into the collapse of the mf global. >> up next, the house agriculture committee hears from the future commodities trading commission and the liquid dation of mf global and what became of

an estimated $1 at any time 2 billion that's missing from the fund. this hearing is a little more than an hour. [inaudible conversations] >> this hearing of the committee on agriculture to examine the mf global bankruptcy will come to order. i thank you for joining us today for this important hearing, and i'd like to thank the ranking member and staff in help of pulling this hearing together and i thank our witnesses for being here. each member of the committee understands the importance of the futures market for farmers and ranchers across the country. for decades, futures markets have been a trusted tool for businesses seeking risk or to manage the risk. the bedrock of the trust in these marketses is based on the fundamental protections demanded by mandatory segregation of customer funds. this is supported an an

explosive growth in recent years providing farmers, ranchers, businesses throughout the economy with risk management tools. these tools allow businesses to reduce the volatility, price of goods, and prices for consumers. unfortunately, the corner stone of the futures market customer funds segregation has been severely and suddenly called into question. on october # 1, 2011, mf global holding filed for bankruptcy. after revealing 245 a substantial amount of customer funds were missing. there are now reports that as much as 1.2 billion -- $1.2 billion may have disappeared. dozens of my constituents are left not only without their property, but also without answers about why and how this happened. i know my colleagues all heard similar stories from constituents lacking confidence

in the system that served them well for many years. today, this committee will examine the bankruptcy of mf global. from the start, i'd like to make it clear that our intention is not to sensationalize events that unfolded, and we're not here to point fingers and place blame. we take seriously that we have asked both the trustee and the relevant regulatory organizations to appear before us. we realize that this inevitably diverts their time and resources from the most critical objective at this time, to recover and return to customers the property that belongs to them. however, it is critical that this committee shed light on the circumstances surrounding the bankruptcy, to assert additional facts and information into the public doe nan and to dispel many of the confusion and misinformation that exists. a deeper, more comprehensive

understanding of the facts will put all of us in a better position to address the sichtion and to begin to restore confidence -- situation and begin to restore confidence in the futures markets. this is the objective of the hearing today. to that end, last week, this committee took extraordinary action to compel witness testimony that is essential to understanding the whole picture and building a comprehensive record. i assure you that both the ranking member and i did not take this action lightly. lastly, it is important to stress this hearing 1 not simply a check the box exercise. this committee will continue to monitor the investigation in the mf global's actions and will work to ensure that customers receive fair treatment throughout this entire process. thank you. i look forward to hearing from our witnesses. i'd now turn to the ranking

member for his comments. >> good morning, and thank you, mr. chairman. as the chairman said, today's hearing is to review the bankruptcy of mf global, potentially the 8th largest bankruptcy in history. begin that futures customers, particularly those in agriculture were affected by the collapse, it's necessary to hear directly by all involved and who knew what and how they knew it. i want to thank the chairman for working with us to have this hearing. the committee held plenty of hearings of problems that may or may not occur regarding the implementation of dodd-frank. given the serious problem that currently exists for thousands of future customers for mf global, i think it's appropriate we refocus our attention. after the bankruptcy ofbear sterns and lehman brothers, the

collapse of 2008 and the passage of historic reform legislation, i think it's pretty amazing we're in this situation. it appears to me nobody learned a thing from what's gone on here. wall street is operating as if 2008 never happened. from all accounts, mf global has leveraged, i guess, 37.5-to-1, far higher than sterns or lehman brothers when they folded. ironically, it's possible there's nothing in dodd-frank that would have prevented mf global's financial collapse. that's why i think we should tread very cautiously before rolling back dodd-frank's protections. given what happened here, we should probably be talking about strengthening dodd-frank, not weakening it. three big financial firm bankruptcies over a three year

period is not atrack record that -- a track record that should be extended. in the 2008 crisis, futures markets continued to function smoothly. when lehman failed, their regulated commodity accounts were transferred to other mother chapters with no disruption. wall street not content to selling its own reputation, violate the supreme law, which is protection of customer funds. the futures industry helps farmers, manufacturers, energy companies, and other industries mitigate risk so that can go about growing, producing, generating, and making the things that make this country run. we need to get to the bottom of what happened with mf global as quickly as possible in order to restore the confidence greatly shaken as the chairman indicated. we can want let one company succeed in underminding an industry that operated safely

for customers for decades. unfortunately, other friends on the other side of the capitol are hell bent to pin blame on what they perceive as failing to do their jobs. you know, do we blame the police officer the day after our house is broken into? of course we don't. the futures world operates with a self-regulatory system of oversight because the cftc cannot afford or have the resources to put a watchdog into every future commission mother chapter. if these members have their way, the commission would get less funds than they do now. this blind rush to judgment fails to take into account how the self-regulatory system works, and in my view, underminds it. on a personal note, i friend the press accounts expressing surprise that the agriculture comet could approve something as series as a congressional subpoena. unanimously, i would say, on a bipartisan basis, quite

amusing. the commission's oversight of the futures and derivatives market is a responsibility that i do not take lightly, and i think the members do not take lightly either. on these issues, the committee will work across party lines because when it comes to matters affects the financial health and state of the country, partisan games have no place. i know that that's not something that the press is used to seeing from congress, but it's how we do things on the ag committee. here at the agriculture committee, we're focused on the facts. it's the facts that tell us what happened, who knew about it, and consequently who was responsible. only by uncovering the facts can we prepare ourselves for policy responses necessary to address what happened, and that's what this hearing is all about. again, i want to thank the chair for working with us to hold the hearing, and i'm hopeful that today's witnesses will shed light on some of what exactly was happening at mf global, and i also want to thank all the

witnesses for being with us today, and i look forward to the testimony and the questions. >> translator: chair thanks the ranking member for comments and request the others submit their statements for the record, and we may begin the testimony to ensure ample time for questions. i republic jill sommers, commissioners commodity futures trading comigz in washington, d.c., and commissioner sommers, please begin when you are ready. >> good morning, chairman lucas, vice chairman, ranking member peterson and other members of the committee. thank you for inviting me here today to discuss the bankruptcy. i understand the severe hardship this bankruptcy caused for members of mf global. these customers correctly understood the risks associated with trading futures and

options, but never anticipated their segregated accounts were at risk of suffering losses, not associated with that trading. many customers reach the out to me and my staff directly, and we're doing everything we can to get as much of their money back to them as quickly as possible. i have made that my number one priority. the commission has dozens of staff members including auditors, attorney, and up vest gaiters in new york, chicago, and washington, d.c. working on these issues. i am unable to discuss matters that might compromise the ongoing enforcement investigation or parallel investigations by other government agencies, so i will focus my comments on the bankruptcy cases pending in new york and on the legal requirements surrounding the segregation of customer funds held at future commissions mother chapters. as i understand the securities

investor protection agent of 1970 or sipa, the fcc has the authority to refer an entity registered as a broker dealer whether or not such entity is registered as an sem to the cooperation if there's reason to believe the endty is in or is approaching financial difficulty. may may initiate a proceeding to protect customers of an insolvent broker dealer when statutory criteria are met. in this instance, the liquid dation was met on september 21st with the concept of mf global. when a broker dealer is also registered as mf global was, there is one dually registered entity, and the entire entity is placed into liquidation.

it's not possible for a sprit bankruptcy proceeding. it is important to note, never, when a dually register sdm is placed into a liquid proceeding, the relevant provisions and protections of the bankruptcy code, the commodity exchange act, and the commissions regulations apply to customer commodity accounts just as they would if the entity were solely an sem and not in a sipa bankruptcy proceeding. the commission is no stranger to bankruptcies. lehman brothers is the most recent. while the lehman brothers bankruptcy was monumental scale, commodity customers did not lose their money at either firm. in both instances, commodity customer accounts were wholly in tact. that is, they contained all open positionings and all associated

segregated collar rail. that being the case, customer accounts were transferred to health sems with the commodity customers having no further involvement in the bankruptcy proceeding. unfortunately, that is not what's happened at mf global because the customer accounts were not in tact. in sem bankruptcy, they have priority in customer property including without limitation segregated property, property that was illegally removed from segregation and still within the debtor's education state and is no longer within the state, but clawed back by the trustee. if the customer property, as i just described is insufficient to satisfy in full all the claims of customers, the commission regulations allow other property of the debtors of state to be classified as customer property to make up for

any short fall. apparent or affiliated entity, however, generally would not be a debtor unless customer funds could be traced to that endty. for the past few weeks, the trustee with the encouragement and assistance of the cftc transferred nearly all positions of customers trading on u.s. commodity futures markets and is transferred approximately 2 billion of customer property. tomorrow, we hope the court will approve a top up of all commodity customers to two-thirds of the account values. these transfers demonstrate the commodity customers are indeed receiving the highest priority in claims to customer property. we understand more must be done. an scm is authorized to invest funds in accounts. this authorization is found it 4d and commissions regulations 1.25. the commission finalized changes

to regular 1.25 monday of this week. these changes just reenforced the long held view of the commission that customer segregated funds must be invested in the manner that minimizes their exposure to credit risks both to ree preserve their availability to customers in dcos: regulation 1.25 is a general prudential standards that requires all permitted investments be consistent with the objectives of preserving principle and maintaining liquidity. while an scm is permitted to invest customer funds, it is important to note if they do so the value of the segregating the must be in tact at all times. if customer funds are transferred out of the account to be invested by the scm, they must make a simultaneous transfer of asset intuse the segregated account. an scm cannot take money out of

a segregated account, invest it, and then return the money to the segregated account at some later time. regulation 1.25 has never allowed a firm to transfer customer money out of segregated accounts to be used for other purposes. when a customer opens a trading account, commission regulations require that the customer be provided with a risk disclosure statement that generally centers on market list, market volatility, and leverage. we also require scms to notify the commission immediately of an occurrence of undersegregation or instances of significant margin calls. while our current focus is returning as much money as possible todd customers, we're spending an enormous amount to

customer funds and pursue the enforcement investigation. all the information we learned during these aspectings of the work are relevant to the commission as it considers lessons learned and any policy responses for regulatory changes. obviously, the commission has a great deal of work ahead it of to get customer funds back where they need to be to determine what went wrong with the segregated funds and to determine whether to prosecuteny violations of the act. and to determine what needs to be done to prevent a similar circumstance in fact future. commission staff is coordinating on these issues with other regulators both internationally and domestic. we are also closely working with the sipa trustee to provide whatever support he needs to resolve issues with commodity customer accounts. i greatly appreciate the continued support of this committee as we move forward in this important work. thank you, and i'm happy to

answer any questions. >> thank you, commissioner. mr. kobak, you may begin when ready. >> thank you. thank you for inviting me to testify today about efforts to identify, preserve, and return assets to former customers of mf global, inc. i'm james kobak, a partner at the law firm of hues harbor and league under the security protection account, and by statute, the trustee is the customers advocate. the trustee's staff, which includes legal experts, consultants, and forensic accountants is focused on looking after the interest of customers and returning assets 20 them as quickly as possible and in a way that's fair and

consistent with the law. the trustee appreciates the interest of this committee. we have been working closely and continuously with the securities investor protection corporation, with commissioner sommesr and the commodities future trading commission, with the exchange commission, with the chicago america tile exchange and with other industry members and industry groups. the trustee and everyone working with him understands the frustration of many former mf global, inc customers. when a broker dealer with 36,000 commodity customers fails under the unprecedented circumstances here, the lick dation is necessarily complex. the office of the trustee has been working tirelessly with speed and diligence to marshall

