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tv   Tonight From Washington  CSPAN  March 29, 2012 8:00pm-11:00pm EDT

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>> the focus of the hearing was mf global's collapse last october that lament congressional investigators that jon corzine directed the funds just before mf global file bankruptcy. federal investigators and regulators are trying to find out what led to the collapse and what happened to customers missing funds. it is estimated that more than $1 million in customer funds go unaccounted for. this hearing is just under three hours.
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>> [inaudible conversations] >> the committee is called to order. this hearing will come to order. i would remind members that the opening statements should be limited to 10 minutes as previously agreed. there are members that are not necessarily are not a member of the oversight and investigation committee. i have asked of those members be allowed to participate in the hearing today as well. i am going to go ahead then with my opening statement. this is the third hearing that we have had on mf global.
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it is one of the eight largest bankruptcies in the country. more partly, it is about trying to ascertain what happened where farmers and ranchers and customers lost over $1 billion of their money. i would remind folks that this is a hearing and not a trial and at the bottom line of what we are trying to college today is basically to do an autopsy of how a 228-year-old company came to its demise last year. it is important that we understand what was going on corporately, what was going on from a regulatory standpoint, and what was going on within the systems that support this entity and these businesses. the reason that it is important is obviously there was a breach. people lost their money. more importantly, it is going to be important for us to make sure her that whatever deficiencies that happened -- that corrective
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actions be taken so that customers and farmers and ranchers that use these kinds of services in the future have confidence in those markets. we have looked at different aspects of this during the last days, months and years. this hearing will be focused on the last days of mf global and ascertaining how and when and why farmers and ranchers and customers came about to lose their money. so i appreciate the witnesses being here today. i appreciate my fellow committee members, and i hope that when we can complete this hearing today, that we have a better understanding of what happened and more importantly how we can prevent these kinds of things from happening in the future. with that, i yield to the regular -- the ranking member, mr. capuano, for his remarks.
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>> thank you. i want to associate myself with the comments you just made. that is exactly what i'm doing. i am not looking for someone who stole money. if someone stole money come of the justice department will find them. i see our role is trying to find out what happened in order to make sure that it doesn't happen again. there are rules that need to be clarified, to see if there are principles that need to be clarified. there might be of no wrongdoing, but it is up to them to find the wrongdoing. i think there were pretty well-known incidents and new stories that were based on a memo that was leaked inappropriately. i spoke to the chairman. he agreed that things happen unintentionally. i want to congratulate the chairman for the addendum to the memo to clarify. i think that took a lot of good rhythm and foresight.
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i want to make sure -- and the chairman and i have talked. i want to be clear that i am on the record to say that up until now, my relationship with the committee has worked well. we have a responsibility to do it. we are going to continue to do it. but it has been done mostly in a bipartisan cooperative manner. lastly, issues were raised on my site. legitimate issues were raised with the chairman. i think they are worked out. i want to be clear that as we go forward material of the committee launched a committee. he does not want to a member. the trail of the committee is required by house rule 11 to be shared amongst all members equally. it is not subject to the termination of staff or any other member what to do with that material. again, i think the theme this
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week was inadvertent. that is fine. things happen, you clear them up. i want to be clear going forward that i expect every person who works for or with this committee will try to work in a cooperative manner. knowing full well that there will come a time when we have differences of opinion and we will express them all the ways we do, but as far as getting to the bottom of this matter, the oversight committee's job is to project the american people. i don't think any of us disagree on that response ability. mr. chairman, i want to thank you for the conversations we have had two to clarify information. i look forward to working with you. >> i want to say that i appreciate the ranking member's cooperation. i think this committee is working in a very bipartisan way. we work for the american
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taxpayers. we oversee markets and entities, and i know that he's taking this seriously as i do. i thank him for his remarks. now i yield to the chairman of the committee, mr. bachus for two minutes. >> thank you, chairman, for convening this hearing to examine the tumultuous final days of mf lobo. i commend you for the subcommittees careful and comprehensive review of the facts. this being the third hearing, there have been dozens of entities reviewed, thousands of pages of documents, which, in those documents as they came in, members were notified that they were here. but maybe we can improve back to mutation. the oversight and investigations subcommittee and the full committee have resolved to find out what led to the loss of $1.6 billion in customer funds.
