A former executive at the center of the MF Global meltdown appeared before Congress on Wednesday to answer questions from lawmakers. Members of the House Financial Services Committee were hoping assistant treasurer Edith O'Brien would shed some light on the actions of the firm's CEO, ex-New Jersey Gov. Jon Corzine.
But O'Brien took the Fifth instead, and her former colleagues at the firm pleaded ignorance about what happened.
O'Brien has recently been at the center of the MF Global scandal because of the role she played in the transfer of $175 million to cover an overdraft. It happened during the hectic last few days before the firm's bankruptcy; lawmakers are trying to determine whether the funds came from customer accounts.
Invoking The Fifth Amendment
Such a move violates federal regulations, which require firms to erect a kind of firewall between their funds and those of their customers. But any hope that O'Brien would talk about what happened evaporated right away.
"On the advice of counsel, I respectfully decline to answer based on my constitutional rights," she said.
O'Brien's decision to take the Fifth was a letdown to lawmakers, in part because of an email she wrote to her staff when she authorized the transaction. In the subject heading she wrote "Per JC's direct instructions," an apparent reference to Corzine.
The email appears to refute claims by the former Democratic senator that he didn't know about the transaction. Rep. Randy Neugebauer,R-Texas, chairman of the subcommittee holding the hearing, dismissed her regretfully.
"I'm disappointed, and because of your answer, because I believe you have important knowledge, and I hopeful that at some point in time you'll reconsider and come back and testify before this committee," he said.
'Run On The Bank'
With O'Brien gone, the lawmakers focused their questions on three other MF Global executives who had agreed to testify. But none of the three had much to add to what's known.
Chief financial officer Henri Steenkamp said that the week before the bankruptcy was a tumultuous time. The firm was being downgraded by ratings agencies and could no longer borrow the money it needed to survive.
"We experienced in those last couple of days significant liquidity stress, what one would call not too dissimilar on the Thursday and Friday as a run on the bank," he said.
Steenkamp said he was deeply saddened by the money the firm's investors lost. But he said that as the global CFO, he wasn't deeply involved in financial transactions originating in the firm's Chicago office. He also said he didn't know about the use of customer funds until it was far too late to do anything about it.
'Billion Dollars Missing'
Christine Serwinski, chief financial officer of the brokerage unit, said she was away on vacation when the meltdown happened. As the crisis intensified, she decided to come back early, but she didn't learn how much money was missing until the last minute.
"I dove into the accounting with my team, believing that this must be an accounting error because such a large deficit was simply inconceivably to me," she said.
There was the same refrain from general counsel Laurie Ferber, who told the subcommittee, "Obviously there was a terrible failure here of some kind, but what it was I don't know."
By the end of the hearing, the carefully couched words and polite evasions left lawmakers fuming. Rep. Michael Capuano of Massachusetts, one of the few Democrats to take an active role at the hearing, said the testimony reminded him of the time when three top Enron executives appeared before the committee.
"I told them exactly what I'm going to tell you. They said OK none of you did it. Apparently none of you did anything wrong, but there's a billion dollars missing," Capuano said.
Whatever the truth about MF Global, it seems unlikely to emerge from public hearings. But the investigation is by no means over. All three of the witnesses who testified Wednesday said they had been contacted by the Justice Department, which is now trying to determine what happened.