customer assets finding ways to return them to customers to the fullest extent of our ability under the provisions of sipa, the bankruptcy code, and cftc regulations. we were appointed on the afternoon of october 31st through expedited court proceedings beginning in less than two days that have already been approved by the court, and with the assistance and consent of the cftc. we distributed $2 billion of property. we have a hearing in bankruptcy court tomorrow where we're asking the court to approve a transfer of an additional slightly over $2 billion that should bring all customers with domestic commodities positions up to an amount slightly in exsises of two-thirds of the value of their accounts. the customer claims process is also up and running with claim

forms on the trustees website, and also sent by mail. the claims are being filed and reviewed as we speak. as part of the stach -- statutory duty, the mandate is researching the extent of and reasons of the short fall in what mf global management should have segregated or otherwise set aside at depositories for the benefit of commodity customers. the investigation is ongoing, and the trustee is not yet in a position to make any definitive conclusions; however, he has determined that even if he could recover everything that is presently available at u.s. depositories, there will be a significant short fall. at present, the trustee believes the short fall, based on everything he's looking at across the entire business may be as much as $1.2 billion or

more. the trustee felt obligated to share these preliminary numbers and explain the uncertainty around them, first to the court supervising the liquidation and then to the public through the website. it is the trustee's hope that the short fall number comes down, but no matter the final amount of the short fall, under any of the estimates that have been made, it is significant and substantially affects the froes tee's ability to make a 1 00% distribution to former mf global customers. further complicating matter, assets located in foreign depositories for those trading in foreign futuring are or should be under the control of foreign bankruptcy trustees or administrators. the trustee is pursuing these assets vigorously, but recovery

may be uncertain and may take more time. the office of the trustee has meads every effort to communicate directly and frequently with customers through website, mailings, and frequent meetings with various groups. in closing, you can be assured that the trustee and his staff are fully committed to returning customer's property as quickly as possible and in a fair and equitable manner that complies with the law. >> thank you, mr. kobak. i recognize myself now for five minutes. commissioner sommes, it's become clear there were warning signs at mf global in the weeks, if not months leading up to the bankruptcy, increased debt and leverage in foreign capital. was the tftc aware of these warning signs? >> mr. chairman, the

investments in foreign sovereign debt would be on the broker-dealer side of that business. the types of reports we received from the scm, we received daily segregation reports from mf global, and those did not raise red flags for us until right before the bankruptcy. >> it's fair to say then the first time you're made aware of the issues is right before the bankruptcy. who is the pri mire responsibility for monitoring the records? the cftc or the nfa? who verifies, i guess, the accuracy in addition to monitoring? >> a typical acm is required to compute and keep records that their dsro and the tftc would be able to look at, and in the case of mf global, those daily seg

reports were not actually just kept at mf global, but sent to the fftc. >> but the bottom line is still nonetheless the daily reports were prepared, examined at the tftc, and the verification to the accuracy, how is that done? >> the daily reports would compute how much of segregated customer segregated money was required to be there and how much was actually there. >> so on a day-to-day basis, we took their word for that whey told us that they had in the accounts in which accounts? >> that's right. our system relies on self-reporting, and an scm is required to report to the cftc if they are under. >> again, reminute me what cftc did to protect customer accounts leading up to the bankruptcy filing? >> we reviewed the daily

segregation reports. >> okay. mr. kobak, you indicated that potentially there was at least, if not perhaps more than $1.2 billion this these funds that are not accounted for at the present time? >> that's our best estimate to date, yes, chairman lucas. >> that's a substantial sum of money by anybody's definition. tell me this -- if the trustee is unable to recover the missing funds, what priority will mf global's customers be given in the bankruptcy proceedings 1234 >> they have, i actually refer 20 -- to it not as a priority but really with respect to the funds there in the segregated accounts. it's really an exclusive right of commodity customers so general creditors, customers, have to right at all.

if there's an insufficiency, we would -- if there are other sources available that we can legally pursue, we would do that as commissioner sommers indicate ed. there are provisions allowing us to do that and provisions that allow general estate assets to be put into the segregated funds and to be able very commodities customers. >> mr. kobak, the cme estimated the $5 million guarantee facilitates the assets to ensure every customer gets about 75% of the account value; is that correct? >> the $550 million guarantee really goes to trueing up accounts so if somebody in some of the transfers got more than their proportioned share at the end of the day, it would be even. we don't think it's enough to let us get to quite 75%. i think the distribution that

we're hoping the bankruptcy court authorizes tomorrow will get us up to the area of 69%-70%, somewhere in that vice president-elect for customers. >> so if i'm a customer out in the countryside caught in the situation, we can proceed with this extra money, will i have to wait substantially longer to get up to that 75%? >> we've been working with the cme closely. if the court approves the transfer, we have systems in place to start the mechanism rolling immediately. ..

there is a tremendous volume of transactions over the last week or 10 days of its business, many unusual transactions. it's very hard to sort through all of that. there are a lot of electronic systems. nowadays there are a lot of things they get injured in the record that may or may not represent actual transaction so in that sense the records are are a mass. >> and if this goes back previous to the final painful days of this business should the previous audit force fm -- mf global to clean up their records? >> i think most of them as we see is really from the last week

or two and again i am not an accountant. we have to wait and others working for us and they can probably answer these questions better than i can but i think frankly the individual customer accounts were in fairly good shape up until toward the end as i understand them. >> commissioner sommers in a comment on that? >> yes i think there is no real way to overemphasize the complexity here. there is over 38,000 customer position accounts as i understand it. some of the primary bank statements are three to 500 pages long. there are thousands of transactions that have to be traced from beginning to end because we need to know where every penny of the money went. >> thank you commissioner. my time has expired in the night now turn to the ranking member for five minutes. >> thank you mr. chairman. i am an accountant and i can understand how it could get in this situation that last couple of weeks given what apparently

went on and from what i can tell, mr. corzine, his testimony says he was stunned to find out that the customer money was missing so apparently he didn't know about it until sunday either. i guess my first question is, you got those accountants down there now sorting through all of this. how long is it going to take before they are going to be able to find out what happened to this money? do you have any idea? >> we are basically working 24/7 i really can't answer that question. i think no one will know the exact amount of money that is owed to customers until we are through the claims process and that basically began about a week ago and there is a 60-day period so i would hope at least by the end of that period he would have a good understanding of what the shortfall is and a better understanding of all the reasons reasons for. >> but during the process you are also trying to figure out

who it was that knew about this and whatever. >> yes we are. our primary emphasis though is how much money is missing, where did it go? do we have a legal way to go back to it to get it back? and there are law enforcement investigations, and u.s. attorney and we really don't want to go -- get in the way of that so we really think that as secondary to find out where the money went. >> on november 29th "new york times," there was an article by aslam ahmad about how some investigators suspected there was a transfer of some $200 million from mf global to jpmorgan chase in britain. and it may have been the first major misuse of customer money it was ported and it also said the authorities are looking into whether jpmorgan initially questioned the source of this

cash and sought spruce -- proof from mf global that it was complying with regulations. generally and third-party receive money from merchants what is the third party's obligation to confirm or in five -- inquired whether not these funds are customer funds and if the third party knows or suspects the money they receive are from customer funds being inappropriately transferred, what obligation does that party have to report this knowledge as a suspicion to the regulator? >> i will take the first part of that question first and to say simply that if there is any customer money that has been transferred out of the 4g accounts that is part of what we are working together to find and that money will be distributed back to customers. the second part of the question on the obligations of a third

party, generally speaking, transactions like that take customer money out of the segregated account and transfer it to pay some other debt and is not a violation of the act so there wouldn't be an obligation for the third party. i mean i would not think it would generally come to somebody's mind to question. >> as i understand as i've read this stuff, the segregated accounts have a different name and so if you are involved in this business you are going to understand that if it has that name it is a customer account. i think that is part of the issue here is that there was apparently some question about the way this thing was named, so if that in fact is the case, i mean is there a responsibility on the part of jpmorgan chase to question that gore did they question that if you are looking into that? >> i'm not aware of the specific circumstances that you are describing, but i would think

that in a normal course of business, there would not va case for a third party to ask for some sort of verification. >> well, yeah. i don't know. hopefully you will look into that because i also heard that they were apparently trying to get preference to get this money back somehow or another. i don't know. anyway there was the story out there so hopefully somebody is looking into that. the other question i have is, if you determine and this is for both of you, in the course of doing this, the customer funds were inappropriately co-mingled or used, can personnel at mf global, if they authorize these actions, be held personally responsible or liable? and can the commission or the

trusty require mf global personnel responsible for missing funds to use personal access to compensate the victims who lost their money? >> it sounds like that is a question in the first sentence and those are certainly issues that we are looking into apart from what their liability might be from a criminal side or a regulatory side. as i said our mission right now is to see if there are causes of action and that is something that first we have to know, if people did do things improperly and if they did, are there legal theories to pursue that? but that certainly is the kind of thing we would be looking into and are looking into. >> ms. sommers? >> from a cftc's perspective they are subject to civil prosecution under our rules and there would also be a potential for criminal violations of the act is also criminal prosecution

by other authorities. >> so your civil authority, would that just be fines? >> you writes. >> is there a limitation on how much the fines could be, or can you charge enough lines to cover this? if you did, could you use that to, you probably couldn't use that to make of these accounts anyway. >> it is my understanding that there are a number of different avenues with regard to the authority we have for fines. it is $140,000 per violation of the act, or three times the amount of the monetary gain as well as additional fines that we could charge for restitution to customers and various other fines, so if there are a number of different ways we could go in assessing the fine that would be appropriate. >> but that money wouldn't be available to make good the

customer accounts. that will go to the cftc right? >> is my understanding that it would go to general treasury. restitution would go back to the customers but the fines would be returned to the general treasury. >> thank you mr. chairman. >> the gentleman's time has expired. i now recognize the gentleman from virginia for five minutes. >> commissioner sommers, mr. kovach welcome. my first question is related to how this works. if i understand the customers of mf global would place fans -- funds, large amounts of funds into account that is like a trust account or an escrow account that would be held there and then at the appropriate time the customer would give instructions to mf global to engage in a particular trade and when they did that they would take the funds from that account and engage in the trade. so, what has happened is that mf global has taken those funds without the customers authorization and place them in

various types of investments, some of which like the foreign sovereign debt might be viewed as quite risky? is that is what is at the heart of this? >> mr. goodlatte, i wouldn't want to discuss any of the details that they compromise the enforcement investigations but to say that generally speaking, yes, customer would place money in a 4-d account within fcm and that fcm is not allowed to use customer funds, for instance to make proprietary investments for their own accounts. >> okay, and on monday, the commission, after considerable investigation and deliberation and starting prior to this mf global problem arising, and made changes to rule 1.25 which gives instructions to companies like mf global about what they can do with the funds and those

accounts. is that not correct? >> that is correct but i think it is also, just to be clear, when in fcm is using funds to invest in permissible investments under 1.25, simultaneously the exact amount of money has to be put back into the customer account. they can't take the money out there, use it, invested and that some other time put it back. >> correct so they have to maintain the funds in that account much like if you put money into a bank account, the bank using that as debt as collateral will make investments in various things, but they can't deduct it from the account and put it back in later on. >> that's exactly right. >> do you believe that the changes that were enacted by the cftc on monday would have made clear, i don't know if you would say it would have prevented actions that may have been illegal, but would it have made it clear that the actions taken

by mf global were not legal had they been operating under the new rule? >> nothing under 1.25 has ever allowed and fcm to use customer funds for investments for their own accounts, so changes made, that we made on monday or previous to monday would have ever allowed that. >> what was the purpose of making the changes on monday? what did those accomplish? >> it actually is, there is a long history there that goes back to after 2008 when the reserve fund broke the buck and since then the cftc has been looking into what type of investment should be allowed for customer funds and one of the beginning issues is whether or not and fcm should be allowed to put 100% of customer money into one money market fund like the reserve fund so we were looking

at concentration levels and asset base concentration levels, issuer base levels of. >> you also restricted their ability to invest in foreign sovereign debt, did you not? >> we did on monday, yes we did. >> you think those changes would have prevented what happened at mf global from occurring in terms of where they made investments, maybe not in terms of how they conducted the account which is a whole separate part of this investigation but in terms of where they made the investments? >> at this point i believe it would be premature for us to assume that what has happened, that they used, permitted investments that may have been permitted before monday and that is where the money was lost, we don't know if that is what happened. >> so the money could have been lost that way. the money could have been embezzled. the money could be somewhere that the trustee hasn't yet located. that part of the investigation is not yet clear.