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we need to understand what happened at mf global look for the method of ranchers and farmers who lost money, as well as the american public which benefits from a properly and effectively functioning commodity market. what we learned today is notwithstanding the promise that regulators will work together, there is very little evidence of regulatory coordination and the supervision of mf global. in fact, some four or five months before questions were asked, those questions be sec on one side and the cne and commodities future trade on the other, we can find no communication where they were sharing those concerns with the other regulators. better coordination, i think, could have and should have led
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to a greater vigilance over the safekeeping of mf global funds. we also learned that internal control does not work if they can be regulators shorted by a company ceo. while not all of the facts are not known of the role of mf global's ceo john corson and what they played in the spectacular collapse, the subcommittees investigation leaves little doubt that mf global was in many ways this corporate alter ego and that ultimate responsibility for what happened rests with him. today's hearing will examine whether customer funds were using to meet the funds demand for cash in the state last week. according to a pulmonary report all of my bankruptcy trust, margin calls for a major source of funds during the last week.
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witnesses will talk about whether they are properly used customer funds to meet the funds that were attached. in order to get to the bottom of what happened and who was involved, the subcommittee needed the cooperations of various banks that conducted this is what mf global. a number of those banks were contacted about testifying today. but only j.p. morgan chase volunteered to appear for us. other institutions are understandably reluctant to testify because of the time and resources it takes to ensure the testimony is accurate and complete. j.p. morgan chase and their cooperation is very much appreciated. mf global was the eighth largest bankruptcy in the nations history. but that is not what makes its failure no were they. firms of all sizes fail every day. for every award there is a corresponding risk. that is part of the free market.
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however, a $1.6 billion loss of customer money is not a risk that should exist in an effectively regulated market. i hope that this hearing will bring closer understanding what went wrong and where that money is. thank you to our witnesses. let me say this. our investigation -- everyone testifying on this panel has a good reputation. they have a good background. they are respected in the industry, so as i think has been said before, this is not -- this hearing is to find out what happened. not to appease any of you of any wrongdoing, because that has not been demonstrated. we appreciate your testimony. you're not on trial here. you were simply any fact-finding mode. i have been struck -- i have
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looked at your resumes and backgrounds. you are very qualified and you have a good reputation. all of you. >> thank you, chairman. now the gentleman is recognized for two minutes. >> thank you, mr. chairman. i would like to thank the witnesses here today for helping this committee with its work. mr. chairman, i believe in many ways he should be given credit for the attention you have given to the collapse of mf global. i think we can learn many lessons from the collapse of mf global about the accounting treatment of certain risky investments, about the ability of regulators to meaningfully oversee regular since. we need to make sure that we have the tools to prevent the situation occurring in the future. we have explored these issues in previous hearings, and i hope we have an opportunity to revisit them today. however, i must raise an issue of process with you today that has been mentioned by my ranking member, mr. capuano.
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i believe that your side, you and your staff have been slow and sharing documents with our offices. in fact, my office has not received a copy of the mf global break the glass plan. something seemingly republican members had a copy of the least -- as of last february's hearings. moreover, the ranking member was aware that you were in possession of 100,000 pages of documents related to the final days of mf global. house rules, as my colleague has indicated, state that each member shall have access to all committee hearings record data, and files. i have not had access to the extensive portfolio that your staff has obtained from mf global for this hearing. mr. chairman, i have no intention of going easy on mf global. we are of one mind here. i am as incensed as you are at the breathtaking lack of care shown by employees at mf global
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and handling of funds. i am also disappointed that is a member of this committee i have not seen the full extent of information collected by your staff and circulated to republican members. just like your side, we take our responsibility to prepare for these hearings very seriously. we take a responsibly to the taxpayer very seriously. while i give you great credit for focusing on this issue, you deserve that credit, i hope that this investigation will move forward in a bipartisan collaborative way and that our office and the rest of the members on the side will be privy to the information your officers have obtained and will obtain. mr. chairman, thank you for the time and i yield back. >> i thank the gentleman for his remarks. now i yield to the last chairman of the oversight investigation committee, mr. fitzpatrick. >> thank you, mr. chairman. here we are in hearing three of the series of hearings investigating mf global. we know throughout the week of october 24, mf global lacked
