Forum Post: Governor and Senator said does not know where the MF Global Holdings money is?

Former New Jersey Governor and Senator Jon Corzine said Thursday he does not know what happened to the "many hundreds of millions of dollars" missing from clients' accounts at MF Global Holdings, the now-bankrupt brokerage Corzine once led. In his first public statement since MF's bankruptcy, the eighth largest in U.S. history, Corzine apologized to all those affected and said he was stunned when he heard about the missing money. Corzine, a former head of Goldman Sachs, made the remarks in prepared testimony for a House Agriculture Committee hearing. "I was stunned when I was told on Sunday, October 30, 2011, 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," Corzine said. "I simply do not know where the money is, or why the accounts have not been reconciled to date," he said. Corzine was due to testify at the hearing, which began at around 9:30 a.m. EST, about the brokerage's collapse after a series of bad bets on European debt. A slew of regulators and the FBI have been investigating what happened to an estimated $1.2 billion worth of clients' money and whether MF Global used the funds to shore itself up as the European debt crisis slammed its investments. A top CME Group Inc executive is expected to tell the committee that MF misused hundreds of millions of dollars worth of client funds by moving the money to its own accounts, Reuters reported. "Transfers of customer funds for the benefit of the firm constitute serious violations of our rules and of the Commodity Exchange Act,'' CME Group Executive Chairman Terrence Duffy said in prepared testimony. Corzine's remarks came as a surprise. He was expected to invoke the Fifth Amendment, which protects witnesses from incriminating themselves. Corzine, who was subpoenaed to testify before the committee, said he decided to speak out because he felt it was the right thing to do. "(A)s a former United States Senator who recognizes the importance of congressional oversight, and recognizing my position as former chief executive officer in these terrible circumstances, I believe it is appropriate that I attempt to respond to your inquiries," he said in the prepared remarks. Steve Luparello, vice chairman of the Financial Industry Regulatory Authority, said MF Global was not fully candid with regulators in 2010 when it was asked about its exposure to European debt, Reuters also reported. In prepared testimony, Luparello said FINRA had reached out to MF Global, but the firm indicated in late September 2010 that it "did not have any such positions" in European sovereign debt. advertisement

Corzine said in his remarks that since he left MF on Nov. 3, he has had limited access to documents, including internal emails, account statements and even his own notes. He added that even when he was at MF, he had limited involvement in the firm's clearing, settlement and payment mechanisms, and accounting.
The lack of access to the documents could provide Corzine with wriggle room to avoid answering some of the lawmakers' questions. Attempting to answer questions poses a risk for Corzine. Anything he might say could be used against him in a courtroom, should Corzine ever be charged in the case. So far, nobody has been charged. Lawmakers in both parties may have a lot to ask him. Some have heard from farmers, ranchers and small business owners in their districts who are missing money deposited with the firm. Agricultural businesses use brokerage firms to help reduce their risks in an industry vulnerable to swings in oil, corn and other commodity prices. But MF Global increased risks by making big bets on European government debt — bets that proved disastrous. In his remarks, Corzine disputes media reports that he personally pushed the company to make big, doomed bets on risky European debt using too much borrowed money. Corzine says the company's revenue was "drying up" when he arrived because of competition from online and high-tech brokerages. He also notes that the company worked with outside consultants on its strategic plan and internal compliance systems. And he says that much of his compensation was in stock options. The amount of borrowed money used — known as leverage — decreased when he ran the company, he says, and he favored the trades that doomed it only after discussions with MF Global's senior traders. Corzine notes that the European debt securities are all "at least A rated." Typically, that means the borrower is unlikely to default. He makes no mention that Standard & Poor's this week said it might downgrade credit ratings for all of the nations whose bonds MF Global owned. Legal experts say Corzine could be held personally liable for misrepresenting to investors the risks the firm had taken. Other top MF Global executives also could face legal jeopardy, they say. Corzine will say Thursday that the company's board signed off on the investments and was aware of the risks involved. It's the first time in more than 100 years that Congress has subpoenaed a former senator to testify, according to Senate historian Don Ritchie. The occasion blends the two worlds Corzine has occupied for his professional life — Wall Street and public office. A Democrat, Corzine represented New Jersey in the Senate from 2001 through 2005. He later served as the state's governor. Before entering politics, he was CEO of Goldman Sachs from 1994 to 1999. advertisement

Several class-action lawsuits on behalf of shareholders have been filed against Corzine and three other top executives. A bankruptcy court is consolidating the suits. They accuse the firm and its leaders of making false statements about MF Global's strength and cash balances.