>> that's correct. >> one hopes from the best but from looking at this one expects the worse. thank you mr. chairman. >> the gentleman yields back. the chair now recognizes the gentleman from pennsylvania for five minutes. >> thank you mr. chairman. ms. sommers if i understand your answer to the chairman's question, the cftc was receiving daily reports from the fcm that indicated no problem at mf global? >> daily segregation reports. >> when was the last cftc audit at mf global and what did that audit show? >> the cftc is not the frontline regulator for fcm's so we did not perform audits on fcm's. we do spot checks and other different procedures to review books and records that the audits are performed by the dsr's. >> are you aware of the results of the last one, what showed? >> cft staff would have those.

>> you don't have personal knowledge do you? >> i do not. >> hope closely does the cftc monitor -- >> i'm sorry? how often? >> not how often, how closely? does he get a lot of attention? >> for an entity that is fcm solely, those types of capital levels would be part of our oversight for in fcm, i'm sorry, for an entity that would be a a broker-dealer fcm. then those capital levels would be reviewed by either the security side or the future side depending on the higher of the two is what the regulations require. >> to the cftc coordinate with other regulators leading up to mf global bankruptcy. did you consult with finra and the fcc? >> i am not sure exactly if the circumstances of who was consulting with the sec or finra in the days leading up to the

bankruptcy. i was not involved at that point. >> would it be, in practice to consult but the fcc? >> i think that there are periodic meetings that regulators have to review issues in the markets, but i am not sure how often that happens. >> thank you. mr. kobak how many accounts were affected? >> our best numbers approximately 36,000. >> how many of those accounts are commodity accounts? >> i'm talking about commodity accounts. about three or 400 active securities accounts on a broker-dealer side of the business. >> how many accounts have been transferred to a different futures commission merchant? >> when we will have completed, assuming the court approves the transfer tomorrow, we expect that substantially all accounts should move. there are a number of very small

accounts. i'm talking about accounts with less than $1000. many times just 100 or $200 that may not have been a good active accounts for a long time. it may not be possible to find other fcm's to take those so we may try to expedite the resolution of those claims in the claims process. but other than that virtually all accounts should get to another fcm with something was something like two-thirds of the value of their domestic positions. >> and the transfer has to be reviewed by the trustee? >> well, we have to move the bankruptcy court actually and that is what we are doing tomorrow. there are people that oppose the transfer for various reasons and we are hopeful that it will be up through. >> thank you mr. chairman. >> the gentleman yields back in the chair recognizes the gentleman from illinois for five minutes. >> thank you mr. chairman and members of the committee.

ms. sommers you are an enforcement position of having to take some slingshots from members of the committee that are legitimately directed to fcc and not directed at you personally but you have broad shoulders and you'll have to accept that. i'm wondering why mr. gensler is not here today? >> congressman, mr. gansler has recused himself from matters regarding mf global. >> it's interesting to me that mr. gensler has been willing to come in here hearing after hearing to explain the inordinate delays that cftc has had in regulations and rules on perhaps the most important to the agricultural community nationwide come most important hearing we have had in years. we are glad to have you here but i find that in light of his past past -- entirely unacceptable. when did you first determine and when did he first determined that he was going to recuse himself? >> it is a my understanding that he made that decision on

november 4. >> is that because he is part of this whole same goldman sachs fraternity that includes ministers of foreign governments and in which the monies were invested? mr. corzine himself, mr. gensler himself in this whole nebulous group of individuals? is that why he has decided to recuse himself? is he part of that group or why did he do that? >> i don't know that. >> we appreciate you being here but i've find that entirely unacceptable and mr. gensler is here somewhere in the room which i assume he is i will tell you from the standpoint of congressman johnson in light of your past testimony i find his -- to testify here totally unacceptable. >> would the gentleman yield? >> sure. >> i just want to inform the gentleman that you know i think the thing that precipitated this is senator grassley asked chairman gensler to recuse

himself. so with senator grassley precipitating this. >> both gentleman would feel that without i believe the chairman is out of the country today? is that correct? >> yes, he is. >> one and from whom did cftc first hear of these concerns that were actually sent as long ago as june that mf global was undercapitalized? >> it is a my understanding that cftc staff and reviewing a focus report that was submitted to us by mf global in august showed the under capitalization from july. >> does your entity, the cftc, have the power and authority to force a person into bankruptcy? >> no, we do not. >> what is your authority in that regard and how far can you push the envelope so to speak in terms of your role and the process?

>> for a pdf cm that would be a specific and for a firm that's in fcm only the fcm would have to initiate the bankruptcy proceedings. >> how often do you examine the fcm's? >> the cftc is not the frontline auditor for fcm's. that is self-regulatory organization who are the front-line auditor's. >> was there a point and if so when was it, when you audited mf global and what were the results if any of that audit? >> the dsr or would be the one to audit and in mf global's quesadilla sorrow is the chicago mercantile exchange. >> can you explain to us just so i will understand and mr. corzine will be here later because he is the other part of

the trilogy what the with the bases as for why he recused himself? i think their questions are good ones, i just am not entirely sure i understand the basis was for the recusal. >> congressman i'm not familiar with the basis. he has a recusal letter but that is the limit of my understanding. >> i guess the last question which in some ways is almost a rhetorical question and i think probably everybody in here chairman and ranking member of the committee and as chair you are in a position or your co-witness at the table, i think on behalf of farmers and the agricultural sector and investors all over the country we need to know how soon we can give answers to our constituents and our people trying to buy seed and otherwise when they will get their money back. what would you expect? >> i understand that completely and want to emphasize that is our number one priority and we

are working closely with the trustee to make sure that that happens as soon as soon as possible. >> my last question is i know and i appreciate your desire to get this done but my question is, the number of co-ops have asked me and i were to give them an estimate what would i tell them? they have to by bye bye sea, land and equipment and various other things right now for the next crop year. >> i understand that. people should be given another, assuming the court approves our motion another $2 billion shortly to get them up to around 69 or 70%. until we recover more funds, if we recover more funds, we can't really to further bulk transfers at this point. we have started the claims process. we have started on an expedited basis. we are already reviewing and determining claims and through that process, people should get the remainder of the money that is available.

i can't really give you a better estimate than that of exactly how long it will take. as has been noted some of the accounts are fairly simple to determine. some are very compensated. >> my time is right now. i would simply say we are here inside the belly operation and there are millions of people around the country whose lives are depending on what we do. >> we are well aware that. >> the chair recognizes gentleman from iowa for five minutes. >> thank you ranking member for having this hearing and i thank i thank our witnesses for being here today. the last line of questioning kind of triggered me to ask this question i guess to both of you. do you think the cftc is properly funded to do the job that we have charged you to do? >> congressman, i think what i have said all along with regard to the new authorities that we

have been given underdog frank is that it is premature for us to know how much more funding we are going to need. i think there is no doubt that we cannot implement and enforce dodd-frank without additional funding that until we are down the road far enough to know who a swap dealer is and who, what a swap is it is hard for us to know exactly what type of funding we need. >> i appreciate that. an earlier comment was made that someone breaks the law or breaks the rules, which ever way you want to put it, i guess you don't go after law enforcement. i've had experience with that violation in my own home a couple of weeks ago. i don't blame law enforcement. they do a good job and i think you do a good job. i assume you have the resources for the job but we expect you to do. that his concern and we have had

that discussion going on here for a wild. and dodd-frank we seem to expand your responsibilities quite a bit and i have said from the onset that my first priority i guess the producers out there that have this unbelievable capital investment these days which i will probably say more about again to the third panel. and, how do we give them the tools they need and then how are they protected and that is where you folks come in as well. that is a concern. we have a lot of people waiting to ask questions so i'm going to yield back and -- on the later panel. >> the gentlemanly of spec is time. the chair recognizes mr. nuegebauer for five minutes. >> misnomers i want to go back to the 1.25 ruling that you all had on monday. basically, you think the point was made by the jungle man from

virginia was that it prohibited now those funds being invested in foreign sovereign debt. is that crack? correct? >> eliminated foreign sovereign debt as a partial investment under 1.25 that we did invite petitioners to petition us for -- relief if they choose to do that. >> so, do we believe then that sends this entity in their proprietary trading accounts was investing their own money in foreign sovereign debt with the repurchase agreements and others do we believe that monies for customers were being invested in foreign sovereign debt as well? >> i think congressman i would not be able to discuss the specifics of where we believe the money is at this time for fear of compromising. >> i am not asking you where it

is but do you have knowledge that the entity was investing customers money as come into foreign sovereign debt? >> there is no evidence for us to assume that at this point, but it is premature because the investigation is not finished. >> so, when you are doing the daily reconciliation and as i understand that all it all the way through friday the reconciliation show the customer's accounts were whole. who would determine from an oversight perspective what kind of investments that they are investing customers account money into? who would oversee that? >> my understanding could be that the fcm oversees how the 4-d account would be invested, but the cftc currently does not receive reports to let us know what individual fcm's or

investing customer and the end, what permissible investments under 125. >> i think you also mentioned you really didn't have any knowledge that this entity was having financial problems up until today? the bankruptcy, is that correct? >> the daily segregation reports did not indicate that for as. >> one of the things that we were promised and dodd-frank that there would be a tremendous amount of interagency coordination so obviously this entity has other regulars, fcc, finra. they were making, they were concerned about the condition of this company back earlier in the year. were they not relating that to you? >> it is my understanding that we were made aware of the increased capital charges on mf global through their focus report. >> mr. corvette, i wanted to

talk about this 1.25 question because i think this is something that will be very interesting to see how this plays out but do you have knowledge that the funds of customers on behalf of those customers were being invested in foreign sovereign debt? >> at this point i would say we have suspicions but we really don't have knowledge and again we are coordinating with regulators and with law enforcement on the investigation so i think i'm a limo -- little limited in what i could say. i certainly don't want to do anything that would prosecute or delay or interfere with any ongoing criminal investigations. >> so, obviously the foreign sovereign debt is very ball is here -- volatile here lately so if i had $10,000 in mf global and they decided to invest my $10,000 while i was sitting idly my account they decided to

invest that on my behalf, in foreign sovereign debt, and that became a losing position, for me, then that would diminish my asset value and it would be the responsibility of mf global to then make up the difference of that, since they had best of my cash and something that was -- cia mean i think, they shouldn't have done what you are hypothesizing. >> no but as i understand it for liquidity purses -- purposes they can put that money and different areas so if they do that even though they're not doing it on their account and they are doing it basically on my account if there is a loss suffered, because they have decided to invest in something that turned out not to take me holt, who responsibilities at? >> is really management's responsibility. whether there is liability or not i don't know.

