In a halting and nearly hoarse delivery, an apparently humbled Jon Corzine, the former chairman and CEO of the now bankrupt MF Global, testified Thursday before the House Agriculture Committee, saying “I apologize both personally and on behalf of my company” for both MF Global’s failure and for the nearly $1.5 billion in client funds that appear to be missing. “I simply do not know where the money is,” Corzine testified, “or why the accounts have not been reconciled to date.”
In his prepared testimony and in response to questions from the committee, Corzine went on to say that he was “stunned” to learn on Sunday, Oct. 30 that MF Global “could not account for many hundreds of millions of dollars of client money. I remain deeply concerned about the impact that the unreconciled and frozen funds have had on MF Global’s customers and others.”
When Agriculture Committee Chairman Frank Lucas, R-Okla., asked if there was a shortfall in the client accounts, and why such a shortfall should occur, Corzine said that “there were many transactions that occurred in those last chaotic days; it would be hard to speculate why those shortfalls took place.”
When Lucas asked if MF Global’s books were a “mess,” as some have charged, Corzine said “our books and records reflected the chaos of the last two or three days as the firm was under severe pressure and lost the confidence of the marketplace. I have reason to believe our books and records weren’t in a mess, but that’s a question that others will have to opine about as they look at them in retrospect.”
Corzine pointed out in his testimony that he has not had access to MF Global’s records since his Nov. 4 resignation as CEO, “not even my notes,” which he said limited his ability to respond in full to the committee’s questions.
Corzine also said that while he accepted responsibility for the ‘repurchase transactions to maturity,’ trades at MF Global, aka ‘RTMs’ or ‘repos,’ and “strongly advocated the trading strategy” of RTMs followed at the firm which he joined as CEO in March 2010, he stressed that MF Global’s involvement in those RTM trades was “disclosed to the board of directors, the senior officers of the company, the company’s accountants and numerous outsiders.”
It was those trades, mostly in European sovereign debt instruments, that eventually caused MF Global’s bankruptcy, though Corzine pointed out in his testimony that “none of the foreign debt securities that MF Global used in the RTM trades has defaulted or been restructured. All of those securities that reached maturity while they were part of the RTM position paid in full.”
The failure of the company was instead due to a confluence of events, Corzine suggested, including the volatility of the markets and lower revenue that led to a poor quarterly earnings report that had nothing to do with the RTMs on various European sovereign debt issues. In fact, MF Global had been exploring the sale of the company, but he said that deal fell through when the missing clients funds came to light over the weekend of Oct. 29-30.
Asked how often he talked to CFTC Chairman Gary Gensler in the days up to bankruptcy, he said he had no private conversations with him, though the two men may have been together on conference calls with various regulators, including the SEC, FINRA and the CFTC. He also denied that Gensler had recommended that MF Global file for bankruptcy.
As for whether the regulators had missed anything untoward regarding MF Global’s activities, Corzine said that “we did have discussions with FINRA in the August timeframe and further discussions with the SEC, which made inquiries on the treatment of repos during the year, but no ‘significant’ challenges were made” to the firm’s operations, he said, “except for the FINRA one.”
The “FINRA one” concerned the SRO’s ruling in August 2011 that MF Global’s U.S. subsidiary needed to change its capital treatment of the RTMs involving European sovereign debt securities, which Corzine said the company disagreed with but still quickly complied with, to the best of his knowledge.
Gensler himself came under fire during the hearing from committee member Rep. David Scott, D-Ga., for recusing himself from Thursday’s hearing and for being out of the country; the CFTC was represented at the hearing by senior commissioner Jill Sommers (see her prepared testimony here.) Scott said Gensler will at some time have to reveal what his role was, if any, in MF Global’s demise, which the congressman said has just added to the U.S. public’s disillusionment with Wall Street.
Gensler is set to appear at a House Financial Services Oversight and Investigations Subcommittee hearing on Dec. 15.
Corzine is not out of congressional hot water yet; he has been summoned to the same House panel on Dec. 15, and the Senate Agriculture Committee announced it has subpoenaed the former New Jersey senator and governor, and former head of Goldman Sachs, to a Dec. 13 hearing on MF Global, along with MF Global’s bankruptcy trustee.