Knowing seg funds were underfunded, “At approximately 8:45 p.m. ET, Employee #2 told Corzine on a recorded telephone line that some of the funds O’Brien had transferred from the FCM to help satisfy MF Global’s proprietary obligations had not been returned. Corzine asked if she had received back “enough to be in compliance,” and the employee responded, “no, she[’s] indicating she’s net short $106 million.” Corzine thereafter instructed the employee to “raise hell” with (JPMorgan) to obtain funds from the secured revolver to “cover up” the gap left by transfers of funds that were not returned. Corzine did not receive assurances that the funds were returned.”
Although that night the firm filed a seg report to the CFTC stating it had more than $116 million in excess funds, it actually underfunded by more than $298 million.
Early Friday morning, Corzine learned the U.K. affiliate was overdrawn to the amount of $134 million. At 9 a.m. he instructed O’Brien to transfer funds to pay for the overdrafts, saying it was “the most important thing she can get done that day.” O’Brien complied, sending $175 million to the U.K. affiliate. In a phone call the next day, she told a colleague ““the only place I had the $175 million, ok, was in seg.” O’Brien also commented during this conversation that she “move[s] money all the time . . . from seg over to house and house over to the BD [broker-dealer]. O.K., that’s what we do all the time because we don’t have enough capital…” When told she might not get the money back right away, she responded that “leaves us with a problem – a big problem.”
When JPMorgan inquired about this transfer, Corzine followed up with O’Brien, who noted that it was transferred from a MF proprietary account, leaving out that originally it was from the customer seg funds account.
On Saturday, O’Brien’s team asserted that seg funds account be readjusted to show an increase of $540 million, which was wrong but unquestioned
O’Brien knew that the transfers from customer segregated accounts that day were unlawful. At about 6:00 p.m. ET in a recorded telephone call, O’Brien told Employees #1 and #2 that at least $530 million had been transferred from FCM customer segregated accounts and that it could be “game over” unless at least $355 million was returned:
O’Brien: Okay, so it’s 249.5 today, it’s 106 from, from Wednesday, actually, you guys, okay? Okay. 355. Okay. So, let’s just be delirious and think [the broker-dealer division] ha[s] more than 355. Okay? If they have it, I need it, and let me tell you why. Shh. London failed to me on returning the 175 I pushed out to them this morning. Okay? That could be game over, you guys.
Employee #2: From a regulatory perspective?
O’Brien: Yep. Yep, it could be.
Employee #1: You need the 530 million bucks.
O’Brien: Yep. I don’t care where you get it, quite frankly. If you can get 530 million dollars, I’m putting it back in the seg pool. Okay? I can maybe get by with this 175, but I can’t get by without the whole 355, you guys.