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cash severely that led to bankruptcy on october 31. in those chaotic final days, up to $1.6 billion in customer money went missing. at a time when america's people are a lacked confidence in america's markets, mf global provides an example of how multimillion dollar securities firms can impact middle-class americans. many members of this committee, i have had constituents at affected by this event, and that is who i am here to speak for. we owe it to customers who lost money to discover exactly what happened at mf global. what these hearings are also designed to do is to provide insight into our financial markets and regulations designed to protect them. the american people expect us to hold wrongdoers accountable and protect those who play by the rules. here we are. as numbers of the house of representatives, we are here to stand in place for millions of merit americans we represent. we are here to find answers for
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that. i commend the hundreds of hours the committee has spent digging into the matter. i look forward to the testimony of today's witnesses and the answers that we hope you will be able to provide. naked, chairman. >> i think the gentleman, and i ask unanimous consent that a letter from a commodity customer's coalition thanks are committee for our work be part of the record today. >> without objection. so ordered. >> i would like to yield now to the general fund texas, mr. canseco. >> think you, mr. chairman. back in the fall of 2008, when the financial crisis was unfolding, then candidate obama stated in a debate the importance of holding ourselves accountable day in, day out, not just when there is a crisis for folks who have power and influence and can hire lobbyists, but for nurses,
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teachers, police officers, who frankly at the end of each month, they have a little financial crisis going. well, there is a big financial crisis going on right now. for farmers, ranchers across the country, that cannot access their portion of $1.6 billion that has gone missing at mf global. this past week we learned that the ceo john corson likely was not the innocent bystander he claimed to be in front of this committee in december. yet for all the rhetoric we hear from the obama administration about holding people accountable, this administration sure has a way of climbing up when the people in question is the former democrat senator and governor. i hate to sound cynical, but i cannot help but think that the power and influence, as president it obama may call it, someone like jon corzine carries
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exempt from eight there'll investigation by the department of justice. the victims of mf global deserve their money back, but they also deserve to know what happened to it. this hearing and our continued investigation is of extreme importance, and i yield back the balance of my time to. >> all right. i thank you, gentlemen. now the gentleman from california is recognized for a minute and a half. >> thank you, mr. chairman. the clear problem that arose here -- the clear problem that may bankruptcy the only option for mf global was that no one could account for what happened to over $1 billion in segregated funds. as we are going to learn today. more than leaving the customers
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high and dry, what has happened is that those missing funds have rocked the foundation of the crtc's customer protection regime. rules governing segregated accounts those rules have been around for 75 years. they are not difficult to understand. reportedly they are not difficult to enforce, yet the cftc has failed in this task. >> he is arguing that since 2010 the crtc has been consumed with strapping new ute rules -- drafting new rules with much of the manpower at that agency dedicated to enforcing doctrine. according to mr. o'malley, cracks in the system, and it has cost over 1 billion here, in
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terms of the clients, at least hundreds of millions. so i will and my quote. since the dodd-frank act became law, the commission has acted like a child abandoning the old toy and swapping it out for the new. it is concentrated on slots while averting its gaze from the futures markets and their developments. there in lies the concern. the broader question that has to be answered here. regarding the ability and the willingness of the cftc to ensure customer funds are protected, and i yield back, mr. chairman. >> naked, gentlemen. i yield to the ranking member, mr. capuano. >> chairman, it is interesting. i start off trying to be bipartisan, and then i just heard that the dodd-frank bill and obama possums problem. i would like to invite anyone who has any information whatsoever, the justice
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department, the cftc, anyone who has given mr. jon corzine a past related to this matter, i would like to see it and it would be another matter we don't have. i would like to know if dodd-frank cause this problem, then what caused we human brothers, what caused bernie madoff? i know we are here to make a point, but let's stick to the matter. if you know, go to the justice department and tell them. >> will the gentleman yield? >> i appreciate you yielding. the point that i am making, i am quoting the commissioner at the cftc. it is his observation. it is his observation that since the dodd-frank act became law, the commission has acted in this way. it is his observation that he has concentrated on swaps
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rule-making while averting its gaze from futures market -- >> i would be happy to go for my time -- >> i would be happy to join with the gentleman asked them that question to see if they think publicly on the record that dodd-frank cause this problem. if you did, i will simply agree with you and say, good job. but if he doesn't come than i would expect you to do the same. >> thank you, gentlemen. i am now going to recognize our first panel, laurie and henry and christie, chief financial officer of north america, and edith o'brien, assistant affairs of mf global. i would recognize that each of you now for your opening statements, first of all, please raise your right hand.
