Jon S. Corzine gave "direct instructions" to move $200 million from an MF Global Holdings Ltd. account containing customer funds three days before the securities firm collapsed, according to an employee email reviewed by congressional investigators.
The Oct. 28 email was disclosed in a five-page memo released Friday afternoon by a House Financial Services subcommittee. The panel is investigating what caused an estimated $1.6 billion shortfall in customer funds at MF Global, which collapsed into bankruptcy Oct. 31.
Edith O'Brien, an assistant treasurer who was among the employees involved in moving money at MF Global, wrote in the email that the $200 million transfer to an MF Global account at J.P. Morgan Chase & Co. in London was "Per JC's [Jon Corzine's] direct instructions," according to the memo. Her email went to a colleague at MF Global in London, according to people familiar with the matter.
The transfer was needed to fix a $175 million overdraft in the bank account that was making it harder for MF Global to buy and sell securities as it scrambled to survive in late October, according to the memo.
Customer accounts hold both firm money and customer money that isn't supposed to be touched under federal regulations. In testimony to lawmakers in December, Corzine, the former Goldman Sachs Group Inc. chairman and New Jersey governor who was MF Global's CEO, said he never directed anyone to misuse customer funds.
"He stands by that testimony," a spokesman for Corzine said in a statement Friday. "He never directed O'Brien or anyone else regarding which account should be used to cure the overdrafts, and he never directed that customer funds should be used for that purpose," the statement said.
Corzine wasn't "informed that customer funds had been used for that purpose," the statement said.
The House subcommittee will hold a hearing Wednesday to further probe the MF Global collapse, which left thousands of hedge funds, farmers, ranchers and other investors with losses.
In a statement Friday, Rep. Randy Neugebauer (R., Texas), the subcommittee's chairman, said: "This is an important hearing that will help illustrate the events that transpired in the final days of operation that led to the misuse of $1.6 billion in customer funds."
The Wall Street Journal reported on Feb. 23 that Corzine asked O'Brien to fix the overdraft at J.P. Morgan and that she subsequently ordered the funds moved. But the congressional subcommittee's memo for the first time reveals an email from O'Brien in which she asserts she moved the funds at Corzine's specific behest.
After MF Global moved the money, J.P. Morgan's chief risk officer, Barry Zubrow, called Corzine to seek assurances that the funds belonged to MF Global and not to customers, according to the subcommittee's memo.
J.P. Morgan then sent Corzine a drafted letter to be signed by O'Brien and give "broad assurances" that all transfers "past, present and future" complied with federal regulations stipulating that customer funds mustn't be commingled with a financial firm's own money.
Laurie Ferber, MF Global's general counsel at the time, reviewed the letter but thought it too broad and sought to restrict its scope to only the Oct. 28 transfer, according to the congressional memo. Other emails revealed that, after further drafts of the letter circulated, O'Brien was reluctant to sign it, the memo said.
A J.P. Morgan spokeswoman declined to comment.
O'Brien has been subpoenaed and plans to invoke her constitutional rights against self-incrimination, according to people familiar with the matter. Other witnesses, who have agreed to testify, include Ferber, the firm's former general counsel; Henri Steenkamp, the former finance chief; and Christine Serwinksi, the former North American finance chief.
Lawyers for Ferber and Steenkamp couldn't be immediately reached. A lawyer for Serwinski declined to comment.
The $200 million transfer is one of three types of key transactions that led to the large shortfall in customer funds, the subcommittee found. The others are intraday loans between MF Global's futures commission merchant and its broker-dealer and transactions related to the funding of outgoing broker dealer client money, the subcommittee found.
The Journal previously disclosed a $165 million transfer sent to the broker-dealer that came from the customer account.
Corzine and O'Brien could argue however that because of the chaos of the firm's last few days, they didn't realize that the firm had run out of excess firm money in the customer account, according to people close to the case. In the past, Corzine has said he didn't know the firm had dipped into the customer portion of the funds until Sunday, Oct. 30.
In December, Corzine testified about the overdraft at J.P. Morgan, saying he "contacted the firm's back office in Chicago and others and asked them to resolve this issue."
He added that after the transfer, J.P. Morgan raised questions about whether the transfer was proper under Commodity Futures Trading Commission rules. "Since I had no personal knowledge of the issue, I asked senior people in the back office and the legal department to become directly involved," he told the House subcommittee in his Dec. 15 testimony.
Corzine added that "the back office in Chicago explicitly confirmed to me that the funds were properly transferred." O'Brien, the only back-office official Corzine named who was involved, hasn't spoken about the transfer, but The Wall Street Journal reported earlier this year that people familiar with the matter said she has disputed parts of Corzine's testimony.
A deal to rescue MF Global collapsed the weekend following the $200 million transfer and the financial firm filed for bankruptcy protection Oct. 31. Corzine resigned as MF Global's chief executive soon after the bankruptcy filing.
This story first appeared on WSJ.com.