Bloomberg News

MF Global Said to Have Told JPMorgan Transfer Was Proper

January 23, 2012

(Updates with unanswered letter in fifth paragraph.)

Jan. 17 (Bloomberg) -- JPMorgan Chase & Co., a lender to bankrupt MF Global Holdings Ltd., was given verbal assurance that a transfer of segregated customer money to pay an overdraft followed the rules governing treatment of customers’ money, according to a person familiar with the transaction.

The assurance was given by an MF Global treasurer, Edith O’Brien, or someone in her office, after JPMorgan wrote asking for confirmation that the transfer was in accordance with regulations, said the person, who declined to be named because the communications were private.

The transfer of $200 million in segregated customer money was a subject at congressional hearings on the downfall of the commodity firm formerly run by Jon Corzine. Corzine, a former New Jersey governor and Goldman Sachs Group Inc. co-chairman, said at the hearing he was assured that the transfer followed the rules set up to protect customers.

Reid Weingarten, a lawyer for O’Brien, declined to comment on the case. Joseph Evangelisti, a spokesman for New York-based JPMorgan, declined to comment on the transaction.

JPMorgan received no written response to its letter, probably addressed to O’Brien, in the busy days before the bankruptcy, said the person familiar with the transfer. However, the bank was told the transfer was proper, as Corzine testified, the person said.

The MF Global parent filed the eighth-largest U.S. bankruptcy on Oct. 31 after getting margin calls and other demands for money.

‘Liquidity Issues’

MF Global used about $700 million of customer funds to “meet liquidity issues” at its broker-dealer in the days before the bankruptcy, according to CME Group Inc., which had auditing authority over the failed futures broker. Customer funds were also used to make a loan of about $175 million to MF Global’s U.K. subsidiary, according to Terrence Duffy, CME Group’s executive chairman.

CME Group disclosed details of its dealings with MF Global in documents released in December by the oversight panel of the House Financial Services Committee. Christine Serwinski, chief financial officer for North America at MF Global, and O’Brien told Mike Procajlo, an exchange auditor, at around 1 a.m. on Oct. 31 in Serwinski’s Chicago office that the customer money was transferred on Oct. 27 and Oct. 28 and possibly Oct. 26, according to a CME Group timeline.

Missing Money

At the MF Global brokerage, which is being separately liquidated by trustee James Giddens, a spokesman said, “The investigation being conducted by the trustee will closely examine accounts at JPMorgan Chase & Co. held in the name of the broker-dealer.”

Giddens, who has returned about 72 percent of MF Global customers’ assets, has said $1.2 billion or more is missing from their segregated accounts. His search for missing money coordinates with simultaneous probes by the U.S. Justice Department, the Commodity Futures Trading Commission and other regulators, said spokesman Kent Jarrell.

JPMorgan, the biggest U.S. bank, was agent for a $1.2 billion loan to the broker-dealer’s parent, and also for a $300 million loan to the brokerage, according to court papers. The broker-dealer paid JPMorgan and the other secured lenders back for the $300 million loan, Giddens has said.

If the bank received so-called preferential payments before the brokerage went into liquidation, or other payments, Giddens will deal “appropriately” with the transfers or other issues, he said in December.

The trustee was responding to a query from a judge about whether he was disinterested enough to sue JPMorgan if necessary, in light of his law firm’s past work for the bank.

JPMorgan, with Citigroup Inc. and Bank of America Corp., was also among banks that loaned the MF Global finance unit $1.5 billion, according to court papers.

The parent’s bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

--With assistance from Matthew Leising in New York and David Voreacos in Newark, New Jersey. Editors: John Pickering, Stephen Farr

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.


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