Bloomberg News

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

December 16, 2011

(Updates with MF Global treasury office beginning in the sixth paragraph, “break the glass” plan in 14th paragraph.)

Dec. 13 (Bloomberg) -- 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 didn’t give orders that could be misconstrued.

Corzine made the comments today at a Senate Agriculture Committee hearing in Washington where lawmakers questioned him and two other top MF Global officials about the whereabouts of as much as $1.2 billion missing from customer accounts.

At a hearing last week before the House Agriculture Committee, 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 have been 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 MF Global were protecting customer funds.”

Corzine suggested that investigators should look at the company’s treasury office, which was in charge of ensuring that customer funds were used in accordance with federal regulations.

“The people who headed that are probably closest to the scene of the action,” he said.

Treasury Operations

Corzine named Christine Serwinski, the company’s chief of operations for North America, as someone in charge of that department, but said she had been on vacation during the final days of MF Global.

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

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 don’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, a Michigan Democrat and chairwoman of the agriculture panel, began the hearing by saying that the lack of answers about the missing money raised “very troubling questions.”

‘Dark Ages’

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

Senator Pat Roberts, a Kansas Republican, questioned Corzine, Steenkamp and Abelow about a “break-the-glass” contingency plan the company drafted in August or September in the event of an eventual liquidation.

The plan required the company to perform daily calculations of customers’ segregated funds, according to a person with direct knowledge of the plan, who declined to be identified because the plan is private. MF Global would draw down on revolving credit lines, demand collateral from clients and then liquidate more difficult financial positions, according to the person.

Lost Liquidity

The plan was a simulation of what would occur if the company lost liquidity and never went into operation, Abelow said under questioning. “The next step in that plan was to develop an operational plan,” he said. “I do not believe one was ever developed.”

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.

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.

‘Suspicious’ Transactions

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.

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 Roberts said they were concerned that the MF Global meltdown and the loss of customer funds could have a 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.

--With assistance from Lorraine Woellert in Washington and Cristina Alesci in New York. Editors: Maura Reynolds, Gregory Mott.

To contact the reporter on this story: Silla Brush in Washington at sbrush@bloomberg.net; Clea Benson in Washington at cbenson20@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net


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