RPT-Former MF Global CFO under scrutiny over conflicting statements

Fri Jun 8, 2012 6:51pm IST

* CFO Steenkamp said he knew little about missing funds

* Trustee report shows Steenkamp closely involved

* Email shows Steenkamp worried about customer funds

* Rep. Neugebauer said looking at any "inconsistency"

By Aruna Viswanatha

WASHINGTON, June 8 (Reuters) - When Henri Steenkamp, MF Global's chief financial officer, appeared before two congressional panels about the firm's collapse, he said he was in the dark over how some $1.6 billion in customer funds went missing.

But a report from the bankruptcy trustee filed this week paints a different picture of an executive closely involved as the firm's liquidity was stretched and it began tapping into customer accounts to help fund operations.

Congressional investigators have flagged the discrepancies and said they plan to examine them further.

"We're looking closely at all aspects of the MF Global collapse ... We'll be paying close attention to any apparent inconsistency in Mr. Steenkamp's testimony," said Republican Representative Randy Neugebauer.

Steenkamp has been a central figure for lawmakers and investigators such as the Justice Department and the Commodity Futures Trading Commission who are probing why the firm imploded and left hundreds of farmers and traders without access to funds they thought were safe at the commodities brokerage.

A lawyer for Steenkamp did not respond to multiple attempts to reach him for comment. In April Steenkamp said his lawyer had offered a "proffer" to investigators, which describes information a witness could offer. The status of that proffer is unclear.

An examination by Reuters of the contrasts between Steenkamp's sworn testimony and internal company emails included in the trustee report show a series of stark differences.

Experts said any testimony from Steenkamp was unlikely to rise to the level of perjury. But it does get him unwelcome attention at a time when he is handling investigators' questions about his role at the collapsed firm.

At a December hearing, Steenkamp told lawmakers he "had no knowledge that customer funds were transferred into the broker-dealer" until the day before MF Global filed for bankruptcy on Oct. 31, and it was not part of his job to be "involved in the process of client funds", according to a transcript of the hearing.

"I did not authorize, approve or know of any transfers of customer funds for any house or broker/dealer purposes," he said.

But in an email on Oct. 6 Steenkamp worried that the firm's broker dealer unit was relying too heavily on extra funds in an account holding customer assets. He told MF Global's then CEO, Jon Corzine, and other executives at the firm that they needed to address the issue of dipping into those funds every day since they were "volatile" and "unreliable".

" e need to address ... the situation of our broker-dealer that is currently unable to fund itself, and more worrying ... having us dip into FCM excess every day. This should be temporary but is becoming permanent," he wrote, according to the trustee report.

FCM refers to MF Global's "futures commission merchant", or its commodities broker unit.

The trustee, James Giddens, said on Monday that he believed there may be grounds to sue Steenkamp and other MF Global executives for breach of fiduciary duty and negligence.

The contrasting descriptions of events could also prompt new Congressional hearings into the matter.

Ben Becker, a spokesman for the Senate Agriculture Committee, which heard testimony from Steenkamp in December, said: "If false testimony was delivered to a congressional panel while under oath, that is a serious offense. The committee will examine any cases of potential wrongdoing and plans to hold additional hearings to continue its probe into the collapse of MF Global."

MF Global collapsed in late October after investors and customers became rattled over the firm's $7 billion bet on European sovereign debt and downgrades by credit rating agencies, resulting in a liquidity crunch.

In his 275-page report released this week, Giddens, the trustee liquidating the company's broker-dealer unit, portrayed a firm desperate to plug holes as MF Global's liquidity situation deteriorated.

OVERNIGHT "LOANS"

When Neugebauer, at a March hearing before a House Financial Services panel, asked Steenkamp whether managing the company's liquidity was something he was involved in, Steenkamp sidestepped the question.

"Sir, there were many things going on at that point in time," he said.

As Neugebauer asked two more times and told Steenkamp "this is not rocket science here", Steenkamp responded that he was only looking at liquidity "on a global consolidated basis" and was not focused on what was happening in Chicago, where MF Global's commodities broker operations were based.

But Steenkamp's name appears on emails described in the report that detail liquidity issues involving Chicago operations.

On one email two weeks before the company collapsed, for example, a treasury official told Steenkamp that liquidity was so strained that the broker-dealer would be relying upon a $16 million buffer in customer accounts.

That buffer appeared to include a portion of the funds that would go beyond a dollar-for-dollar calculation of what MF Global would be required to hold, the trustee said.

Steenkamp's involvement in trying to address liquidity issues may not have been limited to the final weeks of the firm.

In July 2011, for example, he asked the CFO of MF Global's broker-dealer unit to review customer accounts to consider whether $250 million could be "loaned" overnight on a regular basis to support operations in New York.

He reviewed the data and recommended tapping the accounts below a threshold designed to fully protect the customer funds.

At the March hearing, Neugebauer repeatedly pressed Steenkamp on how hands-on he was with the money transfers.

As Steenkamp repeatedly said he didn't know about the transfers, Neugebauer told him: "I am appalled that you can't answer a simple question ... I think you're not being honest with this panel."

Congress has held multiple hearings and most of the executives called to testify, including former New Jersey governor Corzine, submitted themselves to hours of public questioning, under oath. Only former Assistant Treasurer Edith O'Brien, who was involved in many of the money transfers being scrutinized, invoked her constitutional right against self-incrimination.

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