TOPICS > Economy

Corzine Testifies Before Former Senate Colleagues on Missing MF Global Funds

December 13, 2011 at 12:00 AM EDT
Former MF Global CEO Jon Corzine was back at the U.S. Capitol Tuesday, for the second time in two weeks, facing a committee of former Senate colleagues. Judy Woodruff discusses the congressional investigation into the collapsed firm with The New York Times' Azam Ahmed and Shulman Rogers' Jacob Frenkel.

JEFFREY BROWN: And we turn to the congressional investigation into a collapsed financial securities firm and its high-profile leader.

Judy Woodruff has the story.

JUDY WOODRUFF: Former MF Global CEO Jon Corzine was back at the U.S. Capitol today for the second time in two weeks, this time facing a committee of former Senate colleagues.

Their question was a simple one.

SEN. DEBBIE STABENOW, D-Mich.: Where’s the money? I mean, how do you answer that? Where is the money from funds that were supposed to be kept separate, customer money?

JUDY WOODRUFF: That money, $1.2 billion worth, vanished when MF Global filed for federal bankruptcy protection in October.

But Corzine insisted again he doesn’t know where the funds went.

JON CORZINE, (D) former New Jersey governor: To trace missing funds, it will be necessary to analyze and reconcile multiple hundreds of pages of daily transactions, multiple bank statements from many countries, and to review account records of more than 38,000 customers.

While I was at MF Global, I would not have seen those records, and I have no access to them now.

JUDY WOODRUFF: Corzine, a former New Jersey governor and U.S. senator, took over as head of MF Global in March of 2010.

The firm collapsed on Oct. 31 after betting heavily on European government debt. It became the eighth largest bankruptcy in U.S. history. And Corzine resigned as CEO on Nov. 4.

He was joined at today’s hearing by two executives still with the company.

Bradley Abelow is president and chief operating officer.

BRADLEY ABELOW, MF Global: 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.

JUDY WOODRUFF: The answer was the same from Henri Steenkamp, chief financial officer.

HENRI STEENKAMP, MF Global: I, unfortunately, have a limited knowledge of the specific movements 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.

JUDY WOODRUFF: Under federal securities laws, brokerage firms are required to keep client money separate from company funds.

Kansas Republican Sen. Pat Roberts suggested someone must have authorized transfers to cover company losses.

SEN. PAT ROBERTS, R-Kan.: 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.

JON CORZINE: I never directed anyone at MF Global to misuse customer funds. I never intended to. And, as far as I am concerned, I never gave instructions that anybody could misconstrue.

JUDY WOODRUFF: Late in the day, however, Terrence Duffy, head of the group that controls the Chicago Mercantile Exchange, disputed Corzine’s claim.

TERRENCE DUFFY, CME Group: A CME auditor also participated in a phone call with senior MF Global employees, wherein one employee indicated that Mr. Corzine knew about the loans that it had made from the customer segregated accounts.

SEN. PAT ROBERTS: Mr. Duffy, we’ve spent a lot of time here today. We probably should have had you on first. You have sort of tossed a bomb here right in the middle of who we’re trying to find out who is responsible, who has the responsibility, who has the authority.

JUDY WOODRUFF: Corzine will appear a third time when he goes before another House committee on Thursday.

For more on the news of today’s hearing and the legal implications of the missing money, we’re joined by Azam Ahmed. He has been covering the story for The New York Times. And Jacob Frenkel. He is a former federal prosecutor and Securities and Exchange Commission enforcement lawyer. He has also represented individuals under congressional investigation, and now is in private practice with the law firm Shulman Rogers.

Gentlemen, thank you both for being here.

Azam Ahmed, let me start with you, back to what Senator Pat Roberts called a bomb that had been dropped into the hearing, this testimony.

First of all, who is Terrence Duffy, the witness who presented that testimony? And what is CME Global?

AZAM AHMED, The New York Times: So, Terrence Duffy is the CEO of the CME Group, which is the exchange where MF Global does most of — or did most of its business, transacted most of its trades.

They are also what is called a self-regulating organization — self-regulatory organization, so they’re responsible for regulating MF Global and ensuring that they comply with various laws.

JUDY WOODRUFF: And so what exactly did Duffy testify today?

AZAM AHMED: So, it was strange, because initially it seemed like a bombshell, like Jon Corzine knew about the misuse of funds.

But upon further examination, it seems that he was merely saying Jon Corzine knew that money had been transferred from customer accounts to another division in the company. That, on its surface, is not necessarily illegal. There are legal reasons for it.

So while it was clear his implication was to say that Mr. Corzine somehow knew what was going on, it fell short of actually saying that Mr. Corzine knew — excuse me — Mr. Corzine either authorized the misuse of funds or knew that those funds were being illegally transferred.

JUDY WOODRUFF: Well, how much of an effort was made today to clarify what he — what Mr. Duffy, the man who was making this accusation, was saying?

AZAM AHMED: Not enough.

I — we spent the last half-hour or more trying to nail down what exactly he was saying, because it was very — he seemed very obvious at first that he was lobbing an accusation against Mr. Corzine. And the various senators on the committee seemed to pepper him with questions to that extent.

However, we were in contact with CME folks. And they fell short of saying that Mr. Corzine knew exactly what these customer funds were going to, for instance, whether he knew they were illegally transferred. So, I think to have unveiled that at that time didn’t afford necessarily the right amount of scrutiny over those statements.

