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Restoring farmers' confidence
There was wrongdoing, and now the process begins to find out the culprit of MF Global Inc. comingling of an estimated $1.2 billion of farmers' and other customers' hedge money.
In the spotlight Thursday is Jon Corzine, the former CEO of MF Global, in an appearance before the House Ag Committee.
Without admitting giving authority for comingling customer money into foreign sovereign debt, the former chairman expressed that he never intended to offer authority for comingling.
"I believe the missing funds will be found. I expect these hearings will bring out where exposure exist. I believe futures and securities markets are essential for our and the world's economies.
The lawmakers attempted to unveil Corzine's anticipation of personal loss, after the dust has cleared on the investigation. "My own expectation is that the money will be recovered," Corzine answered.
Of the estimated $1.2 billion of customer's money lost by the firm, lawyers handling the unwinding of the case say 70% of the funds will have been recovered by the end of the week.
On Friday, a judge will be asked for approval, by the defunct firm's trustee, to release $2.0 billion for distribution to customers awaiting lost funds. If approved, the total amount of recaptured losses will rise to 70%.
Answers to just how the comingling was allowed, who was in charge of allowing it, where the watchdog was, and the main person(s) responsible for the 8th largest bankruptcy in the U.S. are expected to be determined following further investigation.
What still remains unclear is how none of the parties involved could see any red flags as the brokerage firm continued to fail.
"There were no red flags," Jill Sommers, CFTC's Commissioner, testified. "Daily reports of segregated money showed no indication that MF Global was ever out of compliance."
The same answer on red flags was offered by Corzine.
However, all parties did express hope that further investigating will expose any loopholes in the brokerage system.
Commodity Futures Trading Commission Chairman Gary Ginsler recused himself from Thursday's hearing, at the request of a Senator, due to the possible conflict of interest regarding his past business relationships with Corzine.
Committee members also peppered Sommers on whether the CFTC is looking into further brokerage firms that face similar outcomes like MF Global.
"We do have a surveillance team that looks for firms that face sovereign issues," Sommers says.
Perhaps it was put best by one Committee lawmaker, during the questioning. "This is exactly why farmers don't use the futures market as a hedge (tool)."
Sommers replied, "We want to make sure the futures market's confidence is restored."