that is something obviously we would be looking into. >> so obviously there are three ways my account can be diminished. one is i make an investment and i lose my money or somebody illegally transfers money out of my account for the purposes or for liquidity purposes the cash management tool they use did not make me whole. is that correct? >> potentially, it's probably not just your money but the money in the pool for customers. if that happens. >> so the tool shrunk. >> if i could just clarify, for the record, investments in foreign sovereign debt ion fcm are only allowable up to the amount that customer posted current -- currency for collateral so it is to prevent the fcm from having to take on currency risk. >> that's an important point. thank you ms. sommers for that information. >> the from the time has

expired. the chairman would know to the committee that a series of foes have begun. would ask if the gentleman from california mr. cordozo would be like -- like to be recognized for five minutes. >> ms. sommers, did the cftc coordinate what other rekha leaders leading up to the mf global bankruptcy? for example did the cftc consult with finra and the ftc when they forced mf global to change his capital treatment of its foreign sovereign debt? >> that would not be part of our oversight, no. >> okay. well i am looking ahead a little bit and in the written testimony that we received, from mr. corzine, on page 11 it indicates that he had a series of meetings in june or a call

with the cftc and finra and perhaps other regulators and it goes on to talk about when he met with the ftc to question and finra's requirements that they increase their capital requirements and then it talks further about on september 1, that they were, mf global was still not happy with the fact that they were going to have to increase their net capital and yet they filed the required documents with finra. during that time the federal government and other agencies involved in this, that you were not coordinating at all? >> the increased capital on the broker-dealer side would be something that we would receive notice of from the pdf see him so we were made aware of that

issue by mf global and the report that they are required to file with us monthly. >> earlier in your testimony you indicated that you really didn't know about this until a few days before and all of a sudden everything unraveled and yet there were reports that indicated there were problems going on here. >> they were required to post more capital on the thee d side and they did. so, although they reported being undercapitalized for july because of the increasing their capital required by finra they did post that capital, so for instance we may then look at the house proprietary trades of mf global on our side to look at the risk exposure that they have, to what kind of collateral they are holding. >> did you look at any of those things? >> yes, sir. >> and did you find any

shortfalls when you took those views of their accounts? >> no, sir. >> our financial system has traceability protocols. when money is transferred from account a to account b we can trace that, correct? >> i am not familiar. i assumed that is true i guess i should say. >> okay. my point is at this time does anyone in your agency can you tell us why we can't find the money that is supposed to be in mf global's segregated accounts? >> as i stated earlier, i think that we can't overemphasize the complexity of the books and records of mf global. the amount of accounts and transactions are enormous. >> i understand but frankly either we have to be able as regulators to do that or we have

to throw up a red flag and say these things are too complex and we are going to have to do a better job because ultimately we are put in place to protect the public interest and if we lose confidence in these markets it's going to affect our entire economy, not just the people who lose the money in a one-time trade. others won't want to go in and invest. >> i don't want to suggest that we are not making progress. certainly remaking an enormous amount of progress every day and there is no doubt that we at the end of the day will know where all of these transactions were from beginning to end. that is our job. >> how many companies would you say are engaging in transactions that are too complex for us to understand on a daily basis? >> i also do not think that they are engaged in transactions that are too complex for us to understand. it's just tracing the amount of different accounts and the transactions from one place to the other.

>> what your agency be coming forward with protocols that will change and make easier our ability to trace and understand on a more timely basis? >> i think that there is no doubt after this is over and at the end of the day when we know exactly what happened that there is going to be a lesson learned. there will be policy changes that we will want to come to this committee with your consideration. >> i was suggested that is a good idea. >> the gentleman's idea -- time has expired. we are in the first of a series of four votes and women return mr. conway will be next followed by mr. skop. the committee stands in recess until the conclusion of these votes. please promptly returned. [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] the agriculture committee recessed for floor votes and later in the day heard from former senator and governor john corzine. the former head of the mf global. this portion of the hearing is about two and a half hours.

>> i would like to welcome her second panel of witnesses to the table, the honorable jon corzine former ceo of mf global inc. new york new york. mr. corzine would you please stand for the administering of the oath which will be administered to the rest of the witnesses in this hearing? please raise your right hand. please state your name for the record. >> jon corzine. >> do you solemnly swear the testimony you are about to get before this committee in the matters under consideration on this day december 8, 2011, is the truth, the whole truth and nothing but the truth so help you god? >> i do. >> i thank you. please be seated mr. corzine. do you know you have the right to counsel? please activate your microphone, senator. >> i do, sir. >> is your counsel in the room?

would you please state his name for the record? >> andrew love and there. >> thank you senator corzine. please begin your testimony when you are ready. >> thank you chairman. chairman lucas, ranking member peterson and distinguished members of the committee. like all a few i am devastated by the enormous impact on many peoples lives resulting from the events surrounding the mf global bankruptcy. of course my distress, and sadness pale in comparison to the losses and hardships that customers, farmers and ranchers and others, employees and investors have suffered. their plight weighs on my mind every day. the chief executive officer of mf global, i truly apologize to all those affected. before i address what happened i want to make it clear that since my departure from mf global on november 3 of this year i have not had access to many of the

relevant documents which are essential to my being able to testify accurately about the chaotic days preceding the declaration of bankruptcy. amber should also understand that the committee turned down my request to testify voluntarily in january. i had hoped by that time i would have had obtained and reviewed relevant records so that i could be more helpful to the committee. while i intend to be responsive to the best of my ability today without adequate time and materials, to prepare, and may be unable to respond to various questions members might pose. other questions given my specific role in the company will be questions for which i simply have no personal knowledge. i make it very clear, many of your questions may well be the ones i myself have. when i joined the company in late march 2010, mf global was primarily a broker that provided

execution and clearing services for products traded and derivative markets and exchanges around the world. the firm had reported losses in five consecutive quarters before i arrived and it had lost money in each of the previous three years. on my arrival at mf global the management and the board advised by an outside consultant to devising a business plan. the plan was communicated to the public and provided in substance at mf global would involve into a broker-dealer and ultimately into an investment bank. implementation of the plan was expected to take three to five years. i was hopeful about the prospects for the company and i invested in it personally. much of my compensation was in the form of options to purchase stock which would have value only if the company prospered. an addition on a number of occasions, to purchase shares of of the company with my own funds and never sold any stock. in the summer of 2010, i met

several times with mf global senior traders to discuss ways to improve the company's revenues and profitability. one of the ideas discussed was for mf global to purchase short-term european sovereign debt using repose known as rtm's. before i came to mf global the firm had engaged in billions of dollars of rtm's with regard to u.s. treasury security, u.s. agencies, bonds and corporate debt. it had also previously held billions of dollars of foreign sovereign debt positions. in the summer of 2010, we decided to draw and these experiences and to engage in rtm's involving short-term foreign sovereign debt. in these transactions ms global purchased foreign sovereign debt from a seller and sold the same to a counterparty with an agreement to repurchase the security from the counterparty at the maturity of the debt. when mf global entered into the

transaction, i believe that its investment in short-term european debt securities were prudent investments. at mf global invested in rtm's with respect to the dead of elgin, italy, spain and ireland and portugal. the first three of these were rated aa or better when mf global invested in them. even today all three remained a rated or better. ireland and portugal were lower rated that they were largely backed by the european financial stability facility and the imf. i accept responsibility for the rtm trades. i strongly advocated that trading strategy. nevertheless it is important to recognize that ms global's investment in these positions was the subject of internal discussions with senior managers, traders, and with mf global's board of directors. indeed, the trades were described, analyzed and debated at multiple board meetings.

i believe that the board members all of whom joined the lord before by joining mf global were independent and sophisticated. they asked hard questions and raised concerns. the directors approves sovereign risk limits for these rtm traits. the time of the bankruptcy ms global was within these risk limits. the rtm positions were also publicly disclosed both in the periodic financial statements which were reviewed by the company's counsel and accountants and other public statements including press releases and earnings clauses. as of today none of the foreign debt securities at mf global used to engage in rtm traits has defaulted or been restructured. all of those securities they reach maturity while they were a part of the rtm positions were paid in full. in my written statement i've attempted to describe the relevant contexts with regulators during my time at mf

global. as explained in a statement i did not exert undue or improper influence on regulators. by communications were typically in the presence of various members of the predatory staff as well as my own colleagues. the late summer and fall of 2011 were extraordinarily difficult times in the financial markets for almost all market burgess appends. on october 17, 2011, "the wall street journal" published an article that described a finra ruling regarding the capital treatment of rtm positions which mf global had disclosed on september 1, 2011. other news stories follow. on monday, october 24, rating agencies began to cut ms global's ratings. at mf global announced its quarterly earnings on october october 25. the announcement revealed that mf global had lost $191.6 million in the quarter

that ended september 30. in light of the attention that has been given to rtm's and the reports that attributed mf global's loss to rtm's involving european debt securities is important to note that the loss was not and i repeat, not related to those positions, as i have explained in my written statement. the lion's share of the quarterly loss was a write-off of approximately $119.4 million that related to tax losses accumulated largely in the years before i arrived. shortly following the earnings announcement and rating downgrade, some clients and counterparties which are their business from the firm. others required increased margins. the firms stocks traded at sharply higher volumes and lower prices. despite her best efforts to sell assets and generate liquidity, the marketplace lost confidence in the firm.

obviously on the forefront of everyone's mind, including mine, the varying reports that customer accounts have not been reconciled. i was stunned when i was told on sunday october 30, 2011, that mf global could not count for many hundreds of millions of dollars in client money. i remain deeply concerned about the impact that the unreconciled and frozen funds have on mf global's customers and others. i simply do not know where the money is or why the accounts have not been reconciled today. as as the chief executive officer of mf global holding company, i ultimately have overall responsibility for the firm. i did not however generally involve myself in the mechanics of the clearing and settlement of trades for the movement of cash and collateral. nor was i an expert in the complicated rules and

regulations governing the various different operating businesses that comprise mf global. i have little expertise or experience in those operational aspects. in short, i do not know which accounts are an reconciled or whether unreconciled accounts were even subject to the segregation rules. moreover, there were an extraordinary number of transactions during this period in the last few days at mf global and i do not know for example whether there were operational errors at mf global or elsewhere, or whether banks and counterparties have held onto funding that should rightfully have been returned to mf global. i am sure that the trustee in bankruptcy, the regulators are working to answer these questions and to understand precisely what happened during the firm's last days and hours. as the chief executive officer of mf global i try to exercise might just -- best judgment on

behalf of our client, employees and share holders. once again let me go back to where i started. i mean this with all sincerity. i apologize both personally and on behalf of the company to our customers, our employees and our investors. i truly know they are bearing the brunt of the impact of the firm's bankruptcy. that concludes my prepared remarks and i'm willing to answer any questions. >> thank you, governor and i now recognize myself for five minutes. and you have served in the role of congressional oversight. you know we have an obligation to get to the facts to address the end uncertainties in the market address whatever laws may need to be focused upon. thousands of their former customers across the country are experiencing severe financial hardship because of the events that occurred under your watch.

