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MF Global Inquiry Intensifies

January 10, 2012
The MF Global investigation intensifies as federal authorities unearth new details and confront potential obstacles in their hunt for roughly $1.2 billion in customer money that disappeared from the brokerage firm. The investigators are deposing employees as they search for the missing money. Some authorities are now examining whether MF Global used money from futures customers to pay securities customers who were closing accounts as the firm began to collapse, according to a person briefed on the matter.  Federal authorities also suspect that some customer money passed through MF Global’s banks, including JPMorgan Chase, and the clearinghouses that helped unwind the firm’s balance sheet, including the Depository Trust and Clearing Corporation.  One obstacle in the hunt for the missing funds has been the failure to talk with Edith O’Brien, a treasurer at MF Global, who has declined to be interviewed.  Federal authorities suspect that she transferred about $200 million to JP Morgan Chase in London on the eve of the bankruptcy of MF Global, money that turned out to be customer cash. Her lawyer approached federal prosecutors about immunity from criminal charges before talking. The request by Ms. O’Brien is the first in this case, one person briefed on the investigation said. Still, such requests are common in federal investigations and it does not suggest that she violated Wall Street regulations. It is unclear whether the Justice Department is considering Ms. O’Brien’s request for a deal. While Ms. O’Brien’s testimony could prove crucial, investigators lack access to other important sources that could help unravel the mystery surrounding the missing money.   . Other potential impediments to the case include the lack of access to certain internal documents at MF Global. The firm has withheld the e-mails and other documents from investigators on the grounds of attorney-client privilege. More than two months after the funds vanished from client accounts at MF Global, customers have questioned why investigators still have not retrieved all of their money. But reclaiming the missing money may prove harder than locating it. That’s because much of it went overseas, where bankruptcy laws often conflict with those in the United States. The complication could mean much legal wrangling before determining what money belongs to whom.  [Dealbook 1/9/12]