The twisted tale of MF funds

Former boss Jon Corzine has been castigated over a missing $1.6bn – but it seems he has been framed

It sounded for all the world like a smoking gun. A Congressional investigation into the collapse of MF Global, a commodities broker whose demise last year left thousands of customers out of pocket to the tune of $1.6bn (£1bn), appeared to have unearthed evidence that knowledge about where the missing money went goes right to the top.

MF Global's former chief executive Jon Corzine, the Obama campaign donor and ex-boss of Goldman Sachs, "OKed MF fund transfer, probe finds", according to the first headlines. "Damning email ties Corzine to funds", said another, as the story took wing. "Memo contradicts Corzine testimony." "Corzine authorised raid of customer funds". Victims demanding criminal charges over the MF Global debacle, and cynics who called Mr Corzine "too big to jail", were cock-a-hoop.

The accusation is that a $200m transfer out of customer accounts, which was used to pay off an overdraft in MF Global's London arm, was carried out as "per JC's direct instructions". But Mr Corzine was framed.

The story of MF Global's collapse into bankruptcy last October and the reasons why, for the first time ever, supposedly ring-fenced customer funds disappeared turns out to be more complex than the plot of a Hercule Poirot novel – as will be evident when the House of Representatives Financial Services Committee calls some more of the key players to testify this afternoon.

MF Global was meant to be Mr Corzine's triumphant return to Wall Street. But his plan to turn the sleepy brokerage, once owned by the UK's Man Group, into a mini-Goldman was built on giant bets using MF Global's own money and disaster struck when the eurozone debt crisis caused those bets to turn sour.

With his reputation already in tatters – and his luxury apartment on the market for $2.9m to fund his legal bills – things can only get worse if he is charged with any wrongdoing. The FBI, industry regulators and Congress are all investigating if he was reckless in putting on those $7.7bn of eurozone bets, or if improper in the disclosures made to investors, or if – worst of all – there was criminality by anyone who dipped into customer accounts in those desperate October days, when executives were hoping to keep MF Global afloat long enough to sell it to another broker.

Mr Corzine's testimony, at a Congressional hearing in December, is that he never ordered – and never would have ordered – any misuse of customer funds and that he was "shocked" to discover there was a shortfall. Other executives have added that, amid the chaos of a "run" on the broker, their assumption was that any discrepancies in customer accounts were the result of paperwork delays.

Last month, James Giddens, the trustee in charge of liquidating MF Global, set out in graphic detail the chaos of those last few days.

"The number of transactions executed by MF Global during the last week prior to the bankruptcy escalated to unprecedented volumes. The rush to meet funding needs for collateral, margin and customer liquidations led to billions of dollars in securities sales, draws on credit facilities, and a web of inter-company loans across affiliates, some foreign. The company's computer systems and employees had difficulty keeping up with the unprecedented volume of transactions."

Computer systems failed and no-one, it appears, had the full picture, and things are greyed further by the fact that customer accounts contain not just customer money but also a buffer of cash belonging to MF Global. Some of the money can be routinely and illegally used by the broker itself. It took Mr Giddens more than three months of forensic accounting to fix the approximate shortfall in customer accounts at $1.6bn.

It is in this context that Mr Corzine ordered the $200m transfer to cover repayment of a $175m overdraft, as was being demanded by JPMorgan Chase in London. The person who made that transfer was a treasurer in the Chicago office called Edith O'Brien. It is her email that was granted "smoking gun" status by the headlines of recent days.

According to the House Financial Services Committee: "Ms O'Brien wrote in an email that the transfer was 'Per JC's direct instructions'."

The committee did not publish the full email, however, so it is not possible to infer that Mr Corzine's instruction was to use cash from the customer accounts, let alone dip into customers' own money. Mr Corzine's spokesman said he did not make such an instruction and was never told where the cash came from.

The quoted fragment, and the response it generated, amounted to a framing of Jon Corzine. It has heated up interest in today's hearing, as intended by the committee, but it hasn't changed the smoke signals coming from the FBI investigation, which have so far suggested that criminal charges are unlikely.

Ms O'Brien, who has testified to Congress as an expert on commodities brokers on occasion, is keeping mum, having reportedly refused to co-operate without immunity from prosecution. The committee expects her to invoke the Fifth Amendment and refuse to answer questions today.

Other witnesses include MF Global's chief financial officer and general counsel. They may shed more light on the chaotic final days, but they may also show that anyone thinking about the $1.6bn shortfall as a "whodunnit" isn't thinking about it right.

Suggested Topics
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
David Moyes and Louis van Gaal
Life and Style
Vote with your wallet: the app can help shoppers feel more informed about items on sale
lifeNew app reveals political leanings of food companies
Former Governor of Alaska Sarah Palin, left, with her daughter, Bristol
newsShe's 'proud' of eldest daughter, who 'punched host in the face'
Life and Style
The Google Doodle celebrating the start of the first day of autumn, 2014.
New Zealand fly-half Aaron Cruden pictured in The Zookeeper's Son on a late-night drinking session
Arts and Entertainment
Salmond told a Scottish television chat show in 2001that he would also sit in front of a mirror and say things like,
tvCelebrity Trekkies from Alex Salmond to Barack Obama
Life and Style
Carol O'Brien, whose son Rob suffered many years of depression
healthOne mother's story of how London charity Maytree helped her son with his depression
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
The cover of Dark Side of the Moon
musicCan 'The Endless River' carry on the tradition? See for yourself
Life and Style
food + drink
Rob Merrick's Lobby Journalists were playing Ed Balls' Labour Party MPs. The match is an annual event which takes place ahead of the opening of the party conference
newsRob Merrick insistes 'Ed will be hurting much more than me'
A cabin crew member photographed the devastation after one flight
A new app has been launched that enables people to have a cuddle from a stranger
voicesMaybe the new app will make it more normal to reach out to strangers
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Quantitative Risk Manager

Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...

Day In a Page

Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits