Former MF Global CEO Jon Corzine said Thursday he never intentionally authorized the use of client funds to shore up losses in the days before the failed brokerage firm filed for bankruptcy.
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But he did not rule out the possibility that client funds were used in violation of U.S. securities laws to cover MF Global’s bad bets on European debt.
“I never intended to break any rules,” Corzine said during testimony before the U.S. House of Representatives Agriculture Committee.
Corzine, a former senator and governor from New Jersey, apologized for his role in MF Global’s collapse while insisting he has no idea what happened to hundreds of millions of dollars in missing funds.
Corzine was subpoenaed to appear before the committee, which is looking into MF Global's demise in October. His testimony marked his first public appearance since the firm filed for bankruptcy on Oct. 31 after placing $6.3 billion worth of bets, reportedly under the direct orders of Corzine himself, on European sovereign debt.
An estimated $1.2 billion in client funds is still missing more than a month after the bankruptcy filing.
Corzine, in a dark suit and often appearing anxious and halting before his one-time congressional colleagues, spent about 10 minutes reading from a prepared statement before the questioning started.
Much of the statement involved arcane explanations of his strategy to broaden MF Global’s reach and profits through bets on European debt. The strategy, he said, citing specific deals and trades, was widely discussed and debated among top executives at the firm, as well as by MF Global’s board, he said.
Corzine was expected to deflect most questions by invoking his 5th amendment right not to incriminate himself. But in a 21-page statement released ahead of his testimony he apologized “to all those affected” and said he felt obligated to answer questions related to the bankruptcy.
His voice cracking, Corzine concluded his statement, saying, “I sincerely apologize, both personally and on behalf of the company, to our customers, our employees and our investors, who are bearing the brunt of the impact of the firm’s bankruptcy.”
More than 1,000 MF Global employees lost their jobs after the company filed for bankruptcy.
Still, while answering every question posed to him, Corzine left many questions unanswered.
Corzine said repeatedly he doesn’t know where the missing funds are or how they came to be missing in the first place: “I simply do not know where the money is, or why the accounts have not been reconciled to date. I do not know which accounts are unreconciled or whether the unreconciled accounts were or were not subject to the segregation rules.”
Corzine added that he was “stunned” on the night of Oct. 30, a day before the bankruptcy filing, when he learned that hundreds of millions of dollars in client funds had gone missing.
His appearance Thursday marks an astonishing reversal of fortune for Corzine, a former co-head of Goldman Sachs and once considered a potential successor to Timothy Geithner as Treasury Secretary.
Corzine faced hard questions during his several hours of testimony, such as whether he authorized the use of client funds to cover MF Global's bad bets on European debt, a practice barred under U.S. securities law.
He denied intentionally doing so, but said he couldn’t be sure exactly how funds were transferred back and forth within the firm as the company careened toward bankruptcy. “There were many transactions that occurred in those last chaotic days. It would be very hard for me to speculate where and why those shortfalls took place,” he said.
In separate testimony Thursday, an executive at a futures exchange that serves as a self-regulator for firms like MF Global said MF Global did in fact improperly mingle customer funds with the firm’s own accounts, according to Reuters.
“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 a statement.
Concerns have also been raised that Corzine used his considerable influence both in Washington D.C. and on Wall Street to convince regulators to look the other way and give preferential treatment to MF Global even as the firm was teetering on the brink of collapse.
Corzine’s used his prepared statement to divert blame away from himself by claiming he was not directly involved in many of the actions that preceded MF Global’s demise. He said, “… my involvement in the firm’s clearing, settlement and payment mechanisms, and accounting was limited.”
He also testified that he may not have had enough time to prepare to properly answer all of the committee members’ questions.
Corzine took the helm of MF Global in March 2010 after losing his re-election bid for governor of New Jersey. He immediately set about changing the direction of the relatively obscure futures brokerage firm, seeking to expand its operations in the model of a big investment bank like Goldman Sachs, his former employer.
With that in mind, he ramped up the firm’s proprietary trading operations, the unit that invests money purely for the profit of the firm. However, Corzine inexplicably -- and reportedly against the advice of MF Global’s chief risk officer – invested heavily in European sovereign debt just as that crisis was spreading rapidly across the eurozone.