Corzine to face questions about regulator contacts

  By DANIEL WAGNERWASHINGTON -- Jon Corzine's third congressional grilling about MF Global's failure will likely examine his contacts with regulators and a fresh allegation about his role in the disappearance of clients' money.

Corzine is set to appear Thursday afternoon before the House Financial Services Oversight and Investigations Subcommittee, a Republican-led panel known for aggressive questioning. It's his first public appearance since a financial-exchange executive alleged Tuesday that Corzine knew more than he's admitted about the firm's transfer of client money in its final days.

About $1.2 billion of customer money was unaccounted for when MF Global collapsed in late October, becoming the eighth-largest bankruptcy in U.S. history. Lawmakers, regulators and law enforcement officials are trying to find out what happened to the money.

Corzine, a former Democratic New Jersey senator and governor, resigned as CEO of MF Global last month.

In his two previous Capitol Hill appearances, Corzine said he never told anyone to "misuse" customer money. He learned about the shortfall in customer accounts late on Oct. 30, the day before the bankruptcy filing, Corzine insisted.

CME Group Inc. Executive Chairman Terrence Duffy told a Senate panel Tuesday that Corzine might have known about a transfer of $175 million from customer accounts earlier than that. CME Group operates exchanges on which MF Global traded. It also was responsible for auditing some of MF Global's books.

According to Duffy, an MF Global employee told a CME auditor that "Mr. Corzine was aware" of the transfer. Duffy said he referred the matter to the Justice Department and the Commodity Futures Trading Commission. Both are investigating MF Global's failure and the disappearance of the customer money.

If true, Duffy's accusation would raise the possibility that Corzine misled Congress about when he learned that client money was missing.

The transaction Duffy described wasn't necessarily illegal.

Brokers such as MF Global are allowed to borrow from customer accounts temporarily in some circumstances - to reduce their own risk, for example.

But such cases are a narrow exception. A firm couldn't use customer money to pay trading partners if its speculative trades lost value. Even in cases where borrowing clients' money was legal, the firm would have to replace it with a safe, cash-like investment such as a U.S. Treasury security.

Legal experts say it's hard to imagine how that would apply to the alleged MF Global transaction: a "loan" to an overseas affiliate.

"Whose money are they loaning?" asked Felix Shipkevich, an attorney and expert in the regulation of firms such as MF Global.

"Is it the parent company loaning money to the foreign subsidiary, or are they taking money out of client accounts?"

If the money was from client accounts, Shipkevich said, the loan probably was illegal.

Duffy will likely be asked to elaborate on his accusation. He made the assertion Tuesday after Corzine had departed from the hearing. On Thursday, he will testify after Corzine has had a chance to respond.

The subcommittee also plans to ask Corzine whether he used his relationships with regulators to gain advantages for MF Global.

Corzine has been a major fundraiser for Democrats. He was co-chairman of Goldman Sachs Group Inc. In that role, he worked with two other Goldman executives at the time: Gary Gensler, now chairman of the CFTC, and William Dudley, now president of the Federal Reserve Bank of New York.

Gensler has recused himself from the investigation because of his long history with Corzine. Neither he nor Dudley is scheduled to testify. Top lawyers from the CFTC and New York Fed will appear instead.

Along with other Wall Street executives, Corzine lobbied Gensler and his staff last summer against a possible CFTC rule that would limited how their firms can invest clients' money. Afterward, the CFTC delayed adopting the rule until earlier this month.

Early this year, the Federal Reserve allowed MF Global to join an elite group of 22 dealers that help the government sell Treasury securities. The Fed did not assess MF Global to see if it was taking on too much risk. Instead, Fed officials relied on oversight by the CFTC and the Securities and Exchange Commission.

The role of primary dealer conferred on MF Global a seal of financial strength. It gave the firm a competitive edge and likely lowered the interest it was charged to borrow, noted Janet Tavakoli, an expert on the markets that MF Global occupied.

"You participate in Treasury auctions, and being able to sell them, and of course you make money on that," Tavakoli said.

Because the Fed doesn't regulate its primary dealers, she said, "they should take all the more care in awarding the primary dealer status."

Given MF Global's size and past run-ins with regulators, Tavakoli said, "it's inexplicable that MF Global got their primary dealer status."

Corzine is set to appear alongside MF Global's president and chief operating officer, Bradley Abelow. At Tuesday's Senate committee hearing, Abelow said he didn't recall "any conversation about customer funds being used for anything other than their intended purpose."

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Prosecution questions janitor accused of killing priest

Web produced by Jennifer Matarese, Eyewitness NewsMORRISTOWN, N.J. (WABC) -- More testimony in the trial of a church janitor charged with killing a New Jersey priest.

