WASHINGTON (CBSNewYork/AP) – Questioned by senators he once served with, Jon Corzine told a panel Tuesday that he never told anyone to “misuse” customer money that vanished when MF Global collapsed this fall.
An estimated $1.2 billion in client funds are missing. Senators are demanding that Corzine and two other executives at the securities firm explain who authorized the transfer of money in the days before the firm collapsed in the eighth-largest bankruptcy in U.S. history.
“I never gave any instruction to anyone at MF Global to misuse customer funds,” Corzine testified at a hearing of the Senate Agriculture Committee on Tuesday.
Corzine, a former Democratic New Jersey senator and governor, resigned as CEO of the securities firm last month.
Bradley Abelow, the firm’s president and chief operating officer, and Henri Steenkamp, the chief financial officer, also tried to distance themselves from any decision to transfer the money at the hearing.
Brokers are required to keep client money separate from company funds.
“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,” said Kansas Sen. Pat Roberts, the committee’s top Republican.
Roberts said MF Global violated “a sacred rule of the futures industry,” keeping customer funds separate from the firm’s – and that it was the first time that had happened. “You don’t break the glass in regards to segregated funds.”
All three witnesses said they don’t know where the money is. Yet their phrasing varied in subtle ways that could have legal distinctions.
Abelow said he does not recall “any conversation about customer funds being used for anything other than their intended purpose.”
Steenkamp’s stance was more sweeping. He said he did not “authorize, approve or know of any transfers of customer funds” out of their accounts.
Depending on the circumstances, transferring money from customers’ accounts could violate securities laws and, in some cases, could amount to a crime. Federal authorities have begun criminal investigations. And regulators are looking into whether the firm broke securities rules.
The executives said that given what is now known, they wouldn’t have signed the firm’s last quarterly financial statement attesting that its internal financial controls were adequate.
Under a 2002 anti-corporate-fraud law that Corzine co-wrote as a U.S. senator, the top executives of public companies must personally certify the accuracy of their company’s financial statements. It can be a violation of the law for executives to sign a false statement.
MF Global collapsed into the eighth-largest bankruptcy in U.S. history after a disastrous bet on European debt.
The three executives say that they didn’t become aware of the shortfall until hours before the firm filed for bankruptcy protection on Oct. 31.
The Senate panel is one of three congressional committees to have issued subpoenas to compel Corzine’s testimony on the issue. It marked the first time a former senator has been subpoenaed by his former peers in more than 100 years, according to the Senate historian’s office.
Many lawmakers have heard from farmers, ranchers and small business owners in their states who are missing money that was deposited with the firm. Agricultural businesses use brokerage firms like MF Global to help reduce their risks in an industry vulnerable to swings in oil, corn and other commodity prices.
Jennifer De Ruzza, a single mother who invested her $10,000 nest egg in MF Global, said she and her two daughters are really suffering without the funds.
“They took all of my cash in my account,” De Ruzza said. “We can’t pay the rent. We can’t pay the car insurance, the condo insurance, the property insurance and, you know, I have credit cards. We’ve had to go have meals at friends’ houses and Christmas is here and I have no money. I have nothing for the birthdays. Christmas has kind of been cancelled for right now.”
Corzine told lawmakers last week that he never intended to authorize the transfer of funds from customer accounts. If any subordinates moved clients’ money in the belief that Corzine had authorized it, “it was a misunderstanding,” he said.
Corzine, Steenkamp and Abelow have been sued in class-action complaints on behalf of MF Global shareholders. The lawsuits accuse the executives of making false and misleading statements about MF Global’s financial strength and cash balances.
MF Global didn’t list the European debt on its balance sheet for all to see. Instead, those holdings were shifted to the company’s “off-balance sheet,” deep in its financial statements. Some separate filings with regulators excluded the European debt entirely.
A lawyer for the trustee overseeing the liquidation of MF Global’s brokerage operations said in court Friday that the trustee’s staff has discovered some “suspicious” trades in MF Global customer accounts that were made in the last days before the firm failed. The lawyer didn’t provide details.
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