This special report from the John Lothian Newsletter (subscribe here) includes the latest from the MF Global collapse, and the House Agriculture Committee meeting in which former MF Global CEO Jon Corzine made his first public appearance since leaving the firm several days after it filed for bankruptcy on October 31.
In the wake of the MF Global bankruptcy, John Lothian Newsletter has created a special section on JohnLothianNewsletter.com devoted to news, information and commentary. The section features archived news stories featured in the John Lothian Newsletter, analysis and breaking news. Check regularly for updates. See the MF Global news section here.
Key comments from Jon Corzine from questions by Rep. Frank Lucas
Is there a shortfall in customer funds that MF Global was legally required to keep segregated?
“I know only what I read. And it certainly was true on the late evening of the 30th of October that there were unreconciled accounts.”
Why is there a shortfall?
“There are many transactions that occurred in those last chaotic days. And I am not aware of all those, nor do I have the information to look at those transactions. As a consequence, it would be very hard for me to speculate why or where that shortfall took place.
“I never intended to break any rules, whether it dealt with the segregation rules, or it dealt with any of the other rules that are applicable.”
Michael Roseman, chief risk officer at MF Global, was replaced in March 2011 by Corzine. Corzine was asked about Roseman’s opposition to MF Global’s European sovereign debt positions and his departure.
“My view was we needed someone in the chief risk officer position that was more fully attuned to the broker-dealer side of our business, than what Mr. Roseman’s background involved. And there were other issues about how people worked with each other, not with me in particular but within the firm, that led the board and my agreement to that, that we should change chief risk officers.”
Why did you bet the survival of the firm on European sovereign debt?
“We looked at the ratings, but they were not the only consideration. We looked at what counterparties would charge for initial margin. We would look at how individual securities were looked at by regulatory authorities around the globe – what they were able to use as collateral. We look at prices in markets to determine whether people thought the default or restructuring risk was being priced into it.
“There were many considerations along with the ongoing dialog that, which after the fact clearly can be second guessed, that the European community was going to take a much more forceful steps to avoid bankruptcy or insolvency.”
Did you invest customer seg funds into European sovereign debt? – from Rep. Colin Peterson (D-MN)
“No. They were not part of the FCM business.”
Most ill-prepared Congressmen on the House Ag Committee
- “Americans are tired of their funds being spent somewhere else, in foreign depositories.” – Rep. Joe Baca (D-CA), who also referred to the Dodd-Frank Act as the “Franks-Dodd bill” and Lehman Brothers as “Lieberman Brothers.”
- Chairman Frank Lucas (R-OK) repeatedly referred to the bankrupt FCM as “FM Global,” which is actually a Rhode Island-based insurance company (http://jlne.ws/vtmlvt)
- 175 MF Global employees (mostly systems and back office staff) are working with the bankruptcy trustee for three months to help manage the bankruptcy process, according to James Kobak, Lead Counsel for the Trustee for the Liquidation of MF Global Inc.
- Senate historian Don Ritchie said that as far as his office can determine, such a subpoena of a former Senator has not been issued since 1908. (http://jlne.ws/tB8q0H)
- MF Global’s leverage was 37 to 1 when he joined the firm in March 2010 and was 30 to 1 when the firm collapsed, according to Rep. Frank Lucas.
Questions still unanswered, and unasked
- Why is Jon Corzine listed as “The Honorable Jon Corzine”?
- Why wasn’t Price Waterhouse Coopers asked to appear, but CBOE Chairman and CEO Bill Brodsky was?
Coming Up: Corzine to Testify before Senate Agriculture; House Financial Services Committees
U.S. Senate Committee on Agriculture, Nutrition and Forestry
Tuesday, December 13th, 2011 10 AM
216 Hart Senate Office Building, Washington DC
House Committee on Financial Services Thursday, December 15, 2011
1:00 PM in HVC-210 the Capitol
Highlights: House panel’s hearing on MF Global bankruptcy
The following comments were made on Thursday at a House Agriculture Committee hearing to examine the bankruptcy of MF Global. It was the first hearing to bring the major players together since the firm’s collapse.
