However, it seems that Corzine was “determined to squeeze MF Global’s customer segregated accounts and customer secured accounts for cash. In a recorded conversation with another MF Global employee (“Employee #2”), Corzine pronounced: “We need to go through what that real number is at the FCM. You know, what’s the drop dead amount. . . . You know, I’m sure there is a buffer in her thinking. We’ve got to find out what that is so that we have some ability to think about pulling it if we have to. Obviously, keep me posted.”
On Oct. 18, the firm used “approximately $55 million more than what was available of FCM excess Cash,” the complaint states, adding it was the third day in a row that Corzine received information that the Firm violated its policy.
On Oct. 26, MF global became under-segregated to the tune of $298 million in customer seg accounts… the firm did not immediately notify the CFTC or CMEGroup, its DSRO. According to the complaint, “O’Brien and her staff in MF Global’s Treasury Department directed, approved, and/or caused funds to be transferred from customer segregated accounts at the request of MF Global’s broker-dealer staff. O’Brien understood that any use of customer segregated funds was unlawful, even if these customer funds were later returned to the segregated accounts. At approximately 6:00 p.m. ET, O’Brien told broker-dealer staff in an email that she needed them to return funds from MF Global proprietary accounts at the Bank of New York Mellon (“BONY”) to customer segregated accounts “ASAP,” and that they could not afford a “SEG issue.” BONY was one of MF Global’s primary banks, housing customer segregated accounts as well as MF Global proprietary accounts, among other Firm accounts.
Just prior to 6:30 p.m. ET, O’Brien told Employee #2 on a recorded telephone line that the Firm would not be in compliance with customer segregation rules because funds were not being returned to customer segregated accounts:
O’BRIEN: It is a total clusterfuck . . . . They have to move half a billion dollars out of BONY to pay me back . . . . Tell me how much money is coming in and I will make sure it gets posted. But if you don’t tell me, then tomorrow morning I am going to have a seg problem . . . . I need the money back from the broker-dealer I already gave them. I can’t afford a seg problem.
But she got one as BONY transferred $325 million t o a customer seg account, but it wasn’t enough. She sent an e-mail to one MF global employee titled “Heads up my projection,” which stated: “Due to large B/D client wires we could be negative seg tomorrow AM.”
On Oct. 27, with credit not coming due to MF Global’s precarious position, Corzine spoke to one employee:
Corzine: We have a money management account at Chase, if my memory serves me.
Employee #1: Yeah, it’s the JP Morgan Trust account, but that’s cash seg for clients -- it has nothing to do with greasing our wheels for Chase to move.
Corzine: I understand but you put it in a tri-party, and then once the securities have started moving, then you move it back to the, um --this is the same thing we did last night, they left it in the tri-party, the seg money.
At the close of Oct. 26, MF Global’s customer segregated accounts were under-segregated by more than $298 million. That same day, states the complaint, despite knowing accounts were under-segregated, O’Brien and her staff transferred at least $525 million of seg funds, including $325 million transfer from an customer seg account at BONY, to the Firm’s proprietary accounts. But before BONY allowed the transfer, it asked if it would comply with CFTC regulations. The complaint states:
“O’Brien replied to BONY by email that the $325 million were “not required to be segregated intra-day under CFTC or SEC rules.” She deliberately did not copy other MF Global Treasury Department employees on her email response to BONY because, as she explained to one of her colleagues in the Treasury Department on a recorded telephone line: “I don’t want to take anyone down with me.