Weekend Economists Going to the Dickens December 16-18, 2011

[Demeter]

8. Corzine: MF Staff Said Fund Transfer Legal

http://www.bloomberg.com/news/2011-12-15/corzine-mf-staff-said-fund-transfer-legal.html

Jon S. Corzine, former chairman and chief executive officer of MF Global Holdings Ltd., told lawmakers THURSday that the firm’s back-office staff “explicitly” informed him that fund transfers made before the company filed for bankruptcy were legal...Corzine, testifying today before U.S. lawmakers for the third time in a week, was responding to allegations made at a U.S. Senate hearing earlier this week when the executive chairman of Chicago-based CME Group Inc. (CME) told lawmakers Corzine had known of a $175 million loan using client money that was made before the Oct. 31 bankruptcy. Corzine used today’s hearing of an oversight panel of the House Financial Services Committee to rebut the suggestion that he may have authorized improper use of customer money...“I did not instruct anyone to lend customer funds to anyone,” Corzine said.

Corzine suggested Terrence Duffy, CME Group executive chairman, may have been referring to some funds transfers that occurred as MF Global was selling billions of dollars in securities. JPMorgan Chase & Co. (JPM), which was involved in the transactions, told MF Global the sale could not be completed until overdrafts in some accounts in London were corrected. “I contacted the firm’s back office in Chicago and asked them to resolve the issues, which I understood they did,” Corzine said. He didn’t say explicitly whether he was aware at the time that the loan may have included funds from customer accounts...Corzine’s testimony today marked the second time that he appeared to be suggesting that MF Global’s Chicago-based operations staff might be the appropriate target for scrutiny over what happened to the missing money. “The back office in Chicago explicitly confirmed to me that the funds were appropriately transferred,” Corzine said.

On Tuesday, Corzine named Christine Serwinski, the company’s chief financial officer for North America, as someone in charge of the responsible department, though he said she had been on vacation during the final days of MF Global. Serwinski did not respond to a message left at her home telephone number.

Second-Hand Account

Duffy, who is also scheduled to testify today, said Tuesday his information was based on a second-hand account of a conversation between CME and MF Global employees. He didn’t say whether Corzine learned of the loans in advance of the funds being moved. He also didn’t say whether the loans were a legitimate use of customer funds....Investigators are attempting to determine which transactions involving customer funds were illegitimate, Jill E. Sommers, the senior CFTC commissioner overseeing the investigation said in a telephone interview yesterday. “We’re far enough along the trail to see the transactions going out” of segregated accounts, Sommers said. Investigators are searching e-mails and other documents to trace the transactions. “Following a trail is not as easy as it sounds because money isn’t just transferred from point A to point B and stopping,” she said. Sommers said she expects regulators will eventually be able to determine where all the money went. There may still be a shortfall because some money may not be available to be clawed back for customers, she said...