Email to Corzine Said Transfer Was Not Customer Money
Jon S. Corzine, the former chief executive of MF Global, was told during the brokerage firm’s final day of business that a crucial transfer of $175 million came from the firm’s own money — not from a customer account, according to an internal email.
The email, sent by an executive in MF Global’s Chicago office, showed that the company had transferred $175 million to replenish an overdrawn account at JPMorgan Chase in London. The transfer, the email said, was a “House Wire,” meaning that it came from the firm’s own money. The email, sent at 2:20 p.m. on Oct. 28 to Mr. Corzine and two of his assistants in New York, says the transfer came from a “nonseg” account, industry speak for a noncustomer account.
But the email, a copy of which was reviewed by The New York Times, did not capture the full story behind the wire, which turned out to contain customer money. MF Global employees in Chicago had first transferred $200 million from a customer account to the firm’s house account, people briefed on the matter said. Once it was in the firm’s coffers, the people said, Chicago employees then promptly transferred $175 million of the money to the MF Global account at JPMorgan in London — the account that was overdrawn.
The email chain sheds new light on the chaotic final hours at MF Global and the desperate efforts to cover the overdraft at JPMorgan. The transfer of $175 million, along with other transfers of customer money, ultimately left farmers, traders and other clients of MF Global missing about $1 billion of their money.
The email suggests that Mr. Corzine, a former governor of New Jersey, was unaware that the money had been transferred from a customer account. But it is unclear whether someone at the commodities brokerage firm told Mr. Corzine the origins of the money during a phone call or in person. Congressional investigators are interviewing MF Global employees to see whether Mr. Corzine learned that the transfer of $200 million came directly from a customer segregated account, one of the people involved in the case said.
The people with knowledge of the case spoke on the condition of anonymity because the investigation into the firm’s collapse is continuing.
A transfer of money from a customer account does not in and of itself constitute wrongdoing. Companies often keep a buffer of their own money with client money to cover sudden market losses, and can withdraw their own money at will. If a firm dips beneath that buffer, however, it has violated federal regulations.
Referring to the Chicago executive who sent the email to Mr. Corzine, Edith O’Brien, a spokesman for Mr. Corzine said on Friday that Mr. Corzine “never directed Ms. O’Brien or anyone else regarding which account should be used to cure the overdrafts, and he never directed that customer funds should be used for that purpose. Nor was he informed that customer funds had been used for that purpose.”
The transfer to the JPMorgan account received renewed focus Friday, when a memorandum by the oversight panel of the House Financial Services Committee, which is holding a hearing this week on the final days at MF Global, began to circulate. The note indicated that Mr. Corzine knew of the transfer of funds from MF Global — but it did not specify whether he knew the money came from customer accounts.
It is unclear whether Ms. O’Brien knew that the transfer to the JPMorgan account violated that cardinal rule that customer money should be kept safe at all times. It is possible she did not know the firm dipped below its buffer. Ms. O’Brien, who will appear before the congressional panel this week, has declined to cooperate with investigators and plans to invoke her Fifth Amendment right against self-incrimination at the hearing on Wednesday.
Breaking Down the Email Exchanges
The back and forth over the JPMorgan transfer began on the morning of Oct. 28, when JPMorgan contacted MF Global about the overdraft. Vinay Mahajan, the MF Global’s global treasurer, said in an email that JPMorgan was “holding up vital business in the U.S.” because of the problem, and he said that the account needed to be “fully funded A.S.A.P.,” according to the congressional memo.
Mr. Corzine learned of the overdraft from Barry Zubrow, the top risk officer at JPMorgan who worked for Mr. Corzine at Goldman Sachs and when he was governor of New Jersey, a person close to the case said. Mr. Corzine then called Ms. O’Brien to urge her to fix the problem, the person said.
By midmorning Friday, Ms. O’Brien sent a separate email saying that the money was “Being released right now,” according to a person who has reviewed the email.
The congressional memo cites a another email from Ms. O’Brien, who authorized the transfer, saying it was “Per JC’s direct instructions,” referring to Mr. Corzine.
Shortly after the transfer was made, JPMorgan officials again called Mr. Corzine — this time for assurances that the money did not belong to customers.
Mr. Corzine called Ms. O’Brien, who confirmed that the transfer was proper, according to his congressional testimony last year.
“I had explicit statements that we were using proper funds, both orally and in writing, to the best of my knowledge,” he told a subcommittee. “The woman that I spoke to was a Ms. Edith O’Brien.”
Mr. Corzine knew Ms. O’Brien, but was used to working with Christine Serwinski, the firm’s North American chief financial officer. Ms. Serwinski, however, was on vacation most of the company’s final week.
At 2:20 p.m. on Oct. 28, Ms. O’Brien sent the email to Mr. Corzine confirming that the money was transferred from a house account. Attached to the email was a record of the transfer, a document titled “transaction detail report.”
“Let me know if I need to call donna delloso @jpmchase on this,” Ms. O’Brien wrote, referring to a managing director at JPMorgan.
Ms. Delloso, however, still wanted assurances in writing that the transfer was legitimate. “Send me the letter and we’ll have our people look at it,” Mr. Corzine told her, according to a person briefed on the conversation.
The letter from JPMorgan asked for confirmation that all “past, present and future” transfers complied with laws preventing the misuse of customer money, an indication that the bank, which also served as the place where MF Global customer money was kept, was concerned about the source of the transfer. Laurie Ferber, the general counsel at MF Global, thought the letter was too broad and sought to limit its scope. Ms. Ferber and others began working with Ms. O’Brien to come up with a draft that Ms. O’Brien would sign.
There were three letters sent from JPMorgan to MF Global, each with different language, according to the person briefed on the matter. Ultimately, none of the letters were signed by Ms. O’Brien.
In addition to Ms. O’Brien, Ms. Ferber, the general counsel, and Ms. Serwinski, the firm’s chief financial officer for North America, are also expected to testify before a congressional committee this week. Henri Steenkamp, the global chief financial officer, will testify as well.