Edith O'Brien, the Chicago-based treasurer of MF Global HoldingsLtd.'s broker-dealer, was pulled from back-office obscurity ontocenter stage last year in testimony to Congress by former chiefexecutive Jon S. Corzine.

Today, having become a key figure in the brokerage's messydenouement, she faces lawmakers directly for the first time.

O'Brien was identified by Corzine several times as an employeewith knowledge of transfers that may have included customer fundsin what he called the “chaotic'' days before the New York-basedfirm sought bankruptcy protection Oct. 31, becoming theeighth-largest bankruptcy in U.S. history. With $1.6 billion incustomer money still missing, lawmakers are looking to her toprovide details that have so far proven elusive.

“I'm hopeful that Mrs. O'Brien will shed some light on the lastdays and hours of MF Global,” Representative Randy Neugebauer,chairman of the Financial Services oversight and investigationssubcommittee, said yesterday in an interview.

The House hearing is the third the panel has convened to probeevents in the firm's final days when its executives discovered anearly $1 billion deficit in customer segregated funds. Thebankruptcy trustee overseeing the liquidation of the company'sbrokerage subsidiary has estimated the total shortfall betweencustomer claims and assets available at $1.6 billion.

Neugebauer, a Texas Republican, said he is looking to find outwhen — and how — the firm first dipped into customer funds.

“To get $1 billion upside-down, that's a pretty good sizeof money,” he said. “So we're all trying to figure how long thathad been going on and when it started.”

Attention on O'Brien heightened in recent days after the releaseof a memo drafted by congressional staff. The memo cites an e-mailfrom O'Brien noting that a transfer made in the days before thefirm's bankruptcy was done “Per JC's [Jon Corzine's] directinstructions.”

Committee staff, in a second memo circulated yesterday, saidthat it remains unclear how much Corzine knew when the transfer wasmade. “When Mr. Corzine allegedly directed MF Global employees tomove $175 million to cover the overdraft, he may or may not haveknown the source of funds,” the second memo said.

The account could have contained both client and company funds,the memo noted. Whether the transferred funds were those of thecompany, its clients or both is not known.

'Never Intended'

A spokesman for Corzine, Steven Goldberg, said last week thatthe former MF Global CEO “never gave any instruction to misusecustomer funds and never intended anyone at MF Global to misusecustomer funds.”

Lawmakers said they remain uncertain what, if anything O'Brienwill say when she appears before the committee. She declined aninvitation to testify, forcing the subcommittee to subpoena herlast week. Reid Weingarten, O'Brien's lawyer, didn't respond to acall or e-mail requesting comment.

“A lot of folks thought Mr. Corzine wouldn't testify and hedid,” Neugebauer said, adding that it's not clear whether O'Brienwill be a cooperative witness. “There's some anticipation ofwhether she will or she won't be, but we will not know that forsure until Wednesday.”

Christine Serwinski, chief financial officer of the firm's NorthAmerican broker-dealer, first learned on Oct. 27 that there was a“substantial deficit” the previous day in funds kept in segregatedaccounts including customer money, according to testimony preparedfor the hearing.

The deficit stemmed from an intraday loan to the securitiesbrokerage arm from the futures broker and wasn't repaid by theclose of business, she said. The segregation report for Oct. 27showed that the funds had returned to a positive level, “which Ibelieved at the time reflected the return of the borrowed funds, aspromised,” she said.

Serwinski said that on Oct. 30 she was “still operating underthe belief that there must have been an accounting error becausesuch a large deficit was simply inconceivable to me.” She said shedidn't realize the shortfall was real until the morning of Oct. 31,hours before the company filed for bankruptcy.

It was at that point, according to the congressional memo, thatO'Brien approached Serwinski with a document outlining a shortfallof nearly $1 billion as a result of three different groups oftransactions. Among those transactions was a $175 million transferto MF Global's London office, the memo says.

Two-Stage Transfer

Another MF Global executive scheduled to testify today, GeneralCounsel Laurie Ferber, will draw attention to the two-stagetransfer referred to in the congressional memo — first, a $200million transfer from a segregated account at the firm's brokerageto a “house” account, followed by the move of $175 million from thehouse account to a London subsidiary's account at JPMorgan Chase& Co.

The transfers drew the interest of JPMorgan during the finalweek, Ferber said in testimony prepared for the hearing.

The New York-based bank was “specifically interested in twotransfers,” Ferber said in her prepared remarks. Ferber resistedthe bank's efforts to obtain a letter assuring that the firm wascomplying with rules to segregate customers' collateral, saying thelanguage in drafts provided by JPMorgan were too broad.

“I then spoke to the person in Chicago whom JPMorgan identifiedin the certificate and was given the understanding that she wouldsign the certificate if it were limited to the two transactions thebank had expressed interest in,” she said. In her preparedtestimony, Ferber doesn't identify the individual in Chicago.

At one point, Barry Zubrow, JPMorgan's chief risk officer,personally called Corzine to seek assurances that the fundsbelonged to MF Global and not customers, according to the Housememo.

Corzine, 64, told lawmakers last year the firm's back-officestaff had “explicitly” informed him that the $175 million transfermade before the company filed for bankruptcy was legal.

“I never gave any instruction to misuse customer funds, I neverintended anyone at MF Global to misuse customer funds and I don'tbelieve that anything I said could reasonably have been interpretedas an instruction to misuse customer funds,” Corzine told lawmakersin December.

After rejecting two drafts of the JPMorgan letter, Ferber said athird draft focused specifically on the two transfers was “insatisfactory form.” She then turned the matter over to a colleagueand does not recall further involvement, she said in her preparedremarks.

The letter was never returned to JPMorgan, according to thecongressional staff memo. JPMorgan was given verbal assurance thatthe transfer followed the rules, according to a person familiarwith the transaction.

The assurance was given by O'Brien or someone in her office,said the person, who declined to be identified because thecommunications were private.

Bloomberg News

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