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MF Global Finance Official Fretted Over Customer Money

Source: WSJ

Posted on 28 Mar 12

A senior MF Global Ltd. finance official expressed concern about the firm's handling of customer money on Oct. 27, four days before the firm collapsed and more than $1 billion went missing from customer accounts, according to the official's prepared testimony for a congressional hearing Wednesday.

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

Ms. Serwinski’s testimony will bring fresh questions about who at MF Global knew or should have known that the firm had dipped into customer funds to help save itself during a run on the bank in late October.

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.

The deficit in customer funds has prompted civil and criminal investigations and has undermined confidence in the decades-old system for regulating the exchange-traded futures contracts, where farmers, ranchers and investors hedge their risks and take bets on price moves.

Ms. Serwinski says in her statement that even though regulations would have allowed the deficit in what she described as a "buffer to ensure that customer funds were safe," she says "the firm should maintain a positive 'firm invested' balance every day in its segregated and secured report. "

Ms. Serwinski 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 phone from a planned vacation, Ms. Serwinski says she was "assured that he matter was under control and being addressed and that the funds would be returned on Thursday," Oct. 27.

She 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, the firm was investigating an apparent shortfall in customer funds that was at the time blamed on error in reconciling accounts. It was also trying to put the finishing touches on a deal to sell the firm.

But by the early morning hours of an all-night session to try to save MF Global, Ms. Serwinski was given a report by an assistant treasurer at the firm, Edith O’Brien that showed the customer deficit was real.

Ms. O'Brien, also scheduled to testify at the House Financial Services subcommittee on oversight and investigations, is expected to decline to answer questions, invoking her right against self incrimination.