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MF Global CEO Testifies About Missing $1.2 Billion

posted on December 16, 2011

MF Global CEO Testifies About Missing $1.2 Billion

Last week, the embattled former CEO of MF Global, Jon Corzine appeared before the House Agriculture Committee. This week, he continued his Congressional tour testifying before the Senate Agriculture committee about $1.2 billion of missing investor funds.

Sen. Debbie Stabenow, D-Michigan: “Where is the money from funds that were supposed to be kept separate, customer money?”

Jon Corzine, former CEO MF Global: “To trace missing funds, it will be necessary to analyze and reconcile multiple hundreds of pages of daily transactions, multiple bank statements from many countries, and to review account records of more than 38,000 customers.

While I was at MF Global, I would not have seen those records, and I have no access to them now.”

Corzine, a former Democratic U.S. Senator and governor of New Jersey, is accused of authorizing the illegal transfer of funds from investor accounts to shore-up company losses.  According to federal laws that have been on the books for 75 years, brokerages are required to keep customer funds separate from those belonging to the company. Investment firms are permitted to borrow from customer accounts temporarily but only within strict parameters.

Jon Corzine, former New Jersey governor: “I never directed anyone at MF Global to misuse customer funds. I never intended to. And, as far as I am concerned, I never gave instructions that anybody could misconstrue.”

Despite Corzine’s testimony he was unaware of any comingling of funds, the Executive Chairman of the CME Group, owners of the Chicago Board of Trade, told a different story.

Terrence Duffy, CME Group: “A CME auditor also participated in a phone call with senior MF Global employees, wherein one employee indicated that Mr. Corzine knew about the loans that it had made from the customer segregated accounts.”

In October, after MF Global announced it was in financial trouble and was rumored to be in the process of selling, auditors from both the CME Group and the Commodities Futures Trading Commission, or CFTC, paid the company an unannounced visit.  While initial reports indicated things seemed to be in order a $900 million accounting error was eventually discovered.

On October 31, MF Global collapsed. In the wake of the eighth largest bankruptcy in U.S. history, nearly 40,000 futures accounts were frozen locking up almost $5.5 billion.  USDA’s World Supply and Demand report was released not long after the firm was declared insolvent leaving many futures investors with the only choice of liquidating their positions and taking a loss. Among those on the losing side were several U.S. farmers and ranchers.

On Thursday, Corzine was again in front of a Congressional committee repeating he had no knowledge of an illegal transfer of funds.

Jon Corzine, former CEO MF Global: I did not instruct anyone to lend customer funds to MF Global or any of its affiliates."

Rep. Michael Capuano, D-Massachusetts "If you did anything wrong, the criminal investigators will find that, I won't. I'm trying to find out, and my concern is, the things that you were doing, by your own statement, nobody intended to misues anything. Again, I'm taking you at your word on that, the things you were doing are relatively common in the industry. So you were doing, at the time, at least as I read it, pretty much what everybody else was doing. My question, which I know won't be able to answer, who else is doing this and how much is at stake?"

 Rep. Steve Pearce, R-New Mexico: “We got rainmakers out in the dusty, barren, sand hills of New Mexico.  They drive around in pick-up trucks filled with 55 gallon drums brought out of the oil field, cleaned up, pour a few chemicals in, light 'em up create rain. It's not much different than what they do on Wall Street. Thank you, sir.”

Joining Corzine in the hot seat was MF Global’s chief operating officer Bradley Abelow.

Bradley Abelow, COO MF Global:  “I know this committee is interested in finding out what amount of segregated client funds went missing in the final days, how it happened, where those funds are, and what might eventually be returned to the firm’s clients. I am deeply troubled by the fact that customer funds are missing, and I can assure you that I share your interest, and the public’s interest, in finding out exactly what happened. At this time, however, I do not know the answers to those questions.”

According to the financial news network CNBC, Corzine was served with papers for a lawsuit during a break in the proceedings. The suit filed by an MF Global client that had $210 million invested with the defunct company.

CFTC officials say account holders will be reimbursed for more than 70 cents on-the-dollar. The whereabouts of the missing $1.2 billion, however, remains a mystery.

Tags: Capuano CME Group commodity fund Corzine Jon Corzine MF Global Pearce Terrence Duffy