MF Global exec cites early worry on risk to funds

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By MARCY GORDON, Associated Press

WASHINGTON (AP) — A former MF Global executive says she expressed concern about the brokerage firm putting customers' money at risk four days before it filed for bankruptcy protection.

Christine Serwinski, who was the firm's chief financial officer for North America, said in testimony prepared for a congressional hearing Wednesday that she learned Oct. 27 of a "substantial deficit" in the cash kept by the firm in customer accounts as a cushion against potential losses.

Serwinski says the deficit didn't violate rules but made her uncomfortable.

Serwinski says she asked colleagues in MF Global's Chicago office about it and they assured her the situation was "under control." Regulators weren't informed of a shortfall in customer money until Oct. 30.

New York-based MF Global failed because of a disastrous bet on European debt. The firm filed for bankruptcy protection Oct. 31. About $1.6 billion of customers' money is still missing.

Although MF Global could remain in compliance with federal rules, even with a deficit in the cash cushion for customer accounts, "I had stated clearly and repeatedly that the firm should maintain a positive ... balance every day," Serwinski says in testimony prepared for the hearing by the House Financial Services oversight subcommittee. "To me, even though the regulations would allow it, I was not comfortable with the firm putting customer funds at risk even just overnight in that manner."

Her testimony was released Tuesday by the subcommittee. Serwinski, who was away on vacation at the time, was communicating with her colleagues by phone and email.

On Oct. 30 as she boarded a flight to Chicago, Serwinski says, she was told that there was a deficit in customer funds of nearly $1 billion. "At the time, I did not believe this was possible," she says. "I thought that such a huge number could only be the result of an accounting error."

Also scheduled to testify at Wednesday's hearing were MF Global Chief Financial Officer Henri Steenkamp, General Counsel Laurie Ferber, former assistant treasurer Edith O'Brien, and Diane Genova, deputy general counsel of JPMorgan Chase & Co., which held MF Global funds in several accounts.

MF Global was led by Jon Corzine, former New Jersey governor and U.S. senator from that state, who resigned as the firm's CEO in early November. He testified before three congressional panels in December that he never instructed anyone at MF Global to misuse customer funds and didn't become aware of the shortfall in customer money until hours before the bankruptcy filing.

In addition to Congress, federal regulators and a federal grand jury in Chicago are investigating the MF Global failure. No one has been charged in the case. If the firm misused client money, it would violate a fundamental investor protection for people who trade options and futures.

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