U.S. lawmakers investigating the collapse of futures brokerage MF Global showed frustration with the firm's leaders about what happened to hundreds of millions of dollars in missing customer funds.
The Senate Agriculture Committee on Tuesday holds the second congressional hearing to feature former MF Global chief Jon Corzine, who has said he does not know where the money is.
Two top-ranking company executives -- Chief Operating Officer Bradley Abelow and Chief Financial Officer Henri Steenkamp -- also said in testimony prepared for the hearing that they don't have answers.
"It's now been a month and a half since the firm collapsed and customer money is still nowhere to be found," Senate Agriculture Committee Chairwoman Debbie Stabenow said in a statement. "This isn't the Dark Ages. MF Global didn't keep their books with feather quills and dusty ledgers. The rules about keeping customer money segregated are pretty straightforward."
The brokerage filed for bankruptcy on Oct. 31 after it was forced to reveal it bet $6.3 billion on European sovereign debt. That disclosure led to market concerns and ratings downgrades that ultimately doomed 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 MF Global customers have had their money frozen.
Neither MF Global nor any of its executives has been charged with wrongdoing.
"I unfortunately have limited knowledge of the specific movement of funds at the U.S. broker-dealer subsidiary, MF Global Inc, during the last two or three hectic business days prior to the bankruptcy filing," Steenkamp said in his prepared testimony.
A court-appointed trustee has estimated the shortfall of customer money at $1.2 billion, but other regulators say that figure is too high. Steenkamp and Abelow used their remarks to paint a picture of a chaotic final descent into insolvency.
They will appear on the same panel with Corzine, but it is unclear if there will be any finger-pointing.
Corzine's prepared testimony is largely similar remarks he delivered before the House Agriculture Committee last week, when he apologized to MF Global's customers, employees and investors.
Corzine, a former U.S. senator and New Jersey governor, said he "never intended" to break rules about keeping customer funds segregated from firm money, but that an employee may have misinterpreted instructions to try to save the firm.
Farmers who became the collateral damage from MF Global's collapse will get a chance to air their frustrations on Tuesday and will tell lawmakers that their confidence in the markets has been shaken.
Roger Hupfer, a grain elevator operator with Freeland Bean & Grain in Freeland, Michigan, in prepared remarks, called any misuse of customer funds "unethical" and "criminal."
He placed blame with regulators.
"Those responsible for oversight fell way short of fulfilling their responsibilities," he said.
Two of MF Global's regulators -- Jill Sommers, the commissioner leading the Commodity Futures Trading Commission's review into MF Global, and CME Group Executive Chairman Terrence Duffy -- are scheduled to testify later on Tuesday.
(Reporting by Alexandra Alper, Aruna Viswanatha and Christopher Doering; writing by Karey Wutkowski; editing by John Wallace)
Highlights from comments made at the hearing:
- STEENKAMP ON THE SEARCH FOR THE FUNDS:
"I unfortunately have limited knowledge of the specific movement of funds at the U.S. broker-dealer subsidiary, MF Global Inc, during the last two or three hectic business days prior to the bankruptcy filing."
"I was not aware of any problems concerning segregated funds or the applicable calculations until Sunday, October 30th, when the issue being investigated by this Committee was brought to my attention. For that reason, I do not know why these funds cannot be accounted for, but based on the fact that no shortfalls had been reported to me previously, it appears that any irregularities were likely caused by events that occurred shortly before the bankruptcy filing.
- ABELOW ON THE MISSING MONEY:
"I am deeply troubled by the fact that customer funds are missing, and I can assure you that I share your interest, and the public's interest, in finding out exactly what happened. At this time, however, I do not know the answers to those questions."
- ABELOW ON WHAT LED TO THE FIRM'S COLLAPSE:
"The combination of those three events - increased concern about exposure to European sovereign debt, a series of ratings downgrades, and disappointing earnings - created an extremely negative perception in the market resulting in a large number of the firm's trading and financing counterparts pulling away from MF, which dramatically reduced the firm's liquidity."
- CORZINE ON NOT KNOWING:
"I simply do not know where the money is, or why the accounts have not been reconciled... There were an extraordinary number of transactions during MF Global's last few days"."
- CHAIRWOMAN DEBBIE STABENOW ON FRUSTRATION OVER LACK OF ANSWERS:
"It's now been a month and a half since the firm collapsed and customer money is still nowhere to be found. This isn't the Dark Ages. MF Global didn't keep their books with feather quills and dusty ledgers. The rules about keeping customer money segregated are pretty straightforward. That it's been over a month, and teams of lawyers and forensic accountants still can't figure out what happened, raises very troubling questions."
- RANKING MEMBER PAT ROBERTS ON WHAT HAPPENED:
"Funds don't simply disappear. Someone took action, whether legal or illegal, to move that money. And the effect of that decision is being felt across the countryside."
"The buck stops somewhere, and between the three witnesses from MF Global here today, I hope we find out where those hundreds of millions of dollars landed."
- ROGER HUPFER, PRESIDENT OF FREELAND BEAN & GRAIN, ON THE IMPACT ON FARMERS:
"How will we be able to effectively manage the increased volatility and price risk and place our hedges with confidence if the very integrity of exchange-based futures trading is in jeopardy?"
(Reporting by Alexandra Alper, Aruna Viswanatha, Christopher Doering, Lily Kuo and Karey Wutkowski; Editing by Tim Dobbyn)