JUDY WOODRUFF: Jacob Frenkel, it’s easy to get in the weeds here. For people who have been watching and haven’t been following this story in minute detail, what’s the significance of this testimony today? How big a deal is it?

JACOB FRENKEL, former Securities and Exchange Commission enforcement lawyer: Well, if it really is the bombshell that it appears to be, what it really does — and this is almost — speaking having been a prosecutor for 14 years — is, it helps investigators really hone in, laser in on individuals who may have access to the information about not only what Mr. Corzine did or didn’t know, but other senior executives may have known or may not have known, because the focus of the testimony by the senior executives of MF Global has really been focused on, number one, their intent, or the lack of intent to in any way violate the law, because that is what really could implicate criminality.

But the other thing that they have really tried to do — and Mr. Corzine really had focused on this in his House testimony last week — was really to establish that there was a business judgment. There was a protocol that was followed, even if in the last few days everything fell apart.

JUDY WOODRUFF: You agree with Azam Ahmed’s assessment so far that it’s just really not clear yet how big a bomb, again in the words of Sen. Roberts, this may be?

JACOB FRENKEL: No question. I think that’s a fair assessment, which is we don’t know.

I think Sen. Roberts did ask the right questions. And, ideally, you would someone such as Mr. Corzine follow up, be the next witness to give testimony. But, really, all it does is help give focus. The other thing to keep in mind is, Mr. Duffy was giving testimony about something that an auditor had heard from an employee and sort of float up to him.


JACOB FRENKEL: And that’s multiple levels of hearsay.

My preference, having done this for a long time, is, I want to sit back and let’s see what the investigation ultimately reveals, because that’s where we will get the answers.

JUDY WOODRUFF: Azam Ahmed, back to you, The New York Times.

What else did you hear today that was important for us to know?

AZAM AHMED: Honestly, a lot of it was similar to what happened last week when Mr. Corzine testified.

I think he more clearly delineated his — he was more absolute, rather, about how he didn’t authorize or know that these funds were being misused, and didn’t even believe he said anything that could have been misconstrued to misuse these funds.

But, aside from that, a lot of it was the same territory he had before, which is that he doesn’t know what happened to the missing money, that he is just as eager to find it, and that he can only answer to a certain degree of specificity, given the fact that he hasn’t had access to emails, records and documents.

JUDY WOODRUFF: And, again, Jacob Frenkel, the difference today was that he had with him two current executives of MF Global, both the chief operating officer and the chief financial officer, all three of them now are saying they have no idea where this money went.

To an outsider, that doesn’t sound plausible. What about to somebody like you, who has prosecuted this sort of thing before?

JACOB FRENKEL: Very — well, it actually has — you know, an element of believability to it, because they are at the senior levels of the company.

The one that’s really the most troublesome for me is the chief financial officer, who is still there. In other words, he stayed on post-bankruptcy to help with the wind-down in the management and really helped to sort everything out. So that one is more concerning.

Ultimately, you know, there was a very calculated decision here, not only by Mr. Corzine, but that set the stage for the similar calculus by the other executives. And that is, once they made the decision to testify, they had to work a very, very narrow line to make sure they do not implicate themselves in culpability, while advancing the positions that really will help them or really sort of set the stage for the defense.

A primary concern for anyone who is at the center of such an investigation is criminality.

JUDY WOODRUFF: Can you say at this point how good a job they are doing of walking that line?

JACOB FRENKEL: Well, I actually have been rather impressed by how Mr. Corzine in particular has straddled that line, to be able to get out in essence what are his defenses, did not intend, at worst, maybe someone could have misconstrued what I said, but clearly not trying to commit a fraud or perpetrate a fraud, and to really advance that there was business structure and systems.

Is that really credible? Will that play out at the very end? I have concerns about that, but in terms of staking out his position, I think he’s doing a very good job of doing that.

JUDY WOODRUFF: Azam Ahmed, as someone who has been reporting on these hearings, we know there’s another hearing coming up, a House committee – Sen. Corzine, former Sen. Corzine going to be testifying there. What is it that Congress is trying to get from him and from others at MF Global? What’s behind the congressional investigation here?

AZAM AHMED: I think it all boils down to what happened to the customer money.

That MF Global failed is a tragedy, and a number of people who are unemployed, but it didn’t cause systemic risk or reverberate through the financial system. Ultimately, what matters is, there’s up to $1.2 billion of farmers, traders and others’ money that has vanished.

So, they’re trying to figure out, A., where that money went and, B., how it happened, and, as Mr. Corzine had stated in previous testimony, was there someone who basically hit the red button that allowed them to transfer from what should have been a completely safeguarded account into another area of the company that could then use that money as it wished. JUDY WOODRUFF: And, Jacob Frenkel…

JUDY WOODRUFF: Go ahead. No, I’m sorry. Finish your thought.

AZAM AHMED: Oh, no, no, I’m sorry.

I mean, I think to the frustration of many of the congressmen, they’re not getting those answers from any of the men who testified today.

JUDY WOODRUFF: And just quickly, Jacob Frenkel, whatever comes out of these congressional hearings, bearing, significant bearing on what happens in court, or not?

JACOB FRENKEL: Probably not, given the way this has all played out — great sound bites going into an election year for every member who is asking questions.

Ultimately, the place where this is really going to be sorted out is through the government investigations, at the end of which we’re going to find out what level of culpability, if any, and to whom that will be attributable.

JUDY WOODRUFF: Jacob Frenkel and Azam Ahmed, we thank you both.

AZAM AHMED: Thanks for having me.