He says he did it to end the abuse, but prosecutors tried to prove otherwise with some telling evidence.

"Is this the knife you Fr. Hinds with, telling him he wasn't going to fire you?" Prosecutor Robert Bianchi asked.

Prosecutor Robert Bianchi Wednesday questioned Jose Feliciano about his two versions of why he says he fatally stabbed Fr. Edward Hinds.

His story to police: "You told Capt. Paul he fired you because you wanted to end the sex, you went crazy. True?" Bianchi asked.

"Yes," Feliciano said.

And what he told the jury.

"You told them Fr. Ed said you were being fired for parish reasons," Bianchi said.

The prosecutor suggesting an entry on Fr. Hind's calendar forced Feliciano to change his story.

Father Hinds had written: 9:45 a.m., Jose last day.

"Did it change because it shows he decided to fire you long before you saw him at 5:00?" Bianchi asked.

Father Hinds was brutally stabbed to death inside the rectory of St. Patrick's Catholic Church in Chatham in 2009.

Feliciano faces 15 years to life if he is convicted.

(Copyright ©2011 WABC-TV/DT. All Rights Reserved.) Get more New Jersey News »

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Monitor questions handling of NJ child death case

  By SAMANTHA HENRY and GEOFF MULVIHILLNEWARK, N.J. -- The state's child welfare system has made significant improvements, a federal monitor and a judge said Monday, despite new revelations about an anonymous tip to an agency hotline in May that went uninvestigated, nine days before an 8-year-old girl was found dead in her home from starvation and abuse.

Judith Meltzer, the court-appointed monitor assigned to report on a seven-year effort to overhaul the state's child welfare system, said she hoped the way the tip was handled was "an aberration."

Christiana Glenn was found dead in her Irvington home from malnutrition and an untreated broken leg. Her two young siblings were removed from the home, injured and severely malnourished.

The children's mother, Venette Ovilde, 30, pleaded not guilty to aggravated manslaughter and endangering the welfare of a child. Her roommate, Myriam Janvier, 23, has pleaded not guilty to child endangerment.

At the time of the death, the Department of Children and Families reported it had had four contacts with the family, the most recent in 2008. On each occasion, the agency found abuse complaints to be unfounded, with the children enrolled in day care, eating properly and receiving medical checkups. The family's file was closed.

Shortly after that, neighbors and relatives said, Ovilde underwent a religious transformation, began fasting and keeping her children out school and public view.

Late Friday, the agency disclosed that an anonymous phone call had been made to a tip line on May 13, nine days before Christiana was found dead. The initial log of the call said it came from a person reporting "concern about the appearance and wellbeing of two unknown children" at the same address where DCF previously had the open case on the family. The call went uninvestigated.

On Monday, at a court hearing on the status of the state's overhaul of the child welfare system, more details emerged about what the caller reported.

Agency Commissioner Allison Blake said she had listened to a recording of the call, in which a man speaking in heavily accented English said he was very concerned about the height, weight and well-being of two previously unseen young children that seemed so emaciated, their mother had to carry them.

The worker, who Blake said has been reassigned, recorded the call as "information and referral, requiring no response by (the) field."

The federal monitor was assigned to watch the state agency after a 2003 case in which four boys were found starving in Collingswood, prompting a lawsuit by children's advocates that lead to the state agreeing to overhaul its child welfare system.

"This is not an agency that has gone into a bunker mentality to try and avoid what happened," said U.S. District Judge Stanley Chesler, commenting on Christiana's death. "Nothing can ever bring this child back, but what the court hears is an agency committed to making sure it never happens again."

Meltzer's report, issued Monday, cited many areas where New Jersey's reforms are working, but found that cases are frequently closed before there are proper safety and risk-of-harm assessments done for the families the department investigates.

The state had a target of having the assessments completed within 30 days before closing 98 percent of its cases. But Meltzer's report found that there were risk assessments done in only 31 percent of the cases it closed and safety assessments in 22 percent.

She said the risk assessments were properly done in the Glenn case. She said the fact the children were apparently homeschooled in that case meant they would not have had access to the place where most suspected abuse is flagged.

Meltzer said New Jersey should overhaul its home-schooling regulations to include requirements like yearly pediatric checkups - as it's one of only 10 states where families are not required to tell school officials when they home-school their children.

The report from Meltzer, who is also deputy director of the Washington-based Center for the Study of Social Policy, found the state is doing well at recruiting foster families, keeping siblings together when they're removed from a home, training its staff, and in other areas.

The report is based on data and interviews covering 2010. It does not directly address Christiana's death, but that was the focus of a large part of Monday's hearing.

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Mulvihill contributed from Haddonfield, N.J.

(Copyright ©2011 by The Associated Press. All Rights Reserved.)
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