Independent counsel sought for MF Global probe

By Jonathan Stempel, Nick Brown and Aruna Viswanatha

(Reuters) - A U.S. congressman is pressing for the appointment of an independent counsel to take over a federal criminal probe into the collapse of the MF Global Holdings Ltd (MFGLQ.PK) brokerage firm.

Michael Grimm, a first-term Republican congressman from New York City and member of the House Financial Services Committee, has circulated to colleagues a proposed letter that would ask U.S. Attorney General Eric Holder to step aside.

The move comes roughly six months after a bankruptcy filing by MF Global, which had been run by former Democratic U.S. Senator and New Jersey Governor Jon Corzine.

Customers are still waiting for the return of money that disappeared from their accounts as the firm sank, as the trustee for MF's broker-dealer unit, James Giddens, leads efforts to track and recover it.

Giddens has estimated the gap at around $1.6 billion. A dispute between Giddens and MF Global's UK unit over the rights to about $700 million became the subject of litigation in the UK on Thursday.

CONFLICT OF INTEREST?

In a report in February, Giddens said the shortfall in customer funds was caused by the improper commingling of customer money with corporate funds, but it gave no indication as to whether the mixing was intentional.

Sources have told Reuters, meanwhile, that the Justice Department and other investigators, including the FBI, have not found clear evidence of criminal intent by Corzine or other MF Global leaders.

But Grimm's letter suggests that Corzine's ties to Washington, including with "highly placed individuals" in the government who are "very close" to the U.S. Department of Justice probe, warrant the appointment of an independent counsel.

Federal law authorizes such an appointment when a Justice Department probe "may result in a personal, financial or political conflict of interest," the letter said. "Clearly the case of MF Global and Mr. Corzine falls under this section."

Grimm hopes to gain broad bipartisan support for his letter before sending it to Holder next week, a spokeswoman for the congressman said on Thursday.

The Commodity Customer Coalition, an advocate group for former MF Global clients, supports the effort to push the DOJ aside as customers remain without full access to their money.

"There's 38,000 MF Global customers still missing property," James Koutoulas, the coalition's leader, told Reuters. "I don't think the DOJ is going to go up against one of the president's biggest bundlers without an independent counsel being appointed."

Coalition members, including Stanley Haar, an adviser whose clients had about $10 million tied up in MF Global, had met with congressmen and their staffs in hopes of gaining support for an independent prosecutor.

"We tried to play an information role," Haar said. "We felt like, once congressmen and others were presented with a clear picture of the facts, like anyone else, they'd see signs of cronyism and favoritism."

While there is "no direct evidence" that anyone is getting special treatment in the MF Global probe, "perception matters," Grimm's letter said.

Randall Samborn, a Justice Department spokesman, declined to comment. Andrew Levander, a lawyer for Corzine, also declined to comment.

Rep. Randy Neugebauer, a Texas Republican who chairs the House Financial Services subcommittee investigating MF Global's collapse, has not signed Grimm's proposed letter, a person familiar with the matter said on Thursday.

Rep. Michael Capuano, the ranking Democrat on the House Financial Services subcommittee, has not been contacted about signing the letter, according to his spokeswoman.

Before joining the House of Representatives, Grimm had been an FBI agent for 11 years.

MOUNTING LITIGATION

MF Global officials including Corzine have been hit with many lawsuits by former customers and shareholders.

Congress has also heard testimony from Corzine and other officials, including from the company's main bank, JPMorgan Chase & Co (JPM), about MF Global's last days before its October 31, 2011, bankruptcy.

Corzine testified that he did not order anyone to withdraw money from customer accounts, and did not know where the missing funds were.

Giddens last month said he is considering civil lawsuits against individuals who may have played a role in the misuse of customer funds, but did not reveal whether Corzine would be a target.

