Former MF Global executive O’Brien declines to testify

March 28, 2012

Former MF Global assistant treasurer Edith O’Brien invoked her constitutional right not to testify Wednesday at a House hearing probing the collapse of the big brokerage firm and the disappearance of as much as $1.6 billion of customers’ money.

Other executives who were called to testify shed little if any light on the mystery, prompting one House member to tell them that O’Brien’s use of the Fifth Amendment “was more helpful to this committee than any of your answers.”

Members of the House Financial Services Committee berated the witnesses for saying they were unable to explain what happened to the money.

Henri Steenkamp, chief financial officer of parent company MF Global Holdings, said that during the firm’s final days he was “taken up with other very serious matters” and unfortunately had “limited knowledge of the specific movements of funds” in question.

The hearing convened a day after the Senate passed a resolution urging MF Global’s bankruptcy trustee to refrain from paying executive bonuses until customers have been repaid and investigations of the firm’s demise have been concluded.

Steenkamp, who remains at the bankrupt company, said he would accept a bonus if the bankruptcy trustee determined that it was “fair and reasonable.”

Asked if he thought he deserved a bonus, he replied: “I believe for all the hard work that we’re doing we, we’re just asking to be fairly compensated.”

“We are not part of the discussions on whether that includes bonuses or not,” he added.

MF Global sought bankruptcy protection on Oct. 31 after a series of sharp financial reversals. The firm was led by New Jersey Democrat Jon S. Corzine, formerly a governor, U.S. senator and head of Wall Street powerhouse Goldman Sachs.

Wednesday’s hearing opened with a partisan clash.

“I can’t help but think that the, quote, ‘power and influence,’ close quote, as President Obama may call it — that someone like Jon Corzine carries — is exempt from a thorough investigation by the Department of Justice,” Rep. Francisco Canseco (R-Tex.) said.

Democrats protested that they had not been given access to information that the panel’s Republican majority had gathered in its probe.

But the anger at MF Global was bipartisan.

“We had $1.6 billion of customer money take a walk and none of you know anything about it,” said Rep. Stephen F. Lynch (D-Mass.). “It’s not believable.”

It was Lynch who said the silent O’Brien was more illuminating than her colleagues.

O’Brien’s appearance was eagerly awaited because she was in a position to shed light on a pair of wire transfers days before the bankruptcy filing. First MF Global moved $200 million from an account for customer funds to an account for the firm; then it moved $175 million of that to another account for MF Global to cover a potentially crippling overdraft.

J.P. Morgan, one of the firm’s banks, was so concerned about the transfers that it repeatedly sought assurances from MF Global that the wires complied with rules meant to protect customer money.

When Corzine testified last year, he said O’Brien had assured him that the transfers were proper. A memo that the House committee’s Republican staff addressed to committee members attracted considerable attention last week because it quoted an e-mail in which O’Brien, referring to Corzine, said one of the transfers was “Per JC’s direct instructions.”

But the committee staff wrote a clarification Tuesday, telling lawmakers that its memo “does not purport to link Mr. Corzine to the loss of $200 million in customer funds.”

Corzine “may or may not have known” that the money was coming from a customer account, the Tuesday memo says.

According to the clarification, the transfers were not necessarily improper, and if they were, MF Global personnel might not have known that at the time.

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