MF Global's Corzine denies knew of an improper loan

WASHINGTON Thu Dec 15, 2011 11:18pm GMT

Former MF Global CEO Jon Corzine frowns as he testifies before a House Financial Services Committee Oversight and Investigations Subcommittee hearing on the collapse of MF Global, at the U.S. Capitol in Washington, December 15, 2011. REUTERS/Jonathan Ernst

Former MF Global CEO Jon Corzine frowns as he testifies before a House Financial Services Committee Oversight and Investigations Subcommittee hearing on the collapse of MF Global, at the U.S. Capitol in Washington, December 15, 2011.

Credit: Reuters/Jonathan Ernst

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WASHINGTON (Reuters) - Former MF Global chief Jon Corzine denied on Thursday a recent allegation that he knew customer funds were improperly used while absorbing withering criticism from Republicans who chided the former Democratic senator for his role in the firm's failure.

It was his third appearance in eight days before lawmakers probing MF Global's demise and the whereabouts of hundreds of millions of dollars of customer money.

Corzine immediately sought to address allegations about a loan to a European unit of MF Global.

"I don't know the source of the suggestion but let me be clear," Corzine told a House Financial Services oversight subcommittee on Thursday. "I did not instruct anyone to lend customer funds to MF Global or any of its affiliates, nor was I told that anyone had done so."

MF Global filed for bankruptcy on October 31 after it was forced to reveal that it had made a $6.3 billion (4 billion pounds) bet on European sovereign debt, spooking investors and customers. Corzine resigned as CEO days later.

A trustee liquidating the firm has estimated the customer funds shortfall could be as high as $1.2 billion.

The search for missing customer money has sent reverberations through the farm belt and trading floors, and has attracted the attention of the FBI and federal prosecutors.

On Tuesday, CME Group Executive Chairman Terrence Duffy told a Senate committee that a CME auditor participated in a phone call during which an MF Global employee indicated that Corzine knew the firm used customer money to lend $175 million to its European affiliate.

A CME timeline of MF Global's last days identifies the CME auditor as Mike Procajlo, and said the call took place in the middle of the night, hours before the bankruptcy filing. For the timeline click: link.reuters.com/fef65s

Duffy told the Senate Agriculture Committee that CME, one of MF Global's regulators, has provided the information to the Justice Department and the Commodity Futures Trading Commission.

STEPPED IN AND OUT

Under questioning at the House hearing about Duffy's charge, a slightly exasperated looking Corzine said the final days of MF Global were hectic and he could not provide a blow-by-blow account of every part of the phone call in question.

"First of all we were operating very late in the day and after many, many days," Corzine told the committee. "I'd also say I stepped in and out of that meeting on a very regular basis to consult with counsel and also to speak to the board."

He added: "I did not in any way know about the use of customer funds on any loan or transfer."

Seeking to explain the confusion over the use of customer funds, Corzine said that Duffy may have been referring to a situation regarding overdrafts at JPMorgan Chase.

Corzine said that on October 28 JPMorgan contacted him and other MF Global employees about "certain overdrafts" and asked whether funds had been transferred in compliance with CFTC rules.

"The back office in Chicago explicitly confirmed to me that the funds were properly transferred," Corzine said. "I understood that JPMorgan Chase was satisfied because they executed billions. of dollars of trades with MF Global."

Corzine, a former Democratic senator, governor of New Jersey, and one-time leader of Goldman Sachs, once again apologized on Thursday for any harm MF Global's failure may have caused customers.

During a break in Thursday's hearing for a House vote, Corzine and MF Global Chief Operating Officer Bradley Abelow were served with legal papers.

"I haven't even looked at it yet," said Gary Naftalis, a lawyer who was accompanying Abelow. "Some kind of civil suit."

HOTEL CHOICE

At points the hearing got personal, with New Mexico Republican Steve Pearce portraying Corzine and Abelow as fat cats who have done little to help the customers hurt by MF Global's failure.

Pearce pointed out that Corzine is staying at the Ritz Carlton in Washington. He then asked both men if they had spoken with any of MF Global's customers since the bankruptcy or started college scholarship funds for any of their families.

After both stiffly said no, Pearce sneered: "But we're so sorry, we're desperately sorry, we want to apologize."

Democrats and Republicans have sought to make political hay out of MF Global's demise with Republicans citing the firm's failure as evidence that the 2010 Dodd-Frank financial oversight law is not working.

Democrats in turn accused Republicans of being hypocritical for faulting regulators' oversight of MF Global at the same time they are underfunding agencies, such as the CFTC, who are responsible for policing the markets where MF Global participated.

"You cannot logically and sensibly be for regulation in the particular when you have opposed regulation in general," said Barney Frank, the leading Democrat on the Financial Services Committee.

(Reporting by Christopher Doering, Sarah N. Lynch and Philip Shishkin; Writing by Dave Clarke; Editing by Tim Dobbyn)

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