Investigators Scrutinize MF Global Wire Transfers
Federal investigators examining the final days at MF Global and how customer money went missing are poring over scores of wire transfers in and out of the brokerage firm, including the possible movement of $325 million that may have belonged to customers, according to people briefed on the matter.
The suspicious transfer, which until now has not been made public, was first discovered in the early hours of Oct. 31, the day the firm filed for bankruptcy. Initially, the firm attributed a shortfall of more than $1 billion in customer money to an “accounting error,” records show. But after hours of searching, executives acknowledged to regulators in the firm’s offices in Chicago that the shortfall was real — and may have been caused in part by the $325 million transfer, said one of the people briefed on the matter.
It remains unclear where that money went, or even if it belonged to customers. But it is one of many significant wire transfers that federal authorities — including the Commodity Futures Trading Commissionand the Federal Bureau of Investigation — have spent months reviewing to piece together MF Global’s final days.
Investigators have also reviewed another transfer, of $220 million on Oct. 31, which represented a last-ditch attempt to patch the hole discovered in the customer accounts.
Once the firm disclosed the shortfall to officials from the C.F.T.C. and the CME Group, the giant exchange that also regulated the firm, MF Global shifted $220 million in customer money from the securities side of the business to its commodities brokerage unit, where the shortfall in client cash was discovered earlier.
Ultimately, the final attempt came up short. Just hours after the transfer, the firm filed for Chapter 11 bankruptcy.
An army of lawyers and regulators has been struggling to reclaim about $1.6 billion in funds that belong to farmers, grain operators and traders like hedge funds. To date clients have received about two-thirds of their money, though customers who held cash overseas to trade on foreign exchanges have received nothing. Indeed, the trustee overseeing the return of customer cash has said that up to $700 million in customer money is trapped in Britain, and it could be difficult to reclaim given the complexity of the bankruptcy codes there.
The focus on the wire transfers during the last days of MF Global has gained significance as investigators have become frustrated in their efforts to learn what happened from central employees in the firm’s Chicago office. Investigators are now also focusing on more peripheral employees involved in the treasury and finance function of MF Global’s Chicago operations.
Those employees include Christy Vavra, who was manager of the firm’s treasury operations. She has been questioned by authorities in relation to several transfers made from the customer accounts in the days before the firm collapsed.
Federal authorities have traced hundreds of millions of dollars in customer money to an array of destinations, including $165 million that may have gone to JPMorgan Chase and other transfers that went to MF Global’s trading partners and securities customers. Such transfers violated a cardinal rule on Wall Street: never mingle customers’ money with the firm’s funds.
Investigators are focusing in part on the Chicago office because that is where commodity customers’ funds were safeguarded.
Investigators have hoped to talk to Edith O’Brien, a senior official in the Chicago office. People involved in the case describe her as the “keeper of the records” at MF Global, the person most knowledgeable about transfers in and out of customer accounts.
But she has declined to cooperate with federal authorities unless she receives immunity from prosecution, according to people briefed on the talks. Federal prosecutors are weighing whether to offer her such a deal.
Ms. O’Brien’s name first surfaced late last year during Congressional testimony from Jon S. Corzine, the former chief executive of MF Global who was once the governor of New Jersey. Ms. O’Brien, according to Mr. Corzine, had the task of replenishing an account that MF Global overdrew on Oct. 28 at JPMorgan, the firm’s main bank.
Mr. Corzine told lawmakers that Ms. O’Brien had assured him that the transfer to JPMorgan was legitimate — and that it did not include customer money — an assertion that later proved inaccurate.
Mr. Corzine, the Democratic former governor and former senator, told lawmakers that he had never given instructions to misuse customer money.
While Ms. O’Brien is not yet cooperating with investigators, she has spoken on several occasions with lawyers from the two trustees involved in the case, according to people briefed on the matter. Ms. O’Brien is still working with one of those trustees, James W. Giddens, who is overseeing the return of the $1.6 billion in customer money.
She has also spoken on several occasions with representatives of Louis J. Freeh, the former F.B.I. director who is the trustee overseeing the liquidation of the entire firm. In the meetings, she declined to comment on the missing customer money or on conversations with Mr. Corzine, according to a person familiar with the meetings.
Another important figure in the Chicago office is Christine Serwinski, the firm’s chief financial officer for North America. But Ms. Serwinski’s knowledge of the firm’s downfall is limited because she was absent for much of that final week in October. Some people close to the firm have attributed her absence to vacation — specifically a trip to a ballroom dancing competition.
Ms. Serwinski, who returned to work about 9 p.m. on Oct. 30, worked on a “contingency” plan to shore up the customer accountings, according to the CME Group’s account of the final weekend of MF Global.
Like Ms. Serwinski and Ms. O’Brien, Ms. Vavra was first cast into the national spotlight during Congressional testimony about the missing customer funds. According to a person close to Ms. Vavra, who previously worked as a back-office employee at Terra Nova Trading, she was devastated after her name was mentioned by a lawmaker at a December hearing held by a Congressional committee.
No one at MF Global — including Ms. O’Brien, Ms. Vavra, Ms. Serwinski or Mr. Corzine — has been accused of any wrongdoing.
Lawyers for Ms. O’Brien and Ms. Vavra declined to comment and a lawyer for Ms. Serwinski could not be reached.
The $220 million transfer between the securities unit and the commodities unit on the day of the bankruptcy has further complicated matters for all parties involved, including the two trustees and three federal government agencies. Specifically, the transfer pits the commodities customers, who are short the $1.6 billion, and the regulator responsible for overseeing that business, the Commodity Futures Trading Commission, against the Securities and Exchange Commission, which is handling the audit and oversight of MF Global’s securities business.
The C.F.T.C. has said that commodities customers are entitled to the funds they received. The S.E.C., meanwhile, is arguing that the money belongs to securities customers. If the S.E.C. wins the argument, the shortfall for commodities customers would very likely grow even larger.