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Lawmakers grill MFG's Corzine
Jon Corzine never intended for customer money to be commingled with those funds set aside for investment at MF Global.
That was repeatedly his answer to the question whether he had overseen such a transfer before the now-defunct brokerage house was found to be doing just that, a discovery that led to the firm filing bankruptcy and ultimately allegedly losing up to $1.2 billion of customer funds.
Corzine was grilled Thursday by members of the U.S. House of Representatives Committee on Agriculture, many of whom represent farmers and ranchers who likely lost money that was once invested with MF Global, a player in many financial sectors including the grain markets.
"My concern is based on the failure to segregate funds and/or oversee the operation of company and/or technical deficiency in governing the firm. Something fell short," said Congressman Tim Johnson, House Ag Committee member and Illinois Republican. "At the end of the day, we have people who live in the real world and have suffered dramatically, because they won't be able to buy seed, eequipment, they have suffered dramatically. People have given you a lot of responsibility in a fiduciary capacity and I'm concerned those responsibilities have fallen short."
Corzine said the commingling of the customer money was essentially an error and did not say whether or not there was ever a direct order to do so by MF Global leadership.
"My impression is that in the chaos of the last few hours and days, there was a miscalculation on the money that was expected to come in versus transactions that occurred," Corzine told a House panel Thursday, responding to a question by Virginia Republican Congressman Bob Goodlatte as to whether the shortfall in funds that were commingled could have gone undetected.
A key point repeatedly brought up during Thursday's hearing was the investment of MF Global funds in the sovereign debt of other nations that has since been downgraded and/or threatened by the European economic meltdown. MF Global's past investments include in the federal bonds of Spain, Italy, Portugal and Belgium, all countries that have faced a downgrading and threat of losing liquidity because of high debt-to-GDP ratios. Corzine told lawmakers at the time of those investments, the threat of default wasn't a factor.
"If one did a detailed credit analysis of the underlying sovereigns that not only people at MF Global but other financial analysts would have contributed, Greece seemed as a country that would potentially, with a significant probability, go through a restructuring process," he said. "It had a substantially higher debt-to-GDP and was much more unreliable statistically on which one could conduct in-depth analysis. The investments in those countries were made because there was a judgment."
Another point repeatedly made by lawmakers questioning Corzine Thursday was the financial losses their constituent farmers and ranchers now face as a result of the MF Global bankruptcy and fund misplacement. When asked by Congressman Steve King (R-IA) whether he and other current and former leaders of MF Global would help shoulder the burden of those dollars, he fell short of answering yes or no.
"My hope and my own expectation, even at these late hours, is that the money will be recovered. But no matter, the anguish and uncertainty that individuals feel is very serious, and for that I both apologize and I will certainly do those things I can to help assist that process," Corzine said.
Beyond the resolution of the MF Global situation specifically, Corzine said he hopes he can work with lawmakers to shore up regulations so a similar situation can't happen again in the future and, more importantly, that future potential investors can have confidence in the infrastructure behind the financial institutions in which they invest their money.
"I have the expectation, with the hard work that regulators and the trustee do, that the missing funds will be found. That, first and foremost, is the obligation. I would expect -- and legitimately so -- where exposures exist, they should be corrected. Hopefully that can address some of those holes in a way that gives people greater confidence moving forward."