* Edith O’Brien was involved in MF Global fund transfers
* Refused to testify before Congress on her role
* O’Brien appeared at CFTC in 2010 defending safeguards
* Said customer safeguards work “extremely well”
By Sarah N. Lynch and Aruna Viswanatha
WASHINGTON, April 13 (Reuters) – MF Global’s
assistant treasurer, now a key figure in the mystery over the
bankrupt firm’s missing customer money,
praised how well customer safeguards work one year before the
firm’s collapse.
Edith O’Brien was a panelist at a Commodity Futures Trading
Commission public meeting held on Oct. 22, 2010, to discuss the
protection of individual customer funds, especially if a
customer defaults.
According to a transcript of the meeting, O’Brien told the
other panelists that they were taking “an extraordinarily myopic
view of the current safeguard structure that operates in America
and has effectively worked to the best of my knowledge for
years.”
O’Brien appears to have played a critical role in the firm’s
final days, as the futures brokerage suffered a liquidity crisis
and desperately shifted funds before filing for bankruptcy on
Oct. 31, 2011.
Investigators including the CFTC and Justice Department are
probing why more than $1 billion in customer funds are missing,
and whether the firm raided customer money to meet the firm’s
needs – a major violation of industry rules.
Former MF Global Chief Executive Jon Corzine has
specifically named O’Brien as someone who gave him assurances
that fund transfers were proper.
O’Brien has not spoken publicly about her version of events,
and invoked her constitutional right against self-incrimination
at a congressional hearing last month.
Neither the firm nor its executives have been formally
charged with wrongdoing.
At the 2010 CFTC meeting, O’Brien went on to say that there
are multiple layers of safeguards for customer funds, including
rules segregating customer funds from firm funds, and rules
restricting what firms can do with customer funds while they are
holding them.
“So, as we continue the conversation this afternoon, I want
everyone to consider the fact that there’s a greater framework
at hand here, one that has actually worked extremely well,” she
said according to a transcript on the CFTC’s website.
A lawyer for O’Brien declined to comment about O’Brien’s
remarks at the CFTC meeting.
BATTLE OVER PROTECTIONS
The CFTC was holding the roundtable, in part, to discuss a
requirement in the 2010 Dodd-Frank financial oversight law that
calls for firms to legally protect each individual account for
swaps customers, and not just protect a pool of accounts.
How to devise such a customer fund protection scheme for
swaps was a major source of contention.
At the CFTC’s roundtable in 2010, futures brokerages like MF
Global argued for using the customer fund protection model used
in the futures market, where all of the customer money is pooled
together in “omnibus” accounts.
But pension funds and money managers have strongly opposed
that idea, saying that pooling the money together puts customer
collateral at risk. They have argued in favor of having
individual, separate customer accounts.
Futures brokerages have pushed back against individual
account segregation, with the Futures Industry Association
arguing it could cost firms nearly $100 million a year.
The CFTC struck a compromise and finalized a rule earlier
this year that allowed for firms to pool swaps customer funds
together, but with strong record-keeping requirements to
identify the accounts.
On another proposal regarding stricter customer safeguards,
Corzine, a former U.S. senator and a governor of New Jersey,
personally lobbied the CFTC.
He participated in phone calls in which he warned about a
proposal to put tighter limits on “in-house” transactions in
which futures brokerages use customers’ funds to make
proprietary trades for their own accounts.
MF Global and other industry players succeeded in delaying
the proposal, which the CFTC ended up finalizing in December,
after MF Global collapsed.
(Reporting By Sarah N. Lynch and Aruna Viswanatha; Editing by
Karey Wutkowski and Tim Dobbyn)