many of those customers are the very farmers and ranchers i represent an oklahoma and this committee represents in the house of representatives. the fact that their property is missing is alarming and yes disheartening. the fact that they have lost confidence in the futures market may have a long-term impact on hedging practices of the agricultural community. and governor corzine many of our constituents i am sure, the 3000 or so people that used to work for you are watching today also and they are looking for answers too. i suspect you may have some of those answers and so i would like to ask you to answer these questions to the best of your ability. mr. corzine, is there a shortfall in the customer funds that mf global was legally required to keep segregated? >> mr. chairman, i know only what i read, and it certainly

was true on the late evening of the 30th of october that there were unreconciled accounts. >> to the best of your knowledge-based on your time at the company before you left, why is there a shortfall? >> well, there are mr. chairman, many transactions that occurred in those last chaotic days and i am not aware of all of those nor do i have the information to be able to look at those transactions. and, as a consequence, it would be very hard for me to speculate why or where that shortfall took place. >> let me ask in a very precise fashion. in your role at fm global, did

you authorize the transfer of customer funds from the segregated accounts? >> i never intended to break any rules whether dealt with the segregation rules or any of the other rules that are applicable. >> are you aware of any transfers authorize or unauthorized of funds out of customer accounts? >> 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. >> at what point where you made aware that the customer funds were missing? >> as i said in my statement mr. chairman, the first of a herd of the many millions, hundreds of millions missing was on sunday night.

>> i would like to discuss how a company that has been around for 230 years failed to the surprise of its customers, investors, and based upon press reports in your testimony under your direction. fm global sovereign deposition increased steadily. in fact it has been reported that mf global's exposure went from 1.5 billion at the end of 2010 to 6.3 billion at the time of the bankruptcy, so let the ask this governor. who is michael rosemond? >> michael rosemond was the chief risk officer of the firm, preceding my joining the firm and was up until the end of 2010. >> explained to me what a chief risk officer does.

>> a chief risk officer represents the board of directors and administering the delegation authorities, the board assigns to the activities of the firm and looking at market rates, credit risk, operational risks. he consults with the board and consults with management. >> it is is a that mr. rosemond on multiple occasions spoke directly to you in the board, expressed concerns that mf global was overexposed in european sovereign debt and the firm did not have enough capital to withstand potential losses of those petitions impose upon the firm? >> mr. rosemond certainly had a different view about the sovereign default risk associated with euro sovereignty and particularly in the context that we did other business in

those countries and he expressed that to me directly. he expressed that to the board. >> did any members of the mf global board expressed concerns to you with the level of risk accumulating in the firm's portfolio? >> there were multiple discussions as i said in my testimony, most of which i think once i have access to the records will be documented and the minutes of the board meetings about this subject, and there were people who dissented in the debates and then sometimes supported actions that we were taking after those debates. sometimes there were people who did not dissent. i don't know the exact elements but generally we arrived at a consensus. >> is it true, mr. corzine, that you threaten to leave the firm as ceo of the board did not trust your judgment?

>> mr. chairman, i did not threaten the board that i would leave. i had one specific conversation with the lead director, which could have been interpreted that way in the sense that i said if the board using the powers that it held had lost confidence in me i would be willing to step down. >> mr. corzine i understand that mr. rosemond was no longer chief risk officer after march of this year. were you involved in that position? decision? >> my view was that we needed someone in the chief risk officer position that was more fully attuned to the broker-dealer side of our business then what mr. rosemond's background was

about and there were other issues about how people worked with each other, not with me in particular but within the firm, that led the board and my agreement to that we should change risk officer's. >> we have all been watching the eurozone crisis unfold and there has been significant uncertainty about its resolution yet you push forward with aggressive bets describe -- is by appointing from employees and even the board it seems. what do you know mr. corzine that we didn't? why read so confident about those bets to the degree that you were willing to bet the survival on the firm and yes its employees on which you are responsible for? >> mr. chairman, first of all the ratings, but they were

certainly not the only consideration. we looked at what counterparties would charge for initial margin. you would look at it how individual securities were looked at by regulatory authorities around the globe, what they were able to use as collateral. you would look at prices in markets to determine whether people thought all the restructuring risk was being priced into it so there were many, many different considerations along with the ongoing dialogue, which after-the-fact, clearly can't be second guessed that the european community was going to take a much more forceful, would take much more forceful steps to

avoid a grep same or insolvency in sovereign's cases and hold to full payment of securities. >> in the days leading up to bankruptcy, how often did you talk with mr. gensler? >> mr. gensler, no private conversations in my recollection were held between mr. gensler and myself. ..

>> mr. jon corzine, as a registered futures commission merchant mf global was subject to periodic audits on regulators and accounting firms. what generally were the results of those audits over the past year? >> mr. chairman, from my -- >> as chief executive officer of you have reviewed those, try? >> some of them, particularly if there were exceptions to challenges that are included in my statement. we certainly had discussions

with general. the august timeframe that i was very much aware of. further discussions. there were inquiries from the sec about treatment at different points in the year. no reporting of significance challenges to how the firm was operating that i can recall, except with respect to the match. >> direction and suggestions were made. the of the report. did you make those changes? >> to my recollection of the details there are many, many elements of internal and outside consultants regulators observations that we had.

people who made sure that we were responding. with through an audit committee review of those kinds of actions that were taken in response to the question. so i had reason to believe that we did. >> mr. corzine, how would you respond to charges that the books were a mess? and you were a supporter, like myself. >> mr. chairman, my understanding is that our books and records were reflecting chaos that occurred in the last two or three days as the firm was under severe pressure and lost the confidence in the

market. i think that is distinct from the books and records. i think have reason to believe based on at least the reporting that occurred in our audit committee that are books and records were not a mass. that is the question that i think others will have to opine about after the look of those in retrospect. it is clear that in the last hours, the last days there were many, many, many, many more transactions. >> one last question. why did in of global report then run in late september 2010 that it did not have any position of foreign sovereign debt when it

began entering into transactions that carried european debt exposure in mid september 2010? >> mr. chairman, i believe, again, without checking record, without the ability to be certain, always open to confirming with records. i think you must be reporting to -- looking to the month end reports the we filed with the capitol position. and in september of 2010 is quite possible. again, i don't have records to confirm this with. it's quite possible that the beginnings one of the subsidiaries, not the regulated.

>> my time has expired. the chair appreciates the indulgence of the ranking member and the members and turns to the wrecking member. if you would like to begin his questions. we will soon have to break for a series of votes. >> thank you. i wanted to follow-up on a couple of things. i guess the one thing that struck me to my governor or senator -- >> a lot of people have bad names. >> anyway, you know, your testimony about the leverage, apparently when you took over -- >> something in the neighborhood. >> you got it down to 30. you know, this mentality on wall street, don't get it. i guess maybe you have to do that in order to make money. >> i listened to some of the earlier conversations. the challenge of running them

left global as it was organized, a broker dealing. and those two elements pose differing kinds of constraints. one of those is it builds up your leverage hired them with other was be the case. an organization that was just one or the other. >> according to your testimony these positions are securities that were never lost any money on. >> the required you to put up considerable more money. >> the adjustment is that we took a really different in the capitol equity issues.

>> not much difficulty with him were able to more than the end run excess capital. your are suggesting that the arts the imposition were a drag for a significant user of liquidity. it's true. on the clearing exchanges in your where sovereign party a more clear. on the other hand, the cause of mf global stress in the last few days was a combination,

certainly, of seven positions which were a concern to the marketplace, make no mistake. it was also the ratings downgrades. and what i have tried to say in my warm statements, a -- i think an inability both those of us in management and mf global to convey what the losses were all about. it often got to inflated with position switzer actually were no losses >> i guess i do have a question. >> the committee will send in recess and you will be back for questions will return. [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] >> this airing of the committee on agriculture to examine the mf global bankruptcy will come to order. the committee written recognizes the ranking member to continue his questions. >> thank you, mr. chairman. your testimony indicates that on sunday october 30th you were informed that mf global could not account for client funds. he told you this information and win on that date did they tell you? >> excuse me.

to the best of my memory i was informed some place 1030 or 11:00 on sunday. and i will admit that i've was in a group of people and don't know exact whether it was the cfo with the general counsel or who exactly. >> somebody from your firm? somebody from the firm? >> from the firm. >> so apparently i talked to the chairman this morning. he said he had woken up to 30. to you have any idea why it took that long before he was informed? to you have any recollection of

what happened? >> to be careful with my remarks , congressman, there was a presumption, although the cfo, to my recollection, was saying that people were still working to try to reconcile. there were going through records. they had not established unequivocally that the money was missing, but there was a serious concern that there were not going to be able to do that. as you probably have read, mf global, the firm, was working to be sold at the time. we were in the process of doing do diligence with that

prospective buyer and that individual. obviously the reconciliation a step was as well. >> the ticket there was not in the kind of explanation given to you at the time? >> not a satisfactory -- not a satisfactory explanation, although theories, mostly unreconciled accounts were attempting to go through. not unlike what i think now. again, i really should not speculate. that was the the efforts that were being put in place at that time. >> at any point during your tender i assume from what you said that you were not aware of any customer funds being transferred to the broker-dealer arm? >> i am not.

again, i have not reviewed the records to be absolutely precise whether there was some small inch wreath at some point. but i don't remember as i sit here. as i said to the chairman, i feel comfortable. there was no intention on my part. >> the booming of cash and collateral and more regulations helping the various operating businesses. who had the expertise? >> every firm was put in place, control. the elements, policies,

procedures, people to give assurance to ourselves, our auditors and regulators. in the filings that we would make to make sure those are true and accurate. and at least in debt experience of the 19 months, roughly 19 months that i was that the firm i have confidence the people were doing that. just as the plant -- the chairman of committee. >> there was not one person. >> well, it will ultimately this deal is responsible for all aspects. >> i understand that. >> and then the cfo is is possible for the financials.

there are people in our organizational chart who are responsible for the operation. and there are people who are responsible for the auditing aspects of the firm, including, by the way, a separate group to assure mannesmann or to give confidence to management that you could comfortably sign affirmations on quarterly financials. >> so, you know, i'm sure there are different people. who have the authority to move customer funds?

that is in operation. that individual began in the normal course of an organizational structure. would have people who would handle cash management and controls. report to them. ultimately there is some of it hit the button. to this day probably would not have known him that person was that would send money. one of the reasons that i have been careful to say that without looking at records it's hard to try reconstruct the position that i held and how that works. so it's a complex process. >> just a couple things here.

