Dec. 8, 2011 at 7:27 AM ET
Former New Jersey Governor Jon Corzine said Thursday he never intended to break any rules when he was head of MF Global, adding that he does not know what happened to the money missing from clients' accounts at the bankrupt securities firm.
"I never intended to break any rules, whether it dealt with the segregation rules or any of the other rules that are applicable," Corzine told lawmakers at a House Agriculture Committee hearing.
"I am not in a position, given the number of transactions, to know anything specifically about the movement of any specific funds and I will repeat, I certainly would never intend to direct or have segregated funds moved," he said in his first public statement since he resigned on Nov. 3.
In remarks prepared for the hearing and released beforehand, Corzine, a former head of Goldman Sachs and ex-Democratic senator from New Jersey, said he was shocked when he heard about the missing funds, estimated at about $1.2 billion. A slew of regulators and the FBI have been investigating what happened to the money and whether MF Global used the funds to shore itself up after bets on European debt went sour.
"I was stunned when I was told on Sunday, October 30, 2011, that MF Global could not account for many hundreds of millions of dollars of client money. I remain deeply concerned about the impact that the unreconciled and frozen funds have had on MF Global’s customers and others," Corzine said.
"I simply do not know where the money is, or why the accounts have not been reconciled to date," he said. A slew of investors had money tied up in MF Global's accounts, including farmers, ranchers and small businesses who used the firm to hedge against swings in commodity prices. The effect from MF Global's bankruptcy -- the eighth largest in U.S. history -- has been felt throughout the farm belt.
Appearing strained and sometimes at a loss for words, Corzine, 64, answered every question lawmakers posed to him. But his answers were carefully worded and he often said he couldn't respond or recall because he didn't have access to the documents needed to answer the question.
He tried to deflect the blame for the firm's collapse, arguing that the brokerage, which can trace its origins back to the 18th century, was already crippled by decisions that his predecessors made.
A top CME Group Inc executive said that MF misused hundreds of millions of dollars of client funds by moving the money to its own accounts, Reuters reported. "Transfers of customer funds for the benefit of the firm constitute serious violations of our rules and of the Commodity Exchange Act,'' CME Group Executive Chairman Terrence Duffy said in prepared testimony.
Corzine's remarks and testimony came as a surprise. He was expected to invoke the Fifth Amendment, which protects witnesses from incriminating themselves.
Corzine, who was subpoenaed to testify before the committee, said he decided to speak out because he felt it was the right thing to do.
"(A)s a former United States Senator who recognizes the importance of congressional oversight, and recognizing my position as former chief executive officer in these terrible circumstances, I believe it is appropriate that I attempt to respond to your inquiries," he said in the prepared remarks.
Steve Luparello, vice chairman of the Financial Industry Regulatory Authority, said MF Global was not fully candid with regulators in 2010 when it was asked about its exposure to European debt, Reuters also reported. In prepared testimony, Luparello said FINRA had reached out to MF Global, but the firm indicated in late September 2010 that it "did not have any such positions" in European sovereign debt.
Corzine said in his remarks that since he left MF on Nov. 3 he has had limited access to documents, including internal e-mails, account statements and even his own notes. He added that even when he was at MF, he had limited involvement in the firm's clearing, settlement and payment mechanisms, and accounting.
Answering lawmakers' questions poses a risk for Corzine. Anything he might say could be used against him in a courtroom, should Corzine ever be charged in the case. So far, nobody has been charged.
Agricultural businesses use brokerage firms to help reduce their risks in an industry vulnerable to swings in oil, corn and other commodity prices. But MF Global increased risks by making big bets on European government debt — bets that proved disastrous.
In his remarks, Corzine disputes media reports that he personally pushed the company to make big, doomed bets on risky European debt using too much borrowed money.
Corzine said the company's revenue was "drying up" when he arrived because of competition from online and high-tech brokerages.
He said he made the high-stakes bets only after discussions with company executives who traded European debt long before he arrived. And he said that he reduced MF Global's investment risks by some measures.
Some outside experts challenged that assertion.
Janet Tavakoli, an expert on the transactions MF Global specialized in, said Corzine's remarks divert attention from the firm's fundamental flaw: It lacked the cash to cover its bets after investors started to fear that a major European nation would default.
"His entire testimony looks like a very skilled way to try to detract from that key issue," said Tavakoli, president of Tavakoli Structured Finance.
Legal experts say Corzine could be held personally liable for misrepresenting to investors the risks the firm had taken. Other top MF Global executives also could face legal jeopardy, they say.
It's the first time in more than 100 years that Congress has subpoenaed a former senator to testify, according to Senate historian Don Ritchie. The occasion blends the two worlds Corzine has occupied for his professional life — Wall Street and public office.
Several class-action lawsuits on behalf of shareholders have been filed against Corzine and three other top executives. A bankruptcy court is consolidating the suits. They accuse the firm and its leaders of making false statements about MF Global's strength and cash balances.
The Associated Press and Reuters contributed to this report.