Litigation is expected to comprise a substantial portion of Giddens' efforts to return money to customers. On Thursday, he announced that a court action had commenced in Britain over a dispute between Giddens and the company's UK arm pertaining to about $700 million.

Giddens has said the money belongs to U.S. customers trading on UK exchanges, and should be returned to them. The sides reached an impasse in April after months of negotiations.

The legal issue is over whether the money was or should have been segregated for customers under English law.

In his statement, Giddens said he will press for a speedy court process, but acknowledged the matter will necessitate "robust" discovery and many hearings.

In the liquidation of Lehman Brothers' LEM.MX broker-dealer, which is also led by Giddens, similar disputes remain ongoing after more than three years.

(Additional reporting by Grant McCool in New York; Editing by; Maureen Bavdek, Gary Hill and Steve Orlofsky)

View the original article here

AP source: Watchdog suggests criminal probe of GSA

WASHINGTON (AP) -- A top official of the General Services Administration, already on leave for his role in lavish agency spending, has been referred to the Justice Department for a potential criminal investigation, a congressional committee official said Friday.

Whether the referral was directly connected to the activities of the GSA executive, Jeffrey Neely, in an $823,000 GSA spending spree for a 2010 conference at a Las Vegas resort wasn't known, the committee official told The Associated Press. The official was not authorized to publicly discuss the referral and requested anonymity.

Neely, a senior executive at the GSA, was placed on leave by the agency's new management from his job as regional commissioner of the Public Buildings Service for the Pacific Rim. He was largely responsible for the Las Vegas conference.

Neely's attorney, Robert DePriest, did not immediately comment.

GSA Inspector General Brian Miller has told several congressional committees investigating the agency that there have been criminal referrals.

An internal government memo released Friday shows officials of the GSA were aware of a spending problem months before the scandal burst into public view this month.

The GSA's deputy administrator, Susan Brita, emailed agency officials last July that the inspector general found no substantive agenda for the conference. She said that expenses for a clown suit, bicycles used for a team-building exercise, tuxedos and a mind-reader didn't lend themselves to the claim of a substantive conference.

Brita also questioned why a regional administrator in charge of the conference received only a disciplinary letter that "is not even a slap on the wrist."

A major concern in the memo was how The Washington Post, with thousands of readers who are federal employees, would report the story.

A GSA spokesman declined to comment, saying the agency preferred to let the email speak for itself.

The email was sent to Robert Peck, then the head of the GSA's Public Building Service, with copies to his deputy, David Foley, and another top agency official, Stephen Leeds.

Peck and Leeds were fired after the inspector general issued a stinging report earlier this month on the cost of the conference to taxpayers.

GSA administrator Martha Johnson resigned in the wake of the report. Eight GSA employees have been placed on administrative leave, including Foley. He is seen in a conference video giving an award to an employee who produced a rap video bragging about the conference spending.

The email by Brita, who remains at GSA, was made public by the House Oversight and Government Reform Committee, which will conduct the first of four hearings on GSA's spending practices next week. The agency is in charge of federal buildings and supplies, and part of its mission is to save taxpayers money.

"The Obama administration has not been upfront with the American people about how long they've known about lavish spending abuses at GSA," said the committee chairman, Rep. Darrell Issa, R-Calif.

"It's clear that they were fretting about the political consequences and preparing for media scrutiny on abuses many months ago, but didn't seem to take real actions until the release of the inspector general's report couldn't be delayed any longer," Issa said.

Brita wrote that a letter to Neely "should be crafted with a WAPO (Washington Post) mind frame." She said she had no doubt the Post would connect the lavish conference spending to a period of high unemployment and a down economy. She wondered what the reaction to the story would be from the public and Congress, and questioned how GSA's political leadership would respond.

"Jeff is a seasoned SES (senior executive service employee) who is expected to display the highest standards of common sense, and prudent financial management," she wrote Peck.

"He did neither. Sorry, but your letter is not even a slap on the wrist," she wrote.

View the original article here