to your firm invests customer segregated funds in the summer? >> to my recollection, and again, all records -- we have to verify this. the answer is no. the seven positions were held at the broker-dealer. there were not a part of the spm process. >> at -- and i don't know lot about this business, but until the good part of the profitability of the scm is in the earnings or arbitrage on the customer cannot and the commission's. >> i won't bore you with rehashing those in the oral statement, but we try to make a precise and by securities that yield 5%, financial securities,

to majority with a payment of 2% of interest. and the difference is the profitability that you would make on that are p.m. >> and that is -- yak, but what i was asking is is that a bigger part of your profitability the the actual commission business? >> no, the commission business is still larger percentage of revenue. >> but are you making money on that? >> again, i tried to explain some of the history. the business is under enormous pressure. given the legitimate competition the commission, high-frequency trading, it puts enormous pressure on it. and so the commission said

declined. frankly we had not stayed up today with technology so that we were still voice brokering much more than technological delivery of brokerage services, and probably more important than any element in the current environment is the extended low interest rates in the united states and around the globe that compromise to what kind of spread and mcm like nfl would be able to turn. on an upward sloping yield. higher rates would have been positive. they weren't. from rsem business, made it much, much more difficult to be successful.

other long-term aspects, and as i spoke about the moral argument, i mean, in a written statement, that were attractive. the region scope of the business , the reach and scope to clients, but it was a business in stress. >> thank you for your remarks. >> vigilance time has expired and the chair recognizes the children from virginia for five minutes. >> thank you, mr. chairman. though like to follow-up with the questions regarding what could happen to the best of your knowledge. can you tell us what role you personally played in monitoring the segregation of customer funds? >> congressman, i roll would be primarily to bring assurance to myself on an ongoing operating basis that we had the people,

the policy and procedures in place to maintain that segregation, which as i have said to previous questions at least until those. >> often were you shown data demonstrate that customer funds were attached? perris i was aware that we had to make those calculations dail. i did not look at those on a daily basis. >> often would you say you did? >> i would not say that i looked at them other than the fact that i was assured that there were targeted every day and submitted to the appropriate body. >> and when did you first discover that the segregated accounts were missing funds? >> as i have answered in previous questions, the lack of

reconciliation brought to my intention with regard to sunday. >> which sunday? >> the 30th. >> duddy. and are you aware of any incident prior to the events immediately preceding the bankruptcy in which there were shortfalls and consumer funds? >> i am not aware of any short funds that had been presented. >> prior to -- >> this. >> and is it possible that any such shortfall could have gone undetected by you or other senior management? >> i'm not being flip. apparently there were -- >> would on trying to get at, was this something the have been going on for a long time to this only happened?

someone made in this is in to read these accounts in order to cover. >> my impression is that in the chaos of the last few hours and days either a miscalculation or money that was expected to come in versus transactions, as i think i said in my statement -- >> it would be a rather large the speculation, billion dollars >> i agree. >> have customer funds that mf global ever been used to fund investments in its house or proprietary accounts? >> to my knowledge customer funds, segregated funds for the futures accounts have been invested in what of with call greuel 125 eligible securities were held in depositories listed

your firm never invest customer segregated funds in foreign sovereign debt without the approval of the customer to make such a business? >> congressman, to any recollection i have that did not occur. >> when you had these separate segregated funds be put -- >> generally it is invested in securities are callable under the 125 greuel, wore it is in depository. >> there is some question about whether securities under a the one 1/4 rule could also have included foreign sovereign debt. >> again, i don't want to claim that i am the of world's

greatest expert, but i think that it's only available if you have for deposit, foreign denominated currency. >> and from what you've learned since you became aware of this in late october is it your impression that the money was taken from those funds to invest in foreign sovereign debt or was it used for other purposes? >> congressman, i don't want to speculate, and i don't have the information that would allow me to do that. as you know, i left on november 3rd and have had no access to the books and records. all i can do is read the same reports that are in the public forum. and i must say that those are confusing. >> me too. >> thank you, mr. chairman. >> the gentleman's time is

expired. the chair recognizes the gym and from pennsylvania. >> i have two questions. one of you address several times already, but i want to make sure i understand clearly your answer. sem to file monthly fiscal reports. these reports must file with the corporation and must be signed by this deal with the cfo from the previous aspects combining monthly reports. >> are present so. myself and congress. and not aware of citing those. >> he would have been -- to your best recollection the one. >> to be honest, i have no recollection whatsoever. i know to the best of my knowledge. >> in your written testimony you wanted to voluntarily testify before this committee in january .

more time to have access to the record so that you could respond to this committee's inquiries. >> it has been over a month since he stepped down and you have not had access to those records, what may or makes you think you would have had access? >> well, first of all, that's a good question, congressman. my expectation is that we will, as we get farther down this path have access. we have a request then to the testy at the holding company for access to my e-mails, papers, files. it would potentially shed light and give me the ability to be more precise of my answers. >> try to gain records. will make you think you'd be more helpful.

.. my question is, do you have enough demand? i know you can't tell us exactly how much money collectively at this point of hamas by those investors quite be my congressman, that a question i would like to know the answer to it matches you and i am hopeful that there will be effect of

recovery and reconciliation. >> i would have to. i haven't done a network analysis of individuals in this committee, but according to many accounts, your person of substantial wealth and i congratulate you on your acquisition. my question for you on behalf of the people who are largely small farmers, small businesses, co-opts all over the country, assuming they are not made whole, are you and other executives have your company willing to stand the loss with your personal fortunes and allow them to the compensated and made whole? >> congressman -- >> either yes or no. it's fairly simple. >> congressman, i don't think this will go unresolved. >> assuming it does go unresolved to the system it appears there's a lot falling through the cracks, are you going to commit that you will

commit yours and the other executives personal fortunes -- my second question is mr. gensler has decided inappropriate place 03 excused himself because of your relationship and i guess i would say the whole goldman sachs which would encompass a number of individuals including foreign ministers of several countries in europe to which it. i guess my question is if he says that within the last several days and given the fact he probably occupied in some ways the position that semi-analogous to an attorney before a judge, where recusal would be appropriate, why didn't happen a year ago? giving a relationship and the cftc's relationship with your company, why wasn't recusal something a lot earlier in the process? >> congressman, i think you can expect that i would not really

speculate about any internal considerations that mr. gensler are the people that the sub one toke. i hope that we demonstrated that in the normal course -- >> i'm down to a minute and 45 seconds. i appreciate your response. i am quoting from your several days ago when you indicated as chief executive officer of mf global unit overall responsibility of the firm. then you go in the course of a subsidy statement to indicate everybody else in the process, other than you who is responsible for this. my concern is based on a failure to segregate funds, failure -- and our failure to oversee operation of the company and/or a technical deficiency in terms of the overall responsibility of governing the friend comes something fell short.

at the end of the day, we have members of the community and i have people who live in the real world is your view. a lot of people have suffered dramatically and will suffer since they won't be able to buy seed, equipment. they will appeal to invest in the coming years. they suffered dramatically. and while i certainly commend you in your life's history. you've been the leader of the, representative state which millions of people. the ceo of major corporations. people have given a lot of responsibility, fiduciary capacity. i'm concerned frankly that those capacities have fallen short in a lot of individuals all over the country come the people they were sent are going to wind up holding the bag because of what is either negligence and/or co-mingling and/or application of your responsibility as fiduciary and i capacity. so i guess i'm not a 14 seconds. i appreciate your being here. i also appreciate your not using

your fill of the fifth amendment to refuse to answer questions, but there's a lot of unanswered questions will be answered hopefully. i think you'd agree over the course of the next several months so that my constituents, and these individual can veterans are made whole in life can go on in the real world of adult way of this process outside the bout with wall street are people listening everyday world who have to make a living. at this point, they are hurting real badly. they make governments time is expired. >> @may respond to say that i share the sentiments that the congressman expresses with respect to the people who are caught in the crossfire. >> thank you. with the anxious to see the next two months. >> the gentleman's time has expired. the chair recognizes the gentleman from iowa, mr. boswell for five minutes. >> thank you, mr. chairman. in manchester time i don't see much time in repeating some of the things that have been added. i am just curious as we think

about the capital investment that people i represent have to do and you know all about that. but what would she say to them? what would you suggest we say to them as they contemplate on how the two with futures, market, etching fun to fuse the system? what do we tell them? what lesson have we learned? >> congressman, first of all, i conveyed kinds of sentiments that i spoke to the previous congressman about at a personal level. i believe that and how do you expect tatian that given some of the options that i put into my written testimony, oral

testimony and the hard work that regulators in the trustee goes that the missing funds will be found. that first and foremost is the application. i would expect and legitimately so in these kinds of hearing to help bring out some of the elements, where exposures that says that should be correct to when they were understood in the light of the fact. and then, hopefully that can address some of those holes in a way that gives people a greater confidence in the markets going forward. there's no question that the futures markets, security markets are essential to operation of our economy and the

global economy at large. >> well, what i'm going to yield back, mr. chairman. i would just say that i hope as we continue to discuss this, because if your background that we might call and need to make a suggestion or two beyond which a party town. thank you for your time. we'll back. >> to china recognizes the gentleman from iowa, mr. king for five minutes. >> thank you, mr. chairman. appreciate this hearing. governor corzine a appreciate your testimony as well. i didn't think i'd probably say that, but i did hear from mr. johnson from illinois about personal risk being a part of it. another test we test we have in your conscience. they may be a great loss to others and may not be significant personal stu, the juventus paid a significant personal often this is all shaken out in proportion to those around us are centricity with their money? >> congressman, first of all, my

own expectation even at these late hours are that the money will be recovered. but no matter the anguish that individuals feel because they are uncertain as very serious. and for that, i both apologize and i will certainly do those things that i can to help assess, make that process -- >> and commenced to that. do you anticipate proportional personal loss? >> i think i will repeat what i said to congressman johnson. >> and let me just go another way here. looking at some of the reports and i think the agriculture piece of this thing will continue to be thoroughly

examined. so i look at the investment in the bonds in spain, italy, portugal, italy and ireland, the investment made them seem to have triggered this. and as i look at that list, that is the list of the country so you think critics concerned about except greece. was their rationale for not trading also been speculating in the bonds of greece as well as the other sovereign nations have talked about clark's >> if one did at the detailed credit analysis of the underlying sovereign, which not only people at mf global, but other financial analysts would have contributed, greece themed as a country that could essentially, with a significant

probability go three restructuring process. >> substantially less violent than the other countries? >> substantially higher debt to gdp. much more on all six and which one could -- >> i know that clock is ticking. i type faster than most of the folks in this capital, but as the investment in the other countries, was it made with the anticipation that greece would be built out? >> the investments in those five countries were made because there was a judgment as i said it is a challenge to judgment by people -- >> part of that judgment creates is likely to be bailed out?

>> the answer is no to that. >> thank you. i go back to some of the other history that sticks in my mind here. the news reports about the investments on the state of new jersey at lehman brothers shortly before the economic situation we all know so well in the fall of 2008, do you have an estimate or number on how much money was lost over that essman at the lehman brothers shortly before the fall i can refer to that? >> i don't recollect the amount of loss. >> would it be an area of $100 million? >> it may very well have been, but i would suggest that we had an investment department of a separate from the government's department. >> when governor christie alleged that there were hundreds of millions of dollars transferred in the last hours before he was sworn in as governor features the end that

you had spoken to him and promised him that he had $500 million surplus going in, turn out to be less than that. he said in a news report $2.2 billion you think you have 500 do that so that to $2.7 billion shortfall. i want to give you an opportunity to respond to that because i don't know if it's in response to media. >> first of all, i think my former treasurer ted respond to those numbers and there is a difference about the timing on when one was making those judgments might have to go back and prepare myself to speak to that. >> which is a both at the current governor's allegations are substantially correct or incorrect? >> i don't accept the analysis acquiesce he has streambed. there was a growing shortfall, as you know, in the winter of 2009 and 2010. the economy was falling dramatically and revenues were

falling investments with regard to what revenues would be collect data are off in a state. her mac perhaps a compulsion to take. thank you very much. mr. shulman, i yield back. >> the chair recognizes the gentleman from california, mr. cardoza for five minutes. >> thank you, mr. chairman. mr. corzine, governor corzine is an immigrant from the 1920s who did not benefit from our fantastic education that oath you and i benefited from. used to give me some great advice. she's admonish me daily when she was still alive to always do the right thing when nobody was looking. can you, sir, tell us today that while you have been the head of this organization, mf global that you always do the right thing when no one was looking?

