Who authorized the transfer of millions in customer investments just before the collapse of brokerage firm MF Global? That's the question no one testifying at a congressional hearing Wednesday afternoon seemed able to answer.
Top executives from the brokerage firm appeared before a House subcommittee in Washington to say that none of them knew what happened to the customer money or what led to the firm's ultimate loss of more than a billion dollars.
“This reminds me of a hearing we had I don’t know how many years ago on Enron,” said House Financial Services Oversight subcommittee member Rep. Mike Capuond (D-Mass). “Apparently, no one did anything wrong, but there’s a billion dollars missing.”
MF Global filed for bankruptcy protection Oct. 31. Former CEO Jon Corzine, a former New Jersey governor and U.S. senator from the state, stepped down in November. About $1.6 billion in customer money hasn't been recovered.
The key answer lawmakers were looking for Wednesday was whether, as Bloomberg reported earlier this week, MF Global executives ordered $175 million transferred from customer accounts to pay down an overdraft in the firm’s own brokerage account -- and whether that transfer was legal.
But during a lengthy question-and-answer session with members of the subcommittee, witnesses claimed ignorance on the circumstances surrounding the disappearance of the funds, which happened in the days prior to the company's bankruptcy filing.
“I have limited knowledge of the specific movement of funds in the last two or three days prior to the bankruptcy filing,” said Henri J. Steenkamp, chief financial officer of MF Global’s parent company, MF Global Holdings, during his opening remarks to the subcommittee. “My attention was appropriately focused on crisis management and strategic issues relating to the sale of the company.”
Chief Financial Officer of MF Global's North American Operations Christine Serwinski said she also knew little of the transfer. “I was away for the majority of that week (in question),” she said. “I apologize in advance if I am unable to provide enough detail.”
Serwinski seemed to place the blame for oversight of the transfer partly on a witness who wasn't talking, former Assistant Treasurer of MF Global Holdings Edith O’Brien. O’Brien declined to answer the panel’s questions -- pleading the Fifth before being excused from the session altogether.
The firm’s chief lawyer, MF Global’s general counsel Laurie Ferber, concurred with her colleagues. “There was a terrible failure here of some kind, but what it was I don’t know.”
In a separate session Wednesday, JP Morgan Chase deputy general counsel Diane Genova, said she received multiple assurances from MF Global executives that the fund transfer was legal. JP Morgan Chase oversaw the accounts subjected to the overdraft.
MF Global, which specialized in derivatives trading, invested money for smaller-scale institutions, such as a Midwestern grain elevator company. According to Reuters, the City of Austin Electric Utility, as well as a number of Fortune 500 companies also were among its clients.
The lack of answers Wednesday was met with anger from some lawmakers. No one at the hearing “owned up to this responsibility even though you're all three in major positions of responsibility (at MF Global)” complained Rep. Steve Pearce (R-N.M.).
Rep. Nan Hayworth (R-N.Y.) concurred, and suggested that the lack of a willingness to take responsibility for the fund transfer indicated witnesses were trying to shield themselves from potential legal liability. “Here we have three intelligent and capable people who were in positions of tremendous responsibility,” said Hayworth. “And among you ... it seems that there’s been a great effort to maintain plausible deniability.”
The hearing Wednesday was the third in a series of similar congressional inquiries. Last December, Corzine told the panel, “I simply do not know where the money is, or why the accounts have not been reconciled to date.”
According to the panelists, investigators from the U.S. Department of Justice and U.S. Commodity Futures Trading Commission have been in contact with at least one of the firm’s executives as regulators look into the firm’s collapse.
At one point in the hearing, Pearce seemed to suggest that the CFTC was urged by another government agency to cease its investigation MF Global, asking the panelists, “Do you have any idea why the CFTC would be asked to cease and desist their investigation?”
They were not aware. A CFTC did not immediately return a request for clarification.