MF Global Trustee to Pursue All ‘Legally Available’ Assets
James Kobak, the lawyer, said to the House Agriculture Committee at a hearing in Washington today that customers now have no assurance of a 100 percent return of assets as money is missing from the segregated accounts. The trustee believes as much as $1.2 billion is missing, and isn’t ready to make “definitive conclusions” about what happened to it, Kobak said.
Jon Corzine “stunned” by missing $1.2B
Jon Corzine told a congressional panel Thursday that he can’t explain why nearly $1.2 billion disappeared from customer accounts managed by MF Global, the brokerage firm he managed before it went under this year. Corzine’s testimony today was the first time the former MF Global CEO spoke publicly since resigning from the failed company on November 3. It was also the first time in more than 100 years that Congress subpoenaed a former senator to testify, according to the Associated Press.
Corzine and MF Global Regulators Testify
New York Times Dealbook
In testimony before Congress on Thursday, Jon S. Corzine, the former chief executive of MF Global Holdings and a former United States senator and Democratic governor of New Jersey, defended his decision to invest heavily in European sovereign debt and said he was “stunned” by a huge shortfall in client funds.
Contrite Corzine says he’s sorry about missing money
A diminished and contrite Jon Corzine told lawmakers Thursday that he was sorry that up to $1.2 billion in customer funds had gone missing since the financial firm he ran went bankrupt, but that he had no idea where they went.
CFTC Sommers Testifies To House Ag Committee Of MFGI Bankruptcy
Futures Magazine”An obvious point to make is that if a firm is involved in a bankruptcy proceeding, something must have gone very wrong. Bankruptcy proceedings can be very complicated and at times, messy. This can be magnified when the bankruptcy is among the largest in history and there are serious questions about the location of customer funds.”
Not just Corzine who can’t find the money
Asked if the CFTC had looked at MF Global’s daily balances for segregated accounts, the reports that show where client money is being held, commissioner Jill Sommers sheepishly said, “We don’t look behind those reports.” In other words, they’re not verified.
Regulator says missing MF funds are top priority
Jill Sommers, the Commodity Futures Trading Commission commissioner charged with leading the agency’s probe into MF Global, said the agency is “expending an enormous amount of effort to locate the missing customer funds and pursuing the enforcement investigation.”
Can federal watchdogs squeezed for funding prevent future MF Globals?
The Washington PostIt’s not just Jon Corzine who is in the hot seat this morning at the House Agriculture Committee hearing on MF Global’s bankruptcy. First to testify was Jill Sommers of the Commodity Futures Trading Commission, the federal watchdog responsible for overseeing the industry. Rep. Frank Lucas, the GOP chair of the committee, grilled Sommers about whether the CFTC had failed to foresee the firm’s bankruptcy- and prevent up to $1.2 billion in customer funds from going missing.
Written Testimony before the House Agriculture Committee, December 8, 2011
- The Honorable Jill Sommers, Commissioner, Commodity Futures Trading Commission, Washington, D.C.
- Mr. James Kobak, Lead Counsel for the Trustee for the Liquidation of MF Global Inc., New York, New York
- The Honorable Jon Corzine, Former CEO, MF Global Inc., New York, New York
- Mr. John Fletcher, General Manager, Central Missouri AGRIService LLC, on behalf of the National Grain and Feed Association, Marshall, Missouri
- Mr. Terrence Duffy, Executive Chairman, CME Group, Inc., Chicago, Illinois
- Mr. William J. Brodsky, Chairman and CEO, Chicago Board Options Exchange, Chicago, Illinois
- Mr. Dan Roth, President and CEO, National Futures Association, Chicago, Illinois
- Mr. Stephen Luparello, Vice Chairman, Financial Industry Regulatory Authority, Washington, D.C.
- Mr. Gerry Corcoran, Chairman and CEO, R.J. O’Brien & Associates, on behalf of the Commodity Markets Council, Chicago, Illinois