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do you solemnly swear and affirm that the testimony that you are about to give will be the truth, the whole truth, and nothing but the truth? >> thank you, you may be seated. without objection you're written statements will be made a part of the record. at this time, i will recognize ms. barber for the opening statement. >> distinguished members of the subcommittee. >> i'm sorry, can you pull that closer to you? >> my name is laurie ferber trade since june 2009, i have served as the general counsel of mf global. since the bankruptcy filing, i have remained with the company to assist with the bankruptcy and the professionals to
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maximize the value of the mf global estate. i hope that my testimony will assist the subcommittee in effort to understand what happened during the firm's final days. i was born and raised in the bronx, new york. i received a bachelors degree from buffalo and graduated from new york university school of law. prior to joining mf global, i served on the general counsel of the commodities and income trading committees of two service firms. as general counsel of mf global, i supervise legal and compliance functions. >> mr. chairman, can i get you to look -- move the microphone closer? >> is general counsel of mf global, i supervise the legal and compliance functions. my responsibilities include managing legal functions to support the firm's appalling business, advising the board and senior management and assisting
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with mf global's relationships. mf global's committee includes attorneys and professionals. the legal committee includes expertise with various levels of law for mf global. mf global had compliance compliance manners and managed a global department of 80 people, all of whom reported record to me. i report director to the chief of director and board of directors. my focus during the last week of mf global's operation was to make sure the legal and compliance department and outside counsel where available and prepared to support the firm in an attempt to deal with the rapidly unfolding events of mf global's last days. the firms senior management and board of directors, we reacted to those events via initially seeking to reduce the balance
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sheet. we also seek to make sure the firm meets all of its obligations. ultimately, when the sale of the firm became impossible, mf global holders had no viable option other than to file for bankruptcy protection. throughout mf global's final weekend, i entered the offices in new york for very few hours. the board of directors have also carefully monitored events and received almost constant updates. my colleagues and i were in very frequent contact with members of mf global regulators during this time. these include the fcc, the cftc, the cna, the cboe, and the federal reserve bank of new york as well as the financial service authority, and financial services regulator. keeping the regulated forms one of my top priorities. that includes spending most of sunday evening, october 30,
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working with regulators to agree with regulators on which the terms the firm would be sold. as best i recall, it was after that process and likely just before midnight on october 30, that i learned that the firm was unable to reconcile its funds account. i was shocked. i believed that the firm that was operated by highly qualified professionals had secure customer funds. as a last effort, people from potential buyers work with the management team to provide a fresh set of eyes to help identify the reconciliation errors. once the inability to reconcile the accounts became clear, at approximately 2:00 a.m., we notified the regulators. later that morning, after several hours of discussion with the regulators, we made the bankruptcy filing. since that time, i have been assisting in the efforts --
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global efforts to maximize the value of bankruptcy estate for all of mf global's stakeholders. i've tried answering questions you have. >> next, will be mr. steenkamp. >> inaudible -- [inaudible question] >> let's see if we can turn these mics up a little bit. >> is that better? >> just. >> thank you for the opportunity to make this statement. my name is henri steenkamp and i'm the chief officer of mf global holdings ltd. the position i have held since april 2011. let it be said at the outset that i'm saddened, upset and frustrated that money belonging
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to mf global customers has not been returned in full. i know, however, that my reaction cannot be compared to those other people who are suffering with this issue. along with certain other senior executives of mf global holdings ltd., i have remained at my post following the filing, and i'm working diligently with the trustees to do what i can to maximize the value of the firm for all interested parties. that said, because i set the rules and policies, i have not been able to participate in the efforts to return customer funds. while i am deeply distressed by the fact that customer monies have not been repaid, i have limited knowledge of the specific movements of funds at the u.s. broker dealer so jittery during the last two or three business days prior to the bankruptcy filing. this is in part because of my global role and in part because
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during those days i was taken up by other serious matters. as a cfo, i handle many manners. with an effort to comply with all requirements and work closely with investors and rating agencies. as its name suggests, mf global holdings ltd., is a global holding company with approximately 50 domestic and foreign subsidiaries. each of the regular subseries had its own chief officer tom at chief financial officer, and others obligated to independently to start the customary duties of those duties according to its jurisdictions and regulatory requirements. all of these positions were filled by express professionals dealing with local regulators. direct involvement with operational management such as
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bank accounts or fund transfers have never been part of my duties. it is, of course, important to understand the way in which the segregation issues were handed at mf global, the subsidiary that acts as a commissions merger in the ordinary quart of business. to avoid confusion, i will call them m. fti. >> to my understanding, mfgi's funds have been reviewed repeatedly by the outside auditors and regulators over a long period of time. as a general matter, i was not involved with the detailed segregated funds in the course of my duties as global cfo, nor were the conflicts of segregation calculations
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performed by mfgi and reported to regulators on a regular daily basis. in the bankruptcy find -- finance, extraordinary efforts were made to sell all or part of the firm. it was a time of constant pressure and little or no sleep with a significant number of critical issues to resolve and as a cfo of the holding company, my intention was focused on management and strategic issues relating to the sale of the company. all on monday, october 24, they announced they were in downgrading our credit. this was followed by further downgrades read the rest of the week. it was unprecedented drought history and throw my sprints.
