Career Advice Mar 28 2012

MF Global's Edith O'Brien Talks Deal with Justice

By aaron lucchetti

The star witness in a congressional hearing about MF Global Holdings Ltd.'s collapse has told Justice Department representatives through her lawyers details about transactions that ended up dipping into customer funds, people familiar with the matter said.

But Edith O'Brien, the assistant treasurer at MF Global, isn't expected to reveal those details when she appears at Wednesday's hearing of the House Financial Services Committee's oversight and investigations subcommittee. O'Brien plans to invoke her constitutional right against self-incrimination and to decline to answer questions, people familiar with the matter said.

O'Brien, 46 years old, who has been working for an MF Global bankruptcy trustee, wasn't expected as of Tuesday afternoon to give a statement, but members of the subcommittee will still direct questions to her, a person familiar with the matter said. After the hearing, she is planning to depart Washington for a family vacation, another person familiar with the matter said.

In recent months, lawyers for O'Brien offered a so-called proffer at a meeting in New York as part of an effort to negotiate immunity from prosecution in exchange for her cooperation with federal investigators, one of the people said.

In a proffer, a person under investigation tells the government how he or she would testify in exchange for immunity, nonprosecution or leniency at sentencing. Normally, if the talks break down the government can't use information it didn't already know in a subsequent prosecution.

It is unclear what O'Brien's attorneys discussed with federal officials and it is unlikely that congressional officials will be able to unearth details about the conversations.

A different MF Global official is expected to testify Wednesday that she had concerns about apparent shortfalls in the buffer of firm money meant to protect customer accounts just before the firm's Oct. 31 bankruptcy filing. Customer funds aren't supposed to be touched under federal regulations.

A big part of the MF Global investigation centers on exactly what O'Brien knew. Because MF Global customer accounts dropped into a deficit in the days before the bankruptcy filing, investigators have scrutinized movements of customer money and the state of mind of officials who ordered money to be moved to meet margin calls and other needs as the firm tried to stay solvent.

O'Brien's name was first brought into the spotlight in December, when former MF Global chief Jon Corzine testified before Congress that O'Brien was the back-office official who provided him assurances that a $175 million transfer to an MF Global account in London was proper. She later declined to sign a document certifying that it indeed followed the rules, and later, it was discovered that the money had come ultimately from the firm's customer account.

The second MF Global official, Christine Serwinski, said in her statement that she had concerns about the company's handling of customer money on Oct. 27, four days before the firm collapsed and more than $1 billion went missing from customer accounts.

Serwinski, chief financial officer of MF Global's North America unit, said in remarks posted on a congressional website Tuesday morning that she was "not comfortable with the firm putting customer funds at risk," when she had learned that one metric for the company's financial health had "showed a substantial deficit" for Wednesday, Oct. 26.

MF Global officials who have testified and discussed the shortfall in customer money previously have said they didn't know the shortfall had developed until late on Oct. 30, four days after a bankruptcy trustee later said it had started growing.

Serwinski, who like O'Brien was based in Chicago, added in her testimony that she was told that the "firm had borrowed money" from its futures unit, where some customer money was held, "on an intraday basis and had missed the wire deadline to pay it back."

Checking in by email and telephone from a planned vacation, Serwinski said she was "assured that the matter was under control and being addressed and that the funds would be returned on Thursday," Oct. 27.

Serwinski decided to cut her vacation short, returning from a ballroom-dancing competition in Las Vegas on Sunday, Oct. 30.

"I was not alarmed, but I believed it would be better to return early" to the office, she said in her statement.

When she returned that Sunday evening, O'Brien and others at the company were investigating an apparent shortfall in customer funds that was at the time blamed on an error in reconciling accounts.

The witnesses at the hearing will also include MF Global General Counsel Laurie Ferber and Chief Financial Officer Henri Steenkamp, who may face questions about another MF Global trustee's plan to pay performance bonuses.

The U.S. Senate passed a resolution Tuesday urging the trustee not to pay any bonuses to the executives.

Julie Steinberg contributed to this article.

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