Jon Corzine said he never intended to break any rules while he was chief of MF Global and that he doesn't know what happened to the hundreds of millions of dollars in missing customer money.
Corzine, in his first public appearance since the firm filed for bankruptcy on October 31, gave lawmakers a lengthy account of the final days of MF Global and apologized to those harmed by the firm's collapse.
I never intended to break any rules, whether it dealt with the segregation rules or any of the other rules that are applicable, said Corzine, wearing a sombre dark suit and armed with an accordion file folder of documents and a highlighter pen.
I am not in a position, given the number of transactions, to know anything specifically about the movement of any specific funds and I will repeat, I certainly would never intend to direct or have segregated funds moved.
Investigators are determining whether MF Global raided customers' funds for its own needs -- a major violation of industry rules.
Corzine said his sadness pales in comparison to MF Global's customers, employees and investors.
Their plight weighs on my mind every day -- every hour, Corzine, a former U.S. senator, told the House Agriculture Committee after being sworn in by committee Chairman Frank Lucas. He was flanked by his lawyer, Andrew Levander, and said he was aware that he had the right to counsel.
I simply do not know where the money is, or why the accounts have not been reconciled to date, he said.
Corzine's contrite but defensive remarks are his first since he resigned from the firm in early November. Revelations of massive bets on European sovereign debt caused markets to lose confidence in the firm.
The search for hundreds of millions of dollars in missing customer funds has sent reverberations through the farm belt and trading floors, and has attracted the attention of the FBI and federal prosecutors. Thousands of customers have had their money frozen.
It appears to me that nobody has learned a thing from what's gone on here. Wall Street is operating as if 2008 never happened, said Collin Peterson, the top Democrat on the committee, referring to the recent financial crisis.
In separate testimony, a top executive of futures exchange operator CME Group Inc said MF Global misused hundreds of millions of dollars of customer funds by moving the money to its own accounts, the strongest accusation yet against the bankrupt futures brokerage.
Transfers of customer funds for the benefit of the firm constitute serious violations of our rules and of the Commodity Exchange Act, CME Executive Chairman Terrence Duffy said in prepared remarks.
CME, the biggest U.S. futures exchange operator, was a hands-on regulator of MF Global. Duffy said the brokerage admitted during a call with regulators that customer money was transferred out of segregation to the firm's own accounts.
The court-appointed trustee has estimated the shortfall of customer money at $1.2 billion, but CME has disputed that figure as being too high. In his prepared testimony, Duffy indicated the shortfall was roughly half that amount.
Neither MF Global nor any of its executives has been charged with wrongdoing.
STUNNED BY MISSING CUSTOMER MONEY
Nine witnesses were scheduled at the hearing, but Corzine, a senator from 2001-2006 and a former governor of New Jersey, is the star.
Corzine arrived with little fanfare just before the hearing started. Capitol Hill Police quickly escorted Corzine to the committee's holding room where he waited until the lawmakers heard from Jill Sommers, who is heading the Commodity Futures Trading Commission's review, and James Kobak, lead counsel for the trustee liquidating the bankrupt firm.
Corzine said in his 21-page prepared testimony that while it is difficult for him to reconstruct the chaotic events leading up to the bankruptcy because he no longer has access to relevant documents, he feels compelled to answer lawmakers' questions.
He said he could not explain the missing customer money.
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 onto funds that should rightfully have been returned to MF Global, Corzine said.
In his testimony, Corzine distanced himself from some hands-on aspects of the firm's business practices.
Even when I was at MF Global, my involvement in the firm's clearing, settlement and payment mechanisms and accounting was limited, Corzine said.
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.
He said he accepts responsibility for the repo-to-maturity trades that related to the firm's $6.3 billion bet on European sovereign debt.
At the time that MF Global entered into the transactions, I believed that its investments in short-term European debt securities were prudent, he said.
However, he said MF Global reduced leverage during his tenure, and said he does not claim to be an accountant regarding the treatment of that exposure.
Mary Schapiro, the chairman of U.S. Securities and Exchange Commission, has said her agency is probing the accounting treatment that helped mask MF Global's exposure to risky foreign sovereign debt. The SEC is also probing the disclosure of that exposure.
Steve Luparello, vice chairman of the Financial Industry Regulatory Authority, said in his testimony on Thursday that MF Global was not fully candid with FINRA in 2010 when the firm was asked about its exposure to European debt.
Luparello said the firm indicated in late September 2010 that it did not have any such positions in European sovereign debt.
We later learned that the firm began entering into transactions that carried European debt exposure in mid-September 2010, he said.
(Reporting by Sarah N. Lynch, Christopher Doering, Rachelle Younglai and Philip Shishkin in Washington and Ann Saphir in Chicago, writing by Karey Wutkowski; editing by John Wallace)