MF Global Holdings Ltd., which filed for bankruptcy protection almost a week ago, is the subject of a formal FBI investigation opened late in the past week, a person familiar with the matter said.
The inquiry, in which Federal Bureau of Investigation agents are working with U.S. prosecutors, is in its preliminary stage, and no information requests have been issued as of Nov. 4 in the afternoon, said the person, who declined to be identified because the matter isn’t public. The decision to begin the probe was made late Nov. 3 or Nov. 4, the person said, adding that reports of an earlier investigation were incorrect.
MF Global, which was run by Jon Corzine, a former New Jersey governor, filed for Chapter 11 bankruptcy after a $6.3 billion bet on the bonds of some of Europe’s most indebted nations prompted regulator concerns and a credit rating downgrade. Corzine, who once served as a Goldman Sachs Group Inc. co-chief executive, quit MF Global Nov. 4 and has retained a defense lawyer, according to another person familiar with the matter.
Officers and directors of MF Global’s brokerage unit MF Global Inc. are to be subpoenaed by a liquidator in a separate probe of possible misconduct related to customer accounts. U.S. Bankruptcy Judge Martin Glenn said at a Nov. 4 hearing in New York that brokerage trustee James W. Giddens can share documents and depositions with the Securities and Exchange Commission and the Commodity Futures Trading Commission.
The trustee must probe management’s possible involvement without interference from the parent company, Glenn said.
“There have already been serious allegations of misconduct,” Glenn said, citing company lawyers who told the SEC on Oct. 31, when the company filed for bankruptcy, that there was a significant shortfall in its collateral for segregated accounts.
J. Peter Donald, a spokesman for the FBI in New York, and Ellen Davis, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, declined to comment. The person familiar with the FBI’s MF Global probe didn’t specify its scope or focus.
Giddens said in a statement he will “closely examine” the company’s accounts at JPMorgan Chase & Co., a custodian for the brokerage, that allegedly contain missing money from MF Global. He said he knew of accounts at the bank and will try to “gain a full accounting” of them and other assets of MF Global, refraining from “putting an exact number on the apparent shortfall” until more facts are known, he said.
“Whether management was involved is clearly a proper subject for investigation, and the trustee must be able to investigate without interference from any party of interest,” Glenn said at the hearing.
MF Global’s commodity customer funds have a shortfall of $633 million, or about 11.6 percent, out of a segregated fund requirement of about $5.4 billion, according to the CFTC.
Asking Glenn to approve the subpoenas, Giddens said he needed to find out swiftly if fraud or misconduct led to the bankruptcy and what lawsuits he might bring to recover customers’ money.
The subpoenas grant the authority to demand documents and question the brokerage firm’s officers, directors, lenders and trading partners, according to the trustee’s court filing.
“In order for the trustee timely and efficiently to conduct a comprehensive investigation and fulfill his fiduciary and statutory duties, it is imperative that the trustee gain immediate and complete access to information,” he said in the filing.
Giddens is overseeing a wind-down of the brokerage under the Securities Investor Protection Act.
The trustee’s authority extends to anyone with relevant information about the company, including financial counterparties to its transactions. MF Global’s lenders include JPMorgan Chase & Co., as agent to a $1.2 billion loan and a $300 million loan to its brokerage, and Deutsche Bank AG. Jefferies Group Inc. underwrote the company’s $325 million bond offering in August.
Corzine, who joined MF Holdings in March 2010, is also an operating partner at J.C. Flowers & Co., an affiliate of one of MF Global’s largest shareholders. Corzine’s resignation was voluntary, and Corzine, 64, won’t seek severance pay, according to an e-mailed statement.
Corzine retained Andrew Levander, a partner at the law firm Dechert LLP, to represent him in the fallout from MF’s collapse into bankruptcy, according to the person, who declined to be identified because the matter isn’t public. Levander didn’t return an e-mail seeking comment.
Giddens said Corzine’s departure wouldn’t impede an orderly liquidation of customer assets and transfer of accounts that is in progress. Giddens said the company’s offices in New York and Chicago were being “secured” for forensic accountants as the probe began.
Other officers at the company include Bradley Abelow, president and chief operating officer since September 2010. Abelow, former chief of staff to Corzine during his tenure as New Jersey governor, oversees day-to-day operating and is directly responsible for risk, according to court papers. The company’s Chief Financial Officer since April 2011, Henri Steenkamp, was formerly its chief accounting officer and global controller since 2006. Before that, he was with PricewaterhouseCoopers, MF Global’s accountant.