>> every effort and intent in my actions were to do the right thing. >> when the wheels started coming off your company, dg set up a worm to try into with the financial is configurable with going on? degroot and folks around you in the corporate room? how did she handle yourself at that point? >> are constant meanings including with the board. >> that's what i suspected. that's way off the question. my next question is there was a point in time where you got the first inkling that there was a substantial amount of money that it disappeared, been stolen, we don't know what happened to it. that's one of the things that happen. at the very second you got the first thing that there is substantial loss in your corporation and you're going to be held liable for your company was going to have to take this

tremendous hair, what was the first thing you thought of? did you call the police? teacher ran to the bathroom and throw up? i mean, to neolithic $2 billion -- [inaudible] >> congressmen, in those late hours and i think i said this earlier, to. the other question really was disbelief, stunned disbelief that this could be the case when many hundreds of millions was reported to be missing. >> i understand not. >> go back and check your work. did you call until your cfo -- >> i was the cfo. the mac was the first needed?

>> the first thing that followed from this conversation was, let's get the people to reject the figures and do everything we can to appropriately confirm what you're suggesting. >> it wasn't as if all expectations have been closed. it was really hot entering. >> i'd apply going to the restroom myself and during that period thank you for the answer. a few years ago when i first came to congress, i introduced them at six bill that said if you break the public trust, as a member of congress, public society, police officer, any place you have the public's trust in you commit a crime and

this came in response to my dealings with ken lay from enron and california, the state legislators. i said you should do double-dip penalty. we pass the will of the house and it didn't get through to the senate, but i just having looking back at your career in government and business because the ink is supposed to business as well. when you're in a position of public trust, do you agree with me that we have a higher standard for the public? and if we don't rebuild the public trust in our governmental and business institutions that we are going to have a very difficult time in this country to succeed in the future? >> i do agree with you, congressman. and s&l at a public official, the oath of office that i have taken deeply impact how i tried to address the effort i

fulfilled when i served in those offices and i believe that i telestrator do you know it is the responsibility of all of us. and certainly one of those issues that i believe the public is concerned that they don't get a fair shake on today. >> thank you for your answer in thank you for being here. >> the dumbest time is expired. the chair now recognizes mr. knockabout or for five minutes. >> thank you, mr. chairman. i want to go back to your earlier testimony because i think the question asked, did you authorize the funds from the segregated account to other places. and the answer you gave us know, i did not. he said i never intended to violate any rules. >> i'd repeat that in the context that there were people

who handle the transfer of funds. and i'm not one of those. there are people -- >> that wasn't the question. the question was, did you ever in the heat of the moment in those last days when you're trying to sell this company, trying to keep this company afloat to make the transfer to hopefully pull the rabbit out of the hat, did you ever authorize any of your people? >> i never intended to authorize anyone. >> you never intended to, but she may have. >> if i did it was a misunderstanding because there is no intention under any context that i can think of that i was authorizing tapping into segregated funds. >> so the answer you gave to this question so i don't mischaracterize this is u.k. workers he don't know whether you gave it? >> that is not -- since i don't have access to records or phone

records or anything that i could rely upon, i can only say i know i have no intention to ever authorize the transfer of segregated money. >> said the answer is you don't know whether you did or not? >> is said certainly couldn't confirm based upon what i have available to me today. but i know what my intentions are. >> so earlier in the air, you are granted primary dealers that is by the federal reserve bank of new york, is that correct? >> yes, sir. >> you're part of the fact you're able to achieve that. there's some reports in the end as he said there's a lot of reports, but on a conference call you or extorting the fact you'd really be able to take the company to a new level with the

sad history of strategies have been the primary dealer would give you? >> congressmen, i don't recall framing it the way you would. it would be inappropriate and probably would've been criticizing the fed sii. i often was asked a question on calls, what does it mean it does mean you have access at financing arrangements with some clients that she might not otherwise. you have the option to transact business people around the gold that she would not otherwise be able to transact his message. he does give you a chance when the federal reserve is executing its open market operations to do that directly without having an intermediary to do that, which is certainly constructive.

and i'm not -- i am not walking away from the fact that it is better to have them not to have in the context of how clients and others see it. >> are still making 20 companies. >> i think there's 21. >> and so what would be the criteria? i mean, that is a fairly -- that's a fairly prestigious designation. what is the criteria that your company have that would have cost aside to give you that status? >> will first of all, the said tessier for for a very long time to see whether you are transacting business in treasury securities commission to security of customers. are you financing customers? are you doing repurchase agreements? reverse repurchase agreements for clients that they can facilitate access to the market?

i am under the impression that they have -- i don't recall the exact number, but they have capital requirements. they review your systems and operations with on-site reviews and everything and observe your participation here consistently losing money, which would indicate to me with your company deteriorating and would give such a status to that. >> my own to fondness is that we were at the time had gone on for a better part of 18 months then demonstrating that we were participating with client at levels that were significantly

higher than some of the other people recognized. we had adequate capital and as i indicated in my ridge testimony, our historical earnings had been so good they had gotten slightly better. >> or two of your rating agencies, sec and in the height questioned with you at adequate capital or not. >> those questions came well after the designation, which i believe was early in 2010. ephedra challenge was in august of 2010. and now is with regard to their interpretation of how the capital charges were applied to your salaries. >> the gentleman's time is six by your. the chair now turns to the gentleman from georgia,

mr. scott for five minutes. >> mr. corzine, welcome to the committee. i must say at the outset that it's really the height of disbelief that u.s. the former former senator, former governor, you are the former head of the premiere, most prestigious investment banking operation in the world. and to sit there and say that 90 are washed as chief executive for $1.2 billion of customers money, you know nothing about it. now the key -- the key to finding out where my constituents money went. i represent georgia appeared a lot of farmers. they are sitting here watching trying to figure out if i'm going to get my money back. the key to this is you. you're the ceo. now mr. corzine, who at mf

global was ultimately responsible for determining which products the company invested on on his behalf? now i would think that c. was the ceo. and i read about that? >> ultimately the board of directors of the recommendation of management, which i was the lead manager of makes those decisions. its delegated authority and the company operates within those authorities. >> tommy this. what did you do at this company? was up and that the board? made the decision to go in? >> those are always bad the recommendation and i take full responsibility for the recommendations that went before that court. and i tried to say otherwise. and so, those investment decisions are one that

particularly as it relates to the european sovereign rtm position, rest in my judgment. >> in your area. now explain to me when you came in and made that decision. when you came income you'd been in the company relatively short time. but when you came income here holding in foreign sovereign debt was about 1.5 dillion. in 11 months -- that was as of october of last year. now october of this year, the holding has taken up to $6.3 billion. foreign sovereign debt at a time in each of these foreign companies when you get the debt from retreating on your. was that your decision? >> i take responsibility for that decision. in my oral statement, congress then, i tried to give -- in my written statement, some give on why i thought it was time we

give those decisions somewhat different than how one might assess it. >> mr. corzine committees yuko mingo customer funds which are proprietary funds? >> yes or no. >> i'm going to answer this question. there is never any direct intent to co-mingle those funds. >> in other words you could have. throughout this hearing, i can count the times he used the word never intended, not my knowledge, not my regulation, never intended to. i understand the position you are in. but mr. corzine, we've got to find that money. we've got to get the $1.2 billion get it back out to our customers and to my clients and farmers in georgia. as i said before, we've got to

get better answers than this from you because you are the ceo. when they ask you this, mr. corzine. did you use client funds to pay for or to pay off and that globals that can bolster the 6.3 billion purchase of sovereign european debt that led to your bankruptcy? >> i'm going to repeat what i said before. i have no recollection whatsoever of client monies being used. plant money out of the sem used to purchase sovereign. again, the euro sovereign positions were held in the broker-dealer. >> the jury is customer funds to buy foreign sovereign debt? >> client dollars that are in the sem were not financed out of the sem.

>> then why did you lobby the cftc against proposed changes to the cftc regulation that would have prevented futures commission merchants from investing customer funds and obligations of foreign government why did you lobby. >> meeting your reference with mr. kent is a comp called was about the percentages -- concentration percentages was more in support of the ftc's recommendations. i thought they should be modified to pick, and i was more supportive. and not stipulated to the

internal repurchase agreement that the cftc just rolled on this last monday. >> if you want the one responsible for had a rule and playing about the misappropriation and loss of the $1.2 billion, somebody did. would that be? >> tenements time is expired. the witness may answer. >> as i've said repeatedly repeatedly, we have people, policies and procedures. as i said in my testimony, i don't know whether this is an important. i don't know whether in the flows of transactions that were occurring. and there are more flows of transactions and typically occur in the mf global in the last days. so whether someone held onto some of the fun that were

rightfully to a then delivered to mf global, without being able to look in detail into those records, those are options and i don't -- i don't have the ability other than to speculate where they would eat. >> gentleman's times expired. >> thank you, sir. the chair now recognizes mr. conaway for five minutes. >> governor, thank you for being here. he testified she were an expert. help us understand your appreciation to judy scn for segregated accounts. is that something you were aware of? was there somebody in the organization that when the report was prepared the next morning after yesterday's close of business and that was out of whack, their job is to hunt you down and show that to you?

i mean, did the shoe of segregated funds raised the level in your mind? >> if there were an outage, it would be brought up. >> would that have been something you'd been made aware of? or is that somebody else in the organization? >> if there had been an unreconciled circumstance, i believe it would have been raced to my attention. >> just trying to get a sense of how important mf global steam was. that is one area of the suspect were supposed to be paying attention to. the terms of told from the top, many organizations take on the attitude of their leadership with respect to compliance, regulations and those kinds of things. as the wall street that you please on the placing of those

orders, did you go throughout the normal routine that anybody who has authority to place orders on behalf of mf global would've gone through? >> congressman, i infected in place orders, although i worked with traitors would place orders. and i went through normal routine and we had special compliance oversight of my activities. >> okay, that's helpful. one of the other aspects of leading a broker-dealer & co. in the financial service pitcher in his liquidity to risk. are not telling us that you showed up in october? you also had some stands at the second quarter results were not going to be as favorable as he wanted to, though. >> we were very well aware that you bear at the end of that second quarter or third quarter -- fiscal quarter that the deferred tax was going to have to be reduced.

