Ben Protess and Azam Ahmed, DealBook (New York Times)
01-09-2012
http://dealbook.nytimes.com/2012/01/09/u-s-inquiry-of-mf-global-gains-speed/?nl=business&emc=dlbka8
The investigation into MF Global is intensifying as federal authorities unearth new details and confront potential obstacles in their hunt for roughly $1.2 billion in customer money that disappeared from the brokerage firm.
While prosecutors and regulators have jointly conducted dozens of depositions with former and current employees, a senior official in the Chicago office of MF Global recently declined to meet with the federal authorities, people briefed on the investigation said.
That official, Edith O’Brien, a treasurer at MF Global, is considered a “person of interest” in the investigation, the people said. Federal authorities suspect that she transferred about $200 million toJPMorgan Chase in London on the eve of the bankruptcy of MF Global, money that turned out to be customer cash.
Authorities had expected to interview Ms. O’Brien last month. She instead balked at meeting voluntarily, asking first to strike a deal with criminal authorities that would excuse her from prosecution, the people said. The criminal investigation is led by the Federal Bureau of Investigation and federal prosecutors in Chicago and Manhattan.
The request by Ms. O’Brien is the first in this case, one person briefed on the investigation said. Still, such requests are common in federal investigations and it does not suggest that she violated Wall Street regulations. Ms. O’Brien has not been accused of any wrongdoing, and there is no indication that she intentionally transferred customer money to JPMorgan.
Ms. O’Brien’s lawyer, Reid H. Weingarten, did not respond to requests for comment.
The investigators are deposing employees as they search for the missing money. Some authorities are now examining whether MF Global used money from futures customers to pay securities customers who were closing accounts as the firm began to collapse, according to a person briefed on the matter.
Federal authorities also suspect that some customer money passed through MF Global’s banks, including JPMorgan Chase, and the clearinghouses that helped unwind the firm’s balance sheet, including the Depository Trust and Clearing Corporation.
While Ms. O’Brien’s testimony could prove crucial, investigators lack access to other important sources that could help unravel the mystery surrounding the missing money. The potential impediments to the case include the lack of access to certain internal documents at MF Global. The firm has withheld the e-mails and other documents from investigators on the grounds of attorney-client privilege.
Louis J. Freeh, the trustee overseeing the bankruptcy proceedings of MF Global, has not waived the legal provision, which shields records from examination by law enforcement.
The trustee’s office said it had not received any complaints from investigators, and would be “inclined to waive privilege” if it were hampering the investigation. Experts say it is common for trustees to assert attorney-client privilege in such cases to protect the interest of the company’s creditors and shareholders, whom the trustee represents.
Mr. Freeh has already agreed to share the confidential documents with a separate trustee overseeing the distribution of customer cash, James Giddens, according to a person with knowledge of the matter.
The agreement allows Mr. Giddens access to the documents that could help expedite the return of customer cash — so long as his office does not share them with law enforcement and others. The agreement continues an earlier deal reached with the firm’s general counsel, Laurie Ferber, the person said.
But federal investigators have been too busy to miss the documents, according to one of the people briefed on the inquiry. Authorities are still sorting through the mountains of paperwork already before them, the person said. Still, at least one regulator worries that any delay could stymie the federal investigation in the coming weeks.
“We don’t have time to play 20 questions regarding what’s privileged and what’s not,” said Scott O’Malia, a Republican commissioner for the Commodity Futures Trading Commission
A patchwork of federal regulators has descended on the case, with the C.F.T.C. taking the lead role. Criminal charges, however, would come from the Justice Department.
More than two months after the funds vanished from client accounts at MF Global, customers have questioned why investigators still have not retrieved all of their money. There are some signs of progress, however. The C.F.T.C., the Justice Department and the Securities and Exchange Commission have collected thousands of documents and are tracing the money.
But reclaiming the missing money may prove harder than locating it. That’s because much of it went overseas, where bankruptcy laws often conflict with those in the United States. The complication could mean much legal wrangling before determining what money belongs to whom.
The search for the missing money is separate but related to the effort to uncover who is responsible for its disappearance.
Government authorities are aiming to build a case from the bottom up, and have largely spent time focusing on lower-level employees at the firm. Jon S. Corzine, the former chief executive of MF Global and a former New Jersey governor, has not yet been interviewed. Neither has his deputy, Bradley Abelow, who was the chief operating officer at MF Global, according to a person close to the case.
Neither Mr. Corzine nor Mr. Abelow has been accused of any wrongdoing in the case.
Spokesmen for the C.F.T.C. and the F.B.I. declined to comment.
The testimony of Ms. O’Brien — a senior official at the firm — was supposed to be an important element of the investigation. Ms. O’Brien has appeared numerous times before the C.F.T.C, often testifying as an expert. Her specialty: the protection of customer money at futures firms like MF Global.
Mr. Corzine told a congressional panel last month that she had assured him on Oct. 28 that the firm was not misusing customer money in its transfer to JPMorgan. After it was discovered that customer money was missing, MF Global filed for bankruptcy on Oct. 31.
Federal authorities have reviewed internal MF Global e-mails that instructed Ms. O’Brien to transfer roughly $200 million to JPMorgan Chase to satisfy an overdrawn account, though there is no indication that she knowingly transferred customer money. MF Global’s sloppy records may have obscured the fact that staff was dipping into customer cash to cover the firm’s own needs.
It is unclear who told Ms. O’Brien to transfer the money.
Just three weeks ago, regulators were optimistic about interviewing Ms. O’Brien, who has been a central character in the saga of the missing money.
That optimism began to wane in recent days, when her lawyer approached federal prosecutors about immunity from criminal charges. It is unclear whether the Justice Department is considering Ms. O’Brien’s request for a deal.
Ms. O’Brien has deep roots in Chicago’s financial world. In the 1990s she worked at Chicago-based Mesirow Financial and in 2000 she was named controller of Web Street Securities Inc. She later found a job at Man Financial, according to a court document. In 2005, Man Financial bought the remains of Refco, which had filed for bankruptcy.
In October, Ms. O’Brien was scheduled to speak at an industry conference at the Art Institute of Chicagoa panel titled “Dodd-Frank Boot Camp: Margin and Collateral.”
Susanne Craig contributed reporting.
