WASHINGTON — The disgraced former CEO of failed investment bank MF Global told Congress on Thursday in testimony compelled under subpoena that he has no idea where a missing $1.2 billion went and insisted that he never instructed anyone to misuse customer funds. Jon Corzine defied expectations that he’d appear before the House Agriculture Committee and plead his Fifth Amendment rights against self-incrimination. Instead, the former Democratic U.S. senator and former governor of New Jersey offered a humble apology to MF Global’s investors and employees.
“Their plight weighs on my mind every day_ every hour. And as the chief executive officer of MF Global at the time of its bankruptcy, I apologize to all those affected,” Corzine said. Through the Byzantine structure of congressional rules, the agriculture panel has jurisdiction over trading in complex financial products called derivatives that were a factor in the bank’s demise.
At one time frequently mentioned as the Obama administration’s possible next treasury secretary, Corzine’s whereabouts had been a mystery for weeks after his abrupt Nov. 3 resignation days after his financial firm filed for bankruptcy. Rumors have swirled, fueled by $1.2 billion that’s missing and allegations that MF Global misused customer money in a last-ditch effort to stay afloat.
Pressed on that missing money, Corzine said his initial reaction to the news, shortly before an Oct. 30 bankruptcy filing, was “stunned disbelief that this could be the case, when many hundreds of millions are believed to be missing.”
Most lawmakers’ questions centered on whether customer money was commingled with the bank’s money in an effort to stay afloat. A humbled Corzine said that if that happened, it wasn’t directed by him.
“There was never any directed attempt to commingle those funds,” he said. One of the main changes under last year’s Dodd-Frank Act revamp of financial regulation was that banks could no longer commingle their funds with those of customers.
Many farmers across the nation who had placed bets with MF Global on price movements in commodities markets have been unable to get their money back, as regulators continue to seek and follow the money trails. The Commodity Futures Trading Commission and a bankruptcy trustee are working together to probe MF Global’s collapse. The FBI is also investigating.
“If there is any customer money that has been transferred out that is what we are working on together to find, and that money will be clawed back for customers,” CFTC Commissioner Jill Sommers told lawmakers during a panel session before Corzine’s much-anticipated testimony.
MF Global’s sudden and spectacular collapse spooked global markets but did not trigger the kind of broad financial panic that investment bank failures in 2008 did. Its fall, however, served as an important reminder of what has and has not changed since 2008. It’s put regulators on the defensive, trying to explain how it happened under their watch.
Adding to the controversy, CFTC Chairman Gary Gensler has recused himself from all matters involving MF Global because he worked closely with Corzine when both were at Goldman Sachs. House Republicans on Thursday blasted Gensler for the recusal, although it followed calls for just that from the top Republican on the Senate Finance Committee, Iowa’s Charles Grassley.
In his prepared remarks, Corzine retold his rags-to-riches rise from a lowly bond trader to co-head of investment titan Goldman Sachs. He sought to dispel what he said were inaccurate media reports about his tenure at MF Global, where he took the reins in March 2010.
“One of the recurrent themes in the media has been that MF Global took on too much risk during my tenure,” he complained, noting that the company’s leverage ratio was more than 37-to-1 when he took over but fell under his leadership to a consistent 31-to-1 ratio.
Leverage ratios reflect the amount of debt a financial firm takes on relative to the actual equity held by owners of the firm. When investment bank Lehman Brothers failed in 2008, sparking the global financial crisis, it had $31 of debt for every actual dollar, about the same ratio as MF Global at the time of its collapse. That suggests Corzine missed a key lesson of 2008. Regulators said Thursday that they began talking with MF Global in August after new reporting rules showed it lacked sufficient capital to cover its bets.
The former Democratic senator testified that he was rebuffed by House Republican leaders on a request to provide voluntary testimony in January. Instead, he was forced to appear under subpoena.
Corzine pushed back on the other major criticism of his time at MF Global, that too much investment in European government bonds sunk the company. He acknowledged that his strategy was to lean aggressively against the wind and keep buying bonds, but that the board of directors and senior officers were all involved in that decision _ and that these bond purchases did not lose money. A huge tax hit on company finances and a ratings downgrade set the MF Global downfall in motion, he insisted.
Under questioning, Corzine said he resigned at the request of the board. ON THE WEB
Former Sen. Jon Corzine's prepared testimony
CFTC Commissioner Jill Sommers' prepared testimony
Counsel for the trustee's prepared testimony
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