Jon Corzine tells House panel of ‘stunned disbelief’
An apologetic Jon Corzine testified before a congressional panel that he was in “stunned disbelief” when he learned that hundreds of millions of dollars of customer money had disappeared from his now-defunct trading firm MF Global Holdings.
“I simply do not know where the money is, or why the accounts have not been reconciled to date,” the former MF Global chief executive told the House Agriculture Committee on Thursday in his first public appearance since the company filed for bankruptcy Oct. 31.
As much as $1.2 billion may be missing — far more than the $900-million shortfall that was initially suspected, a trustee handling the liquidation of the firm said recently.
Corzine, a former U.S. senator and New Jersey governor, was silent as he entered the hearing room Thursday morning amid a flash of cameras and a crowd of reporters. A Democrat, Corzine was elected senator in 2000 and became governor of the state in 2006. A former chief executive of Goldman Sachs Group Inc., he returned to the private sector last year as head of MF Global.
He was the first former senator to be subpoenaed by Congress in more than a century.
Faced with a barrage of questions, Corzine sometimes hesitated in his answers but didn’t invoke his 5th Amendment privilege against self-incrimination. He remained patient amid often repetitive questioning about whether he had authorized the transfer of funds from segregated accounts. “I never intended to break any rules,” he said in one response.
He said he learned only a day before the bankruptcy filing that the accounts were short of money. He resigned six days later.
Corzine attempted to deflect some of the blame for the debacle. He distanced himself from the firm’s operations and accounting procedures, for example, and suggested the company had been mismanaged before he took the helm in March 2010.
But he also acknowledged that he “ultimately had overall responsibility” for the firm.
The client money was supposed to have been held in segregated accounts, and its disappearance has led to speculation that MF Global used the money to stave off a collapse after accumulating more than $6 billion in European sovereign debt.
Responding to repeated questioning from frustrated lawmakers, Corzine said he “had no intention to ever authorize the transfer of segregated monies,” but he could not say it hadn’t happened.
“There were an extraordinary number of transactions during MF Global’s last few days, and I do not know, for example, whether there were operational errors at MF Global or elsewhere, or whether banks and counterparties have held on to funds that should rightfully have been returned to MF Global,” he said.
In 21 pages of prepared testimony, Corzine devoted just four paragraphs to the missing money, instead focusing on the circumstances leading to MF Global’s bankruptcy.
He acknowledged that the firm’s foreign debt positions were “a concern to the marketplace,” but said customers also were rattled by ratings downgrades and a failure on the part of MF Global management to explain why the company appeared to be in trouble.
By late October, he said, customers were withdrawing funds and collateral, and MF Global “undertook extraordinary steps” to honor those requests.
“Despite our best efforts to sell assets and generate liquidity, the marketplace lost confidence in the firm,” he said.
“I mean this with all sincerity,” Corzine said. “I apologize, both personally and on behalf of the company, to our customers, our employees and our investors. I truly know they are bearing the brunt of the impact of the firm’s bankruptcy.”
Lawmakers also grilled Jill Sommers, a commissioner at the Commodity Futures Trading Commission, which oversees futures trading and is trying to locate the missing money.
“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,” Sommers said.
MF Global was required to submit regular reports to the commission to prove that customers’ money was properly segregated, she said.
But MF Global’s reports did not raise red flags “until right before the bankruptcy,” she said.
“We don’t on a daily basis look behind those reports to look at bank statements,” Sommers said, even though the agency reviews the reports.
CFTC Chairman Gary Gensler has recused himself from the agency’s investigation because he worked with Corzine at Goldman Sachs.
MF Global’s collapse and Corzine’s affiliation with it is seen by some as an embarrassment to Democrats. Corzine has contributed a total of $69,300 to Democratic candidates and committees this year, including $30,500 to the Democratic National Committee and $5,000 to Obama’s reelection campaign, according to data compiled by the Center for Responsive Politics.
Two other congressional committees, the Senate Agriculture Committee and the House Financial Services Committee, have summoned Corzine to testify next week about his firm’s collapse.
The House and the Senate agriculture committees are involved because they have partial oversight of certain derivative investments that MF Global sold.
