March 28, 2024

DealBook: E-Mail Clues in Tracking MF Global Client Funds

Federal authorities investigating the collapse of MF Global have uncovered e-mails that detail the transfers of money in the firm’s last days, including transfers that contained customer money, according to people close to the investigation.

One e-mail chain refers to the transfer of roughly $200 million that MF Global owed JPMorgan Chase on Oct. 28 — the firm’s last business day before it filed for bankruptcy. In that chain, a senior official in the firm’s Chicago office was told to make the transfer, said the people close to the investigation who requested anonymity because the inquiry was still open.

That official, Edith O’Brien, a treasurer at MF Global, is considered a “person of interest” in the investigation, said two of the people, who added that authorities expected to interview her in the coming days. It was not clear who had directed Ms. O’Brien, whose job was to oversee the customer money, to make the Oct. 28 transfer. The roughly $200 million that JPMorgan Chase received is said to be entirely customer money.

Ms. O’Brien has hired a prominent criminal defense lawyer, Reid H. Weingarten of Steptoe Johnson, according to one of the people. Ms. O’Brien has not been accused of any wrongdoing. And there is no indication that she had reason to suspect that the money being transferred included customer money.

MF Global’s sloppy recordkeeping and a flurry of transactions in its final days may have obscured the fact that the firm was dipping into the cash of farmers, traders and hedge funds to cover its own needs.

Still, the interest in Ms. O’Brien and the e-mails suggest that, nearly two months after some $1 billion in customer money went missing, investigators have identified employees who may have played an important and perhaps unwitting role in the improper use of customer money.

Ms. O’Brien could not be reached for comment. Mr. Weingarten did not respond to several requests for comment. A spokesman for the Commodity Futures Trading Commission, which is leading the investigation, declined to comment.

Mr. Weingarten, a former Justice Department official, has also represented Bernard J. Ebbers, the former chief executive of WorldCom, and other top corporate executives. Lloyd C. Blankfein, the chief executive of Goldman Sachs, hired Mr. Weingarten this year.

The transfer to JPMorgan was not the only questionable one. Investigators suspect that later on Oct. 28, MF Global continued using customer money to settle payments with trading partners and others, leading to the roughly $1 billion hole in customer cash.

Regulators have spent nearly two months hunting for the missing money. Angry customers, who have yet to receive roughly a third of their money, have taken their grievances to Washington. Jon S. Corzine, the company’s former chief executive, has testified on Capitol Hill three times this month about the firm’s collapse.

Mr. Corzine, a former United States senator and New Jersey governor, testified that on the morning of Oct. 28, JPMorgan told him that one of the firm’s accounts at the bank in London was overdrawn. He said he passed the notice along to his staff.

“At that time, I was trying to sell billions of dollars of securities to JPMorgan Chase in order to reduce our balance sheet and generate liquidity,” Mr. Corzine told lawmakers. “JPMorgan Chase told me that they would not engage in those transactions until overdrafts in London were cleaned up.”

After the transfer, JPMorgan, one of MF Global’s main banks, questioned Mr. Corzine about the source of the money.

“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 in responding to JPMorgan Chase’s request,” he told the House Financial Services Subcommittee on Oversight and Investigations.

Mr. Corzine testified that Ms. O’Brien assuaged any concerns that MF Global had been improperly using customer cash.

“I had explicit statements that we were using proper funds, both orally and in writing, to the best of my knowledge,” he told the panel. “The woman that I spoke to was a Ms. Edith O’Brien.”

But JPMorgan was not satisfied. The bank once again contacted Mr. Corzine, this time requesting a guarantee in writing. Mr. Corzine handed the request to his general counsel, Laurie Ferber. Ms. Ferber would not authorize the document, according to one of the people close to the investigation, saying the firm did not offer such special assurances.

Two days later, at about 6 p.m. on Sunday, Oct. 30, Ms. Ferber notified regulators that there was an apparent shortfall in customer money. She blamed an accounting error, according to the CME Group, the firm’s primary regulator and an exchange where it conducted business.

At about 1 a.m., Ms. O’Brien and another executive in Chicago told the exchange that the shortfall in the customer accounts was real, according to the CME.

Ms. O’Brien is considered an expert of sorts on the protection of customer money at futures firms.

In the last year and a half, Ms. O’Brien has made several appearances before the Commodity Futures Trading Commission. On at least two occasions, she was a panelist at roundtable discussions held at the agency on the topic of safeguarding customer money, and also attended at least three meetings with agency officials, including one titled “Practicalities of Individual Customer Protection.”

Since MF Global’s collapse, Ms. O’Brien has been working for the trustee overseeing the liquidation of the firm’s brokerage unit, helping lawyers and accountants understand the firm’s operations.

Article source: http://feeds.nytimes.com/click.phdo?i=3334ad159d8e18ab5e18bc0c72f846d0

4 Convicted of Mail Fraud in Tax Shelter Case

The verdict ends a 10-week trial that featured a parade of wealthy Americans who told how they had avoided taxes through the complex investment instruments the defendants created. The government said the defendants had made $130 million in illicit profits in a 10-year scheme.

Nanette Davis, an assistant United States attorney, said in her closing argument that those who had benefited from the tax shelters included some of the “most well-heeled, richest investors in the world.” They included the late sports entrepreneur Lamar Hunt, trust fund recipients, inventors, a grandson of the late industrialist Armand Hammer and people who built fortunes in real estate or family businesses.

Among those convicted was Paul M. Daugerdas, 60, of Wilmette, Ill., a lawyer who prosecutors said was the mastermind of the scheme. He was the former head of the Chicago office of the Jenkens Gilchrist law firm and its tax practice. The other lawyer convicted was Donna M. Guerin, 50, of Elmhurst, Ill., who worked at the same office as Mr. Daugerdas.

Also convicted were Denis M. Field, 53, of Naples, Fla., the former chief executive and chairman of the accounting firm BDO Seidman and the former head of its national tax practice; and David Parse, 49, of Elmhurst, Ill., a former Deutsche Bank broker. One accountant, Raymond Craig Brubaker, 55, of Plano, Tex., was acquitted.

Sentencing was set for Oct. 14. All four face sentences that could exceed 20 years in prison.

Preet Bharara, the United States attorney, said the tax fraud “was stunning in scope” and cheated the I.R.S. out of millions of dollars in revenue.

Prosecutors said Mr. Daugerdas made $95 million through the sale of the shelters and then reduced his income from the shelters to less than $8,000 so he could evade paying taxes.

Defense lawyers argued during the trial that their clients had not thought that what they were doing was wrong.

Ms. Davis said the fraud relied on a pattern of lies, including false information about what the tax shelters were and how they worked, lies in formal opinion letters, backdated transactions, false information in files prepared for the I.R.S., lies to the I.R.S. during audits and the coaching of clients to lie.

The trial featured testimony by 24 tax shelter clients and five former colleagues of the defendants, including four who had pleaded guilty in the case.

Ms. Davis said that Mr. Daugerdas would have had to pay more than $32 million in taxes on his $95 million in profits, but with the shelters managed to pay only a few thousand dollars in taxes.

Charles Sklarsky, the lawyer for Mr. Daugerdas, argued that his client was a lawyer “who pushed the law, who took aggressive positions that the I.R.S. didn’t like.”

Mark Rotert, the lawyer for Ms. Guerin, said the facts of the case “scream out that what she was doing was how a tax attorney makes a living.”

Article source: http://feeds.nytimes.com/click.phdo?i=f7df484e6fa96899a72ed5435251ecef