Published February 02, 2012
The former chief risk officer at MF Global who raised red flags about the firm's aggressive trading bets told lawmakers that his warnings contributed to the firm's decision to let him go in early 2011.
Michael Roseman, who was ousted in January 2011 from the now-bankrupt futures brokerage, said he rang alarm bells about the firm's exposure to European sovereign debt a year before the firm collapsed in late October of 2011.
"My views on risk certainly played a factor in that decision," Roseman told a House Financial Services subcommittee, about why he was asked to leave the firm.
Before MF Global's collapse, then Chief Executive Jon Corzine pushed the firm to take on a more aggressive trading strategy, including a $6.3 billion dollar bet on European debt, executed through repo-to-maturity transactions.
Corzine, once CEO at Goldman Sachs and a former New Jersey governor and U.S. senator, also was pushing the futures brokerage to evolve into something closer to an investment bank.
Roseman said such a strategy required a lot of capital and a lot of liquidity, two things that ran out at the firm.
"I do think the strategy maybe exceeded the ability of the resources," he said.
MF Global filed for bankruptcy after investors and customers began to flee, alarmed by the firm's massive bet on European sovereign debt. Investigators are still trying to find more than $600 million in missing customer money, including money in the accounts of hundreds of farmers.
Lawmakers are holding a series of hearings to determine whether MF Global was transparent about its risk-taking, and whether regulators should have reined the firm in and better protected customer money.
Roseman appeared alongside Michael Stockman, who was brought in to replace him as chief risk officer.
Lawmakers pressed Stockman if he was brought in as a "yes" man, after Roseman got ousted following his warnings to Corzine and the board.
"Did you ever think that maybe they ran off Mr. Roseman and brought you in to be kind of the guy that doesn't see, tell, know? Did that ever occur to you?" Republican Steven Pearce asked Stockman.
Stockman replied, "No sir."
Pearce also laid into Stockman about his testimony that he was "deeply saddened" by MF Global's collapse and its impact on shareholders and customers.
"Have you suggested that maybe you ought to give your pay back and put it into a scholarship fund for these kids that aren't going to go to college? Sitting out there, some hog farmer who is trying to make ends meet. My dad raised pigs. I know what it's like. He's trying to pay for the next sack of feed," Pearce said.
Stockman was reluctant to speculate on what specifically doomed MF Global.
Roseman, however, said MF Global would have been on a very different path if it had not ramped up its European debt exposure.
"In my opinion, they would still be here," Roseman said.
Representatives from credit rating firms Standard and Poor's and Moody's Corp are due to testify later on Thursday. (Reporting By Sarah N. Lynch and Karey Wutkowski; Editing by Tim Dobbyn)