>> good. you are aware during the july, august september time frame that your $120 million pages from the deferred tax. amid bankruptcy files that it was a contraction underprepared treating to drive much of the loss in the second quarter. i don't want to get often not true. you you knew that liquidity risk based -- mf global face liquidity risk. once you begin to put in place steps necessary to protect mf global from a liquidity risk? than in october, when the wreck started happening, margin cost are happening. customer started wanting money back. but tenants come easy these are what we've got to do. did you ask them what do we get the money to meet those costs? where do we get those? in other words, for short

$1.2 billion. where we. warier lieutenants telling you here is how we solve the problem with respect to this liquidity run at the bank -- were they telling you? for you getting the money? >> we have done stress tests about securities we would be old to sell in the broker-dealer for purposes of generating free up the margin. repurchase agreements we would be able to close would accomplish that. but more than anything else, we've credit lines that were held in reserve for crunch time. >> white in the system are? >> the real answer is i don't know all of the details. i really don't, congressman. there are many seeing that were

presumed to have been able to generate quiddity. for instance, did all the banks actually live up to their available to buy the line. >> let me finish off. when things got crazy on wednesday, thursday, friday, you had people a place into the business between segregated funds and proprietary funds. and characters tested. is there anything you could have done to text okay and the circumstances of disaster weariness okay to reach those things. they cannot hide behind the difference. >> i don't play anyone would

interpret anything -- i don't think on the other side, but there was never any intent that i heard my language or actions. >> can understand what the reason you keep using intent. or not the prosecution. but the team failed. what a testimony lehman brothers had a catastrophic failure in the business that the next day in the chaos around in the bankruptcy was not just similar to the one that happened that mf global. why was the team unable to do the right thing at the heat of the moment? >> the dumbest time is expired. the witness may respond to the question. >> first of all, there is a proportional to distance.

it was a much weaker part of our business partners. that doesn't answer your question because i don't have the answer in a speculating if i did. >> dominance times expired. the chair is gentleman from connecticut for five minutes. >> thank you, mr. chairman. mr. corzine in your testimony and you've mentioned earlier that the phone conference with someone regarding the 1.25 girls of the rulemaking and in your testimony he said the principal topic of discussion is whether 125 should be changed to stop repurchase transactions with related brokers. we spent a lot of time with commissioner summers about the rule adopted on monday regarding foreign sovereign debt and she was repeatedly pointing out to us that that will wouldn't have changed anything because it only

applied to customer accounts. and the problem was more than a broker-dealer account, based on what they knew at this point. so i guess then the question i would like to ask and looking again at mf global letter to the commission regarding the rulemaking when it was a comment that they submitted was the rule that was adopted on monday, returning repurchase -- in-house repurchase agreements, what impact could that have had in terms of the events he described in your testimony regarding repurchase? >> first of all, the rule that was adopted on monday and i am not quite as well-versed as they would be if i was still in the business did not deal with foreign sunburns, other than that they were precluded without application for exception.

but they were never available for any purpose is as far i know, as well as i can recollect the rules, except for deposits that were taken from customers and four in current fee, denominated deposits. >> okay, this was not the issue that not only sub 10, but the fia, and most of the scm were petitioning because of the cost and inefficiency that would occur without those internal repos are not allowed to be able to take place. >> chair in cancer in his comments when they felt they taken a great step forward in trying to reduce the risk that is surrounding these repurchase

agreements. i mean, are you just singing it's a relevant? it's a dead letter? >> clearly the issues housing and scm and a broker-dealer in the same entity, certainly in a time of stress as mf global was experiencing the last days, i does call raises the issue of the chairman ken sawyer was trying to speak to in an ongoing operating bases. i probably stand with the arguments they made at the time stress, his argument may be much stronger. >> well, i'm glad to say that because having been here and 08 and when the world was collapsing and frankly the process of enacting dog frank was crawling over broken glass

in terms of doing something so complex. but frankly, i think it was our duty to try and address the fact that there clearly were systemic problems that exposed the taxpayer and middle-class that could happen when the systems malfunction and again, the efforts by the commission had just gotten trashed in this room frank way for the last year in terms of trying to implement dodd-frank. it's time to recognize everybody can't have it the way they always wanted here there has to be some rules in place to limit the high risk that again exposes farmers and small businesses and people were trying to lead their lives and have some confidence in the market. what happened in this incident is there's going to be lots of

investigations that are going to look with the bankruptcy court may be other authority, the weary lawmakers. our job is to try and figure out the right way to balance rules that will prevent things from occurring again. frankly in retrospect i wish the commission had moved faster in terms of implementing these rules because they think it would have created a structure, which reduces risk and at the end of the data so we have to do for going to have stability in this economy. i yield back eared >> john times expired. the chair recognizes the gentleman from nebraska for five minutes. >> thank you, mr. chairman. thank you mr. governor for coming to answer questions. i was recently in an eagle scout ceremony and one of the young people there stood up and he said those: he said america depends on the quality of her citizens. and i was struck with the

beauty, simplicity and profundity of that statement. the problem here is we cannot pass enough laws fast enough, create enough regulatory entities quick enough if there is a collapse of the type of values that lead to responsibility and commitment to the common good. we simply can't do it. it is incumbent upon those of us in government, business, media, education committee at their institutions that shape our culture and give us good order, fairness, justice, opportunity. it's incumbent upon all of us to act in the public's trust. in this regard i'm going to ask you a few questions. who owns mf global? i asked the question the regulator prior to this. i'd like to know. >> mf global is a public company.

shareholders proudly held the stock. it's actually a report that can give you exactly who those people are or for institutions that were the owners. a >> over institutions? >> there's a whole range of large institution. >> a guide to understanding interconnections. the financial, industrial complex. >> fidelity mutual fund complex. there were a number of institutional holders like that. there were hedge fund holders. there are individual holders. i am a holder. they're a private equity holders. jc flowers, which i mentioned inside my remarks. >> who hired you? >> the board of mf global. >> who?

>> the board of sub 10 is the hiring responsible hiring authority. if you're asking who introduced me -- >> it be helpful to know the story. some of this is in a written statement, but i had as a private investor, a holding in the private equity firm, jc flowers, the ceo of mf global in march of 2010, roughly resigned. they were about to instigate a search for a ceo at the board level. and i present it was suggested from the board member from jc flowers that sat on that board and they talked to me. >> we talked a little about this

in your testimony. but basically describe your job. >> as the ceo of mf global? first of all set strategy. i spoke to cash about in my written testimony, that needed to be defined not just with myself, but with my lord. needed to represent the firm externally with clients, counterparties, regulators and given the business strategy that we were about, i needed to make sure we had personnel. >> in that regard, who did you how your? >> a whole host of folks. there is significant change. >> main principles. >> we heard a new chief. operating officer, new internal audit, new hat of europe.

new head of asia, lots of changes. >> i'm sorry my time is running a little short. you said it was never your intention to co-mingle segregated funds, how could you paint a scenario in which you could unintentionally do that? >> to be very speculated on my part. someone could misinterpret -- we've got to fix this. which i said the evening i was october 30, we've got to find the money. >> mr. chairman, but the gentleman yield for one question on his line. >> from the governor or you? >> yield to me.

mr. corzine, and then we'll conclude with you. what percentage of the equity or ownership and mf global did you want for curiosity sake? not a very large amount i would assume. less than 10%? plus 5%, less than 1%? >> i think closer to the latter than any other numbers. >> so a single digit in that range somewhere. is that the typical nature for senior management of these terms? very small equity stake holders in the enterprise? >> not only the amount that i had a, but it was also home i conversationalist record, which i also went to stock options. >> so typically in a company like this are one that you would be a part of overtime, your interest in the company would go through the use of stock options to manage? >> correct, gentlemen. >> so just from the with asking questions about the nature of

your business then, a person in a row like that any company, just the lamest that it would appear that the more aggressive the enterprise, the better those kind of rewards would be and certainly most of the investors are very sophisticated people, correct? they understand the nature of the enterprise he been a part of. >> they are very sophisticated investors. >> in oklahoma we call that a high-powered guy. >> let me conclude by saying this. i think what we have here is another example of inordinate risk-taking, leveraging other people's money. we have the possibility of improper co-mingling of funds, but the third point is they think would have another assault on the nation stressed to the financial institution. >> pajama manuals that hear the

chair now recognizes the gentlelady from alabama for five minutes. >> thank you, mr. chairman. i want to begin with a brief statement or comment before i start my questioning. you know, this hearing is important today not only because were trying to get to the bottom of how thousands of farmers and growers and producers are currently have lost their capital and are struggling to figure out how they're going to make ends meet, but we are also here because this has vastly affect did hundreds of americans who've lost their jobs, directly and indirectly because of the loss. and in these trying in challenging economic times, it is even more important i believe that we who have the public trust really to become good stewards or try to be good stewards of the money and not trust. and some i hope today is that we not only get to the bottom of what happened to thank you, mr.t

how this affects where bradley the financial industry generally and in particular how it affects our farmers and growers. having said that, i spent my formative professional career as a securities lawyer in new york city. and i can tell you that what differentiated me as a lawyer and the investment bankers they represent is our appetite for risk. and so i guess i asked you, senator corzine, as the ceo and chairman of mf global, the direction in the appetite for risk that you -- in steering the company, could you speak a little bit about how mf global was position prior to you getting are? and what your hopes were when you assume the responsibility of ceo and how you would rate the

risk appetite of the company and perhaps yourself. >> thank you, congressmen -- congresswoman. it primarily was a broker firm, commissions and earnings on the balances as the basic source of revenue, although there is some principal risk-taking bid already began to apply for that primary dealership. and in the government securities business did the same in european sovereigns and our european operations. and one of the commonly used metrics with respect to risk is what we call value at risk.

and that was roughly 5 million before it came with an authorization delegation and we stayed at that level where was that the firm. there were certainly. where is higher and there were periods when it's over, both in reporting and the internal basis. >> whether you said that repo to maturity transactions used as fast to mask for lack of a better word, any shortfalls. i mean, what was the direction that was given by yourself as management with respect to those kinds of transactions? >> the repo to maturity position look like things that we had done an repo to maturity with

u.s. treasuries, with u.s. agencies, with corporate -- actually a larger amount than what we were talking about with your sirens. >> we also know you're sovereigns were coming quickly insolvent. i mean, the world events were surrounding a lot of the euro zone countries and was obviously quite known. very different. >> they are clearly different, although they were still highly rated by agencies and as i said in some of the earlier remarks, but after metrics that one would judge based on margins that were required by clearing organizations or individuals, it was our judgment that they were particularly the ones that were involved in were less risky than would otherwise be the case.

>> sommers is actually kind of running out and really my last question is, what do you think would be a fair outcome given the state of affairs currently if you could wave a magic wand and figure out how we solve this crisis that we're currently facing the mf global. what do you think would be a fair settlement? >> i am absolutely hopeful that a full understanding of what happened in those last few days will reveal the source of where these monies are. i continue to believe that -- that those resources are in the hands of either counterparties

or there has been some mistaken forwarding of those to someplace that i wouldn't know. that's what i tried to write in my remarks. >> will you know, hope does spring eternal and i yield back the rest of my time. >> pajama ladies time is expired. the chair when i recognize mr. schmidt for five minutes. >> thank you. mr. corzine, i know you said you are quite sure about when the money was wired transferred, but mr. corzine, mf global march 31 of 2011 shows in that position and price default risk of 6.5 billion of the deck indulge belgium, italy, spain and ireland. but bloomberg reported that she pushed this to 11.5 billion in your hedges were insufficient to dampen your risk.