Oversight and Investigations began questions Wednesday regarding the collapse of MF Global, the eighth largest bankruptcy in U.S. history.
“We're extremely disappointed that you've chosen to do that,” said Chairman Randy Neugebauer, R-Texas, after O'Brien indicated she would not answer any questions. “I believe you have important knowledge.”
Neugebauer asked O'Brien if she approved a $200 million transfer from segregated customer accounts to a firm account in order to cover an overdrawn MF Global account in London. Rep. Michael Capuano, D-Mass, attempted to ask her if reports citing an email she wrote, which indicated that MF Global CEO Jon Corzine approved the transfer, were accurate.
"On the advice of counsel, I respectfully decline to answer based on my constitutional right," O'Brien responded to the members' questions.
Chief Financial Officer for North American MF Global Inc., Christine Serwinski, said O'Brien and Global Treasurer Vinay Mahajan were the individuals with authority to approve the transfer from customer accounts.
O'Brien reportedly wrote an email on Oct. 28 that contradicts Corzine's claims of ignorance. Corzine testified in previous hearings that he had no knowledge of the misuse of customer funds and did not direct anyone to use customer funds in the firm's transactions.
Although Serwinski, MF Global Holdings Ltd. Chief Financial Officer Henri Steenkamp and General Counsel Laurie Ferber cooperated with the representatives' questions, they did not share particularly enlightening information to the satisfaction of the members.
“I have the general counsel at MF Global saying ‘I have no idea;' I have the CFO of MF Global Holdings saying, ‘It's an MF Global Inc. issue, not mine;' and I have the Chief Financial Officer for North America MF Global Inc. saying, ‘I was on vacation,'” Capuano said in frustration.
“How am I supposed ask questions? Apparently no one did anything wrong, but there's a billion dollars missing,” Capuano said after many responses claiming little to no knowledge of how customers' accounts defaulted.
After MF Global faced ratings downgrades and attempted to make a large $200 million transfer to cover its UK-based account, MF Global staff discovered a $900 million deficiency in customer accounts. The staff originally attributed the deficiency to an accounting error, but when it turned out to be legitimate the firm reported the default to its front-line regulatory agency on Oct 31, 2012, and later the same day declared bankruptcy.
The problem for MF Global most likely rose out of the ability to “comingle” firm funds with customer funds, which makes segregating customer's funds useless, Capuano said.
Although rules governing and protecting customer accounts were in place, “ultimately it comes down to a matter of enforcement,” said National Futures Association President David Roth during the second panel of witnesses. “It doesn't matter what rules you have.”
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