MF Global’s counsel resisted giving assurances on transfers

A matter of symantics

March 27 (Bloomberg) -- MF Global Holdings Ltd. General Counsel Laurie Ferber twice resisted providing assurances to JPMorgan Chase & Co. that the company was complying with rules to segregate customers’ collateral, saying language in a draft provided by the bank was too broad.

JPMorgan was “specifically interested in two transfers” that occurred the morning of Oct. 28, Ferber said in testimony prepared for a House Financial Services subcommittee hearing tomorrow. The first was a $200 million transfer from a segregated account at the firm’s brokerage to a “house” account, followed by a move of $175 million from the house account to a London subsidiary’s account at JPMorgan, she said.

Laurie Ferber, MF Global“Although I had no reason to believe that any non-compliant transfers from segregated accounts had occurred or would occur, I did not think that any individual officer or employee should be asked to issue such a broad certificate,” Ferber said in in her testimony. Any employee making such an assurance would have had to personally handle all the transfers or been able to review all the transactions within the available timeframe, she said.

Representative Randy Neugebauer, a Texas Republican who leads the Financial Services investigations subcommittee, will hold its third hearing on events leading to MF Global’s Oct. 31 bankruptcy, a collapse that left a customer funds shortfall estimated at $1.6 billion.

Treasurer to Testify

Among those set to testify this week is Edith O’Brien, a Chicago-based MF Global executive identified by former Chief Executive Officer Jon S. Corzine as having knowledge of fund transfers from customer accounts. She was subpoenaed by the subcommittee after turning down a request to appear.

Ferber’s prepared remarks address transfers that have come under question in the wake of a Financial Services Committee staff memo circulated to lawmakers last week.

“On the afternoon of Friday, October 28, MF Global transferred $200 million from a segregated customer account at JPMC to cover a $175 million overdraft in one of MF Global’s JPMC accounts in London,” according to the five-page memo. “Ms. O’Brien wrote in an e-mail that the transfer was ‘Per JC’s [Jon Corzine’s] direct instructions’.”

Barry Zubrow, JPMorgan’s chief risk officer, called Corzine to seek assurances that the funds belonged to MF Global and not customers. JPMorgan drafted a letter to be signed by O’Brien to ensure that MF Global was complying with the rules, according to the memo.

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