A House Committee issued a memo Friday tying former U.S. senator and former New Jersey governor Jon S. Corzine to a major transfer of funds out of MF Global, the brokerage firm that collapsed under his leadership with $1.6 billion of customers’ money missing.
On Oct. 28, as the cash-strapped firm struggled to stay afloat, MF Global transferred $200 million of customers’ money to J.P. Morgan Chase, the memo by the staff of the House Financial Services Committee said.
The money was used to cover a $175 million overdraft in one of MF Global’s accounts at J.P. Morgan in London, the memo said. Covering the overdraft was an urgent matter because, as an MF Global executive wrote at the time, the big bank was “holding up vital business,” the memo said.
According to the memo by congressional investigators, another MF Global employee wrote an e-mail saying that the $200 million transfer was “Per JC’s [Jon Corzine’s] direct instructions.”
Precisely what was per Corzine’s direct instructions is likely to be explored during a congressional hearing Wednesday. From the snippet quoted in the House memo, it is not clear how explicitly the e-mail addresses that point.
A spokesman for Corzine said he “never directed that customer funds should be used” to cover the overdraft. In a statement, spokesman Steven Goldberg said Corzine never told anyone which account should be used.
“Nor was he informed the customer funds had been used for that purpose,” Goldberg said.
The author of the e-mail referring to Corzine, former MF Global assistant treasurer Edith O’Brien, has been called to testify at Wednesday’s hearing. The committee this week voted to subpoena O’Brien after she declined to testify voluntarily. She could invoke her constitutional right to remain silent.
O’Brien worked in the firm’s Chicago office, which was responsible for ensuring that the company properly handled customer accounts, the Financial Services Committee said in a recent news release.
O’Brien “has unique, personal knowledge regarding how and why customer funds went missing,” Rep. Randy Neugebauer (R-Tex.), chairman of the panel’s subcommittee on oversight and investigations, said in the news release.
A lawyer who reportedly represents O’Brien did not respond to an e-mail after the close of business Friday.
Corzine sent mixed messages in testimony to Congress last year. At one hearing, he said he never intended to authorize a transfer of money out of customer accounts, and if he did, “it was a misunderstanding.”
At a later hearing, Corzine was more definitive.
“While the last few days of MF Global were chaotic, I did not instruct anyone to lend customer funds to MF Global for any of its affiliates, nor was I told that anyone had done so,” he said.
The House memo says a J.P. Morgan risk officer called Corzine to confirm that the money transferred to cover the overdraft belonged to MF Global and not to its customers. The bank then sent Corzine a letter drafted for O’Brien to sign assuring that all transfers of funds that MF Global held for customers — past, present and future — would comply with federal rules, according to the House memo.
An MF Global executive concluded that the letter was too broad and tried to narrow it to the Oct. 28 transfer, the memo said.