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>> i dedicated my time to the due diligence almost exclusively in the period commencing of october 27 and ending with a decision to file for bankruptcy on the morning of october 31. as i recall, on sunday, october 30, when a deal for the acquisition for all or part of the company appear to be close at hand, i learned of a serious issue with mfgi's .-dot relations. unfortunately, as the subcommittee is aware, the efforts to reconcile the tabulations were not successful, and the deal fell through. i., along with others from mf global probably notified her regulators about the segregation issue. i understand that the subcommittee, msg as customers, and the public have many unanswered questions about customer service. i'm personally extremely frustrated with the client's
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funds have not been paid in full. i would be pleased to answer the subcommittee's questions. >> thank you. mr. slansky, you are recognized for five minutes as well. >> i'm going to ask you to do the same thing and tilted down a little bit. there you go. talk about is you as you can. i don't know what's going on here. >> thank you for the opportunity to testify today. my name is christine. at the time of the events in question, i was the chief financial officer of mf global. the forms -- the firm's north american dealer. in my position as cfo of mf global inc., i was responsible for the accounting and regulatory accounting team. in light of the subcommittee and the week of october 24, it is important to note that the department responsible for the transfer of funds into and out
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of the company, treasury, treasury operation, and securities operation, and did not report to me. i am aware that the subcommittee is particularly interested in the events of the week prior to the october 30 bankruptcy. i will do my best to provide whatever information i can, but i was away for the majority that we, and i apologize in advance if i am unable to add a great deal of detail. on monday october 24, moody's downgraded mf global's credit rating. on tuesday, there was an earnings call. a on that same day, i left chicago for a planned vacation. i had every reason to believe that the firm was on solid ground prior to my departure. before leaving, i spoke to members of my staff and drafted e-mails to coworkers that ensured functions would be
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covered. all of my colleagues and coworkers knew how to reach me as necessary during my absence. i had access to my blackberry during my week off, and i e-mailed when i could. i spoke with people at mf global from time to time that the week. things were very busy, but i was assured that things were under control and at no time did anyone suggest that i should return to the office. nonetheless, late in the day on thursday, i decided to come back to chicago a day early on sunday. i was not alarmed, but i believe that it would be better to return early am i given the level of activity of the firm. after receiving during reports earlier in the day and upon arriving at the office on sunday evening, i was informed that
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there appeared to be a segregated secure deficit of approximately $900 million. i checked with accounting on my team to explore, it because this was inconceivable to me. there is a paper at that identified the expense actions according to calculations accounted for the shortfalls in the segregated account. i then realized the deficit and this 30 funds were not an accounting error we informed a representative of the cme and my focus shifted to identifying all firm funds within mf global that might be transferred into the segregated and secured environment as quickly as possible throughout the early
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federal a vested interest, and i'm curious if that article was accurate or inaccurate. another asking about anything with fox business. >> on the advice of counsel i respectfully decline hit. >> which this subcommittee, help use your background and experience to solve a very serious matter, to try to find out exactly, you know, what happened and how we can keep this from happening again. we are extremely disappointed the you had chosen to do that. your fifth amendment right as to any question that the subcommittee may ask you on these subjects today. >> i will. he. >> i am disappointed, and because of your answer, but i believe that you have important knowledge, and i am hopeful that maybe at some point in time you will reconsider your -- and come
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back and testify before this committee. but at this time with unanimous consent i am going to dismiss mrs. o'brien from the panel. you are dismissed. >> okay. [background noises] >> continued the question. at this particular point in time , we will reset the time and began question and answer again. on 1028 mf global transferred to hundred million dollars from the segregated accounts and subsequently transferred 175 million to the u.k. affiliate to cover an overdraft. in an interview that you had
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with our committee he stated that if you were working that day was very unlikely you would have approved $1,705,000,000 transfer because it could have violated sec net capital rule. can you explain that for me? >> the transaction, $175 million transaction was an intercompany between mf global incorporated and if a ciliate, mf global uk limited. as i had to stand the $175 million was being taken out of customers segregation. there was two things i would have looked at with respect to this transfer. one was the firm was referred to and has been referred to as the firm invested in excess segregation and secured funds. of that hundred and $75 million,
