Subcommittee Investigates MF Global’s Final Days
Where did missing customer money go?
March 23, 2012 -
NOTE: Accredited media planning to attend the hearing should send an email here to reserve a seat.
Decisions and events during the final days of MF Global that led to the disappearance of up to $1.6 billion in customer funds will be the focus of a congressional subcommittee hearing on Wednesday.
Since MF Global filed for bankruptcy on Oct. 31, 2011, the Financial Services Subcommittee on Oversight and Investigations has led the congressional investigation into the firm’s collapse and the whereabouts of money that is missing from customer accounts.
On Wednesday, the Subcommittee will hold its third hearing on MF Global and question four former executives who were involved in responding to the mounting financial pressures faced by the doomed firm in its last week before bankruptcy. At two previous hearings, the Subcommittee questioned former MF Global CEO Jon Corzine and credit rating agency officials who had evaluated the firm’s creditworthiness.
“We hope to learn whether the liquidity crunch at MF Global led someone to improperly use customer funds to meet the firm’s need for cash,” said Financial Services Committee Chairman Spencer Bachus.
Rep. Randy Neugebauer, the Subcommittee’s chairman, said, “One of the goals of our investigation is not only to find out where the money went but to identify what went wrong in order to prevent this from happening again. This is an important hearing that will help illustrate the events that transpired in the final days of operation that led to the misuse of $1.6 billion in customer funds.”
During the course of its investigation, the Subcommittee has reviewed more than 100,000 documents and electronic communications and interviewed MF Global senior management, regulators and executives at firms that had business relationships with MF Global.
The Subcommittee’s investigation has provided insights into internal events that transpired at MF Global in the days following credit agency rating downgrades, which precipitated the firm’s downfall.
For example, the Subcommittee has learned that the day before MF Global filed for bankruptcy, staffers from the Commodities Futures Trading Commission (CFTC) were on-site in MF Global’s Chicago office and saw a draft statement indicating a shortfall existed in segregated customer accounts. MF Global staff originally attributed the deficiency to an accounting error. However at 1:00 a.m. the following day – Oct. 31, 2011 – MF Global informed its front-line regulator, the CME Group, that the shortfall in segregated customer funds was not due to an accounting error but was an actual deficiency. About an hour later, MF Global’s senior management informed federal regulators of the shortfall during a conference call.
The Subcommittee’s investigative staff has obtained information from MF Global sources suggesting the shortfall in customer funds was the result of three types of transactions: intra-day loans between MF Global’s futures commission merchant and its broker-dealer; funding of broker dealer client outgoing funds; and a $175 million transfer to MF Global UK Ltd., the firm’s London-based European operation.
Witnesses who are scheduled to testify at the hearing are: Laurie Ferber, General Counsel for MF Global; Henri Steenkamp, the company’s Chief Financial Officer; Christine Serwinski, Chief Financial Officer for MF Global North America; Edith O’Brien, MF Global’s Assistant Treasurer at the time it went bankrupt; a witness from J.P. Morgan Chase; and a witness from the Financial Accounting Standards Board.
The Subcommittee hearing will take place at 2 p.m. on Wednesday, March 28 in room 2128 Rayburn House Office Building.
Click here to view the memo. Click here to view the addendum.