Tags: Corzine | MF | Global | funds

Corzine Says He Didn’t Order Misuse of Client Funds at MF Global

Tuesday, 13 Dec 2011 02:46 PM

 

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Jon S. Corzine, the former chairman and chief executive officer of MF Global Holdings Ltd., told lawmakers he “never gave any instructions to misuse customer funds” and did not give orders that could be misconstrued.

Corzine made the comments today at a Senate Agriculture Committee hearing in Washington, aiming to elaborate on remarks at a House Agriculture Committee hearing last week.

At the earlier hearing before the House panel, Corzine left open the possibility that transfers of funds out of client accounts might have been a misinterpretation of his intent by company officials.

Today, Corzine said he had never said anything regarding the use of customer funds that could be misunderstood.

“As far as I’m concerned I never gave instructions that anybody could misconstrue,” he said. “Until Sunday night before the bankruptcy I believed the people and systems at MFGlobal were protecting customer funds.”

Corzine said JPMorgan Chase & Co. contacted him about an overdraft of funds before the New York-based broker filed for bankruptcy. He said he had “no personal knowledge” of the overdraft issue when JP Morgan contacted him before the bankruptcy filing.

Two other top executives MF Global Holdings Ltd. also told the panel that they didn’t know what happened to as much as $1.2 billion in client funds that went missing in the days before the New York-based brokerage filed for bankruptcy.

Still Missing

Henri Steenkamp, chief financial officer of MF Global, and Bradley Abelow, the firm’s president and chief operating officer, said during the hearing that they still doesn’t know the location of the funds.

“I do not know why these funds cannot be accounted for, but based on the fact that no shortfalls had been reported to me previously, it appears that any irregularities were likely caused by events that occurred shortly before the bankruptcy filing,” Steenkamp said.

Senator Debbie Stabenow, the Michigan Democrat who chairs the agriculture panel, began the hearing by saying that the lack of answers about the missing money raised “very troubling questions.”

“This isn’t the Dark Ages,” she said in opening remarks. “MF Global didn’t keep their books with feather quills and dusty ledgers. The rules about keeping customer money segregated are pretty straightforward.”

Lawmakers have joined regulators including the U.S. Commodity Futures Trading Commission, Securities and Exchange Commission and U.S. Justice Department in probing the collapse.

Three Panels

The Senate panel is the second of three congressional committees to hold hearings this month to probe the collapse of MF Global, which filed the eighth-largest U.S. bankruptcy on Oct. 31. Corzine, who testified last week under oath, is also scheduled to appear under subpoena from the House Financial Services oversight and investigations subcommittee on Thursday.

MF Global sought bankruptcy protection less than a week after reporting a quarterly loss of $191.6 million for the three months through Sept. 30. Credit-raters including Moody’s Investors Service subsequently downgraded MF Global, citing concerns about the firm’s ability to generate profits as well as its exposure to European sovereign debt.

Interactive Brokers Group Inc. decided against purchasing MF Global on the weekend before the bankruptcy after learning of missing client funds. James Kobak, a lawyer for the trustee, said last week that investigators have discovered “suspicious” transactions in the days before the company filed for bankruptcy.

At the hearing, senators said they expected to hear answers about the missing money.

‘Legal or Illegal’

“Funds don’t simply disappear” Roberts said. “Someone took action, whether legal or illegal, to move that money.”

CME Group Inc., the world’s largest futures exchange and auditor of MF Global, didn’t find problems in the segregated accounts for Oct. 26. Transactions with client funds may have occurred after the audit and may “have been designed to avoid detection,” CME said in a statement last month.

Terrence Duffy, executive chairman of CME, Giddens and Jill E. Sommers, the senior CFTC commissioner overseeing the investigation, are also scheduled to testify.

In his testimony, Steenkamp said he didn’t have direct involvement in managing accounts and fund transfers at the firm. Handling customer funds was part of the treasury and treasury operations divisions in the firm, he said.

No ‘Direct’ Involvement

“Upon my becoming CFO, treasury operations continued to report to the head of global operations,” Steenkamp said. “Direct involvement with operational matters such as bank accounts or fund transfers has never been part of my duties.”

Steenkamp said he isn’t participating in current efforts to find the missing money.

Stabenow and Senator Pat Roberts, a Kansas Republican, said they were concerned that the MF Global meltdown and the loss of customer funds could have a long-term negative effect on the futures market.

“Our farmers and ranchers have lost trust in the system,” Stabenow said. “They believed that there were safeguards in place to protect their money in exactly this situation.”

Farmers and other agricultural producers whose funds are tied up in the MF Global bankruptcy testified on the first panel of witnesses.

“We expect to be made whole and have all of our funds returned to us in a timely manner so that the integrity of the exchange can be restored,” said Roger Hupfer, a grain-elevator operator from Freeland, Michigan.

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