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bring that level to a negative. the firm could still be in regulatory compliance said it would have reached its own internal policy. the second consideration that would have had to be evaluated was its potential impact, the excess net capital. so if that number being adjusted would have brought to my believe, the firm to a potential under early-warning situation which would not have been a rule violation bill would have required a recording to the regulators. >> i want to go back to my question. had you been there on that day would you have approved the transfer? yes or no? >> i honestly don't know what all the circumstances were around that transaction, but it would be -- if the impact would have produced the regulatory rule, i don't believe that i would have approved it. >> knowing what you know today
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would you approve that transaction, yes or no? >> no. >> okay. thank you. you are aware of an e-mail that edith o'brien described this hundred and $70 million transfer. is it normal course of business for the ceo to make instructions on wiring funds? i mean, did that happen on a regular basis on your watch? >> no. >> said this would be out of the ordinary for mr. karzai to start calling people and instructing them to step wiring money? >> system i believe that would be an unusual event. >> thank you for that. according to the cme on thursday , i representative sits you a letter.
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all of the mf global senior managers, and it stated effective immediately in the equity withdrawals from mf global incorporated must be approved in writing of see in the auditing department, basically telling mf global not to move its own capital of an affable without the approval of cme. who did you disseminate that information to when you receive that letter? >> i really don't recall. it obviously went directly to our finance group and to myself. i cannot remember, you know, exactly what i did with it. i know it -- i recall having conversations where people were aware. >> did you seek approval when you made a hundred and $705 million transferred to mf
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global uk? pricking that transfer. >> i was not aware of that transfer before it was made. i would not know that. >> so if -- you don't know who you disseminated the information to, and so not everybody get the memo, is that what you -- >> again, the memo went directly to the finance people. and so the key people operating the transfers and things are all in chicago. i assume it was shared there, but i really don't recall. >> you were the cfo for the global hand. you were addressing a very important issues facing the company at that time as their cfo, is that your testimony? >> that's correct. ..
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>> we slowly experienced throughout that week a drastic change in liquidity, and we experienced in the last couple of days significant liquidity strength. >> i would say my time is up. thank you,. >> thank you mr. chairman. >> i actually don't have a clue what questions to ask any of you, because i had the general counsel of mf global saying i didn't know what was going on, i had nothing to do with it. the chief financial officer is
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saying it is not my job. i didn't do it. the chief financial officer -- and by the way, it is mf global's issue, not mine. they didn't report to me, i don't know anything. and i have the chief financial officer of mf global saying i was on vacation. so how am i supposed to ask you question if none of you apparently knew what was going on or claimed to not know what was going on. you have no information whatsoever. how did this company run? did anybody in the company -- anyone have authority to transfer customers funds? did anyone have that authority? i know that you said in your written statement that you did not, but who didn't? >> my responsibility was to oversee the global finance function. i was not responsible for -- >> i know what you were not responsible for. who was responsible for deciding
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to transfer customers funds? if not you, fine. i read your testimony. who? >> the transfers of customer funds would be -- the authority would be regulated in each entity. in chicago -- >> who would that be? >> would be between the finance team, christine steen, ms. o'brien's team spirit that is what i read in the report. sir, you have the authority? did you have the authority to transfer customer funds? cement i did not have the authority to transfer customer funds. in my opening statement, the customer funds were managed by the treasury group, treasury auction operations group. >> you were the chief financial
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officer. the chief financial people did not report you? who did they report to? who in the treasury group would be the main people for making that decision? >> making the decision to? >> to customer -- to transfer customers funds. >> it would've been the assistant treasurer or the global treasure. edith o'brien and [inaudible] >> i have not yet seen a corporate organizational table for mf global. i understand there were 50 or 80 different companies. it will be to fun to try to read it. of all the people that are going to show up on the corporate ladder, i'm willing to bet that edith o'brien will not show up. she, however was the only person -- she was the top ranking person to say let's take all the customer funds and do whatever we feel like.
