Corzine: 'I Simply Do Not Know Where The Money Is'

Jon S. Corzine defended his tenure as chief executive of MF Global HoldingsLtd. before a House committee, but couldn't explain an estimated $1.2 billion in missing customers' money.

Visibly tense in the politically charged hearing, Mr. Corzine, 64 years old, on Thursday told the House Agriculture Committee that he has been "devastated by the enormous impact on many peoples' lives" caused by MF Global's collapse.

Pressed for an answer as to what could have happened, he said it was possible, though unlikely, that underlings might have misunderstood an order and mistakenly dipped into customer funds. Mr. Corzine said he still expects that the money eventually will be found and recovered."I simply do not know where the money is," he said in response to questions from the panel, noting that "there were an extraordinary number of transactions during MF Global's last few days" and that he didn't know everything that was going on.

Mr. Corzine resigned as MF Global chairman and chief executive days after the firm's Oct. 31 bankruptcy filing. Speaking in a deep, raspy voice, the former New Jersey senator and governor and Goldman Sachs Group Inc. chairman appeared as befuddled by what had happened to his firm as the regulators who have been attempting to resolve the matter for more than a month. It was his first public appearance since the firm's collapse.

As counterparties and clients grew nervous about MF Global's financial strength, they pulled money out of the firm. That triggered a fatal crisis of liquidity. Referencing an Oct. 17 Wall Street Journal article reporting that regulators had been concerned about MF Global's balance sheet over the summer, Mr. Corzine said "the marketplace lost confidence in the firm."Frequently stroking his trademark beard and fumbling with his prepared testimony, Mr. Corzine argued that MF Global was felled not by its $6.3 billion bet on European debt, but rather by a sudden lack of confidence in its balance sheet by the broader market in October.

Mr. Corzine said he first learned of the missing money at about 10 p.m. Sunday, Oct. 30, as the firm was attempting to close a deal to sell assets to Interactive Brokers Group Inc. He said that he was "stunned" when he learned of the shortfall and that his first response was to tell his staff "go back and check your work."

Investigators believe that MF Global, in the week before it filed for bankruptcy protection, moved funds from the customer accounts to its broker-dealer operations, which handled the European-bond bet, according to people familiar with the matter. Futures firms such as MF Global are prohibited from using customer cash in their own accounts, according to the Commodity Exchange Act. The Federal Bureau of Investigation is currently investigating the firm's collapse.

After leaving the hearing room, Mr. Corzine told reporters that "it's been a long day."When Mr. Corzine was asked Thursday about whether customer money was moved, he answered the question indirectly, saying: "I never intended to break any rules." A few seconds later, he gave a slightly more specific response, saying that he didn't intend to direct customer money out of segregated accounts.

Several exchange representatives also testified at the hearing, including CME GroupInc. Executive Chairman Terrence Duffy. Mr. Duffy disclosed in testimony new details about MF Global's final days.

CME auditors learned from the Commodity Futures Trading Commission on Oct. 30, one day before the bankruptcy filing, that a draft segregation report provided to the CFTC on Oct. 28 showed a $900 million shortfall in customer funds. MF Global had said the shortfall was caused by an "accounting error," according to Mr. Duffy. Throughout the rest of the day and that night, CME auditors and the CFTC worked with MF Global to discover the error.

After finding that the shortfall wasn't an error, MF Global told the CFTC and CME that "customer money had been transferred out of segregation to firm accounts," Mr. Duffy said.

Some representatives of former MF Global customers and employees said they didn't think Mr. Corzine's explanations were sufficient and that he should be held responsible for the loss of money.

"He should legally be responsible for any shortfall to people that were harmed by his excessive risk-taking," said Jacob Zamansky, a lawyer representing former MF Global employees in a lawsuit against the company, its board and Mr. Corzine. Mr. Zamansky said that Mr. Corzine's statement that he was stunned by the shortfall "is either not believable or he was really negligent."

Mr. Corzine defended his decision to invest in sovereign bonds of troubled European countries including Italy, Spain and Portugal. The bet grew to more than $6 billion in a strategy that was repeatedly discussed by the company's board.

Mr. Corzine said that on Aug. 15, 2011, he met with officials from the Financial Industry Regulatory Authority and the Securities and Exchange Commission in Washington to discuss the European bet. Several days later, MF Global was told that it needed to raise capital to support its positions.

Mr. Corzine also defended the firm's books and records, which he said deteriorated amid a run on the bank in its final days that put MF Global "under severe pressure." Regulators have struggled to untangle the firm's records, which they have described as "a disaster." In its last week, MF Global wasn't recording its trades in the firm's general ledger, according to people familiar with the matter, making it difficult to trace the missing funds.

CFTC member Jill Sommers testified on an earlier panel at the Thursday hearing. She took on oversight of the agency's investigation into MF Global after CFTC Chairman Gary Gensler, who had worked with Mr. Corzine at Goldman Sachs, recused himself to avoid a possible appearance of conflict of interest.

"While our current focus is returning as much money as possible to customers, we are expending an enormous amount of effort to locate the missing customer funds and pursuing the enforcement investigation," Ms. Sommers said.

http://online.wsj.com/article/SB10001424052970203413304577085953794621344.html?mod=WSJEurope_hpp_LEFTTopStories


Found this article in wall street journal :europe.