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and if that is the case, i think we have more than a little bit of a problem here, and i would tell you that after listening to you. >> i don't know after how many years ago on enron, i'm going to tell them exactly what i told you. is it okay? none of you did it. apparently none of you did anything wrong but there is $1 billion missing. here's what you should be concerned with. not us. we are not the appropriate investigative party to have that responsibility. your concern is the people sitting next to you because someone is going to say something to the appropriate to say this is the person who had final response ability. when that happens, there's going to be problems for those individuals. >> so i wish i could find some
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things -- i guess, one other question. i'll be working for mf global before these problems arose. but i read your testimony crackly? are you all still working their? >> i am no longer working there and. >> i will ask you mr. steenkamp. there are some reports saying that mf global was considering bonuses. are you part of those bonuses? >> as far as i am aware, there has been no decision made on bonuses so i have well-paid employees of a major company that has misplaced or misappropriated $1 billion of customer funds, and yet you're asking -- maybe not you, but someone is asking for bonuses to be given to the people that may or may not have had something to do at this? dc that is a potential little issue? do think that would be appropriate?
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for the trustees in bankruptcy that may have had something to do with creating this problem? >> that is not a decision that is in my hands. we believe the trust he will make a decision -- >> do you believe that is appropriate, general counsel? >> my focus right now is on helping the trustee. it is his responsibility to manage the estate and retain employees and everything else. >> that is fair enough. i appreciate your consistency and having nothing to add to this discussion. again, as i said at the beginning, i was not sure what questions i could ask that the information, and apparently we have spent six minutes and done just that. >> i think the gentleman, and i'd like to ask mr. fitzpatrick to speak for five minutes speed
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-- >> mr. steenkamp, did you on sunday, october 30, or any day for that matter, instruct anyone at mf global to contact anyone on the segregated deficiency? >> i have no memory of instructing anyone to hold off. >> you have no memory of instructing anyone? >> you state on page three of your testimony that on saturday, i was initially told that the segregation and secured statement for friday show the firm to be under segregated who told you that? >> someone on our staff, i believe. i do not recall who the person was, but someone on our staff. i'm sorry, you need to pull the microphone closer. >> someone on my staff. >> someone on your staff? >> on the finance team. >> and who was that? >> i do not call up it was regulatory control where the con
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controller. >> it was a pretty significant piece of information that you receive when you return from your vacation. you don't remember who told you that you had a significant deficiency? >> originally when the truck elation was done on saturday morning, issued a deficiency. my department was assured by the treasure -- or rather, treasury operations group, that there was an issue to be resolved. they were spending that saturday afternoon to do just that. on the morning before i boarded back to chicago, i was informed that, in fact, the firm might have been under segregated at that time, as of october 28. when i landed, and i received information that said no, we were not under segregated, when
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i went to the office i was told that yes, in fact, a we were under segregated and we looked to see how that could be the case. ms. schuelke, did you inform anyone else of that fact a mac. >> once we determined that the funds had in fact not been an accounting error but an actual deficit, we contacted the cme, who was on the premises, and i believe contacting either my colleagues in new york at that point. >> was at that saturday? >> no, that was very early morning hours of monday, october 31, or the very late hours of sunday, october 30. >> so you would have waited approximately two days to let anyone that cme know about the deficiency? >> i did not believe it was a
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deficiency at that point. we believed, as i mentioned, it was inconceivable to me that the firm could be under segregated by that substantial amount. >> but it was in fact deficient by that substantial amount, correct? ..
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apparently jpmorgan sent three drafts of that letter asking them to come from the transforms for proper. is the correct? >> i believe so. >> did anyone refuse to sign the letter? >> were you told anybody refuse to sign the letter. you have no information of anybody at mf refusing to sign, correct? >> we have to focus on which version of a letter? foot the first letter was asking one individual to confirm that everything has ever been done in the history of those accounts and would be done in the future with the compliance of the rules, and i think you know and we've talked no individual as far as i know is an area
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involved no one would be making those transfers. jpmorgan confronted their interest in the to transfers and that's what they were seeking assurances on, but they were limited to that they would be able to make that. i understand the importance of getting something to them quickly, getting them comfortable and ask them to get the letter of what they needed and we would get it signed. >> did you tell the assistant treasurer about the letter being sent? >> i forwarded a copy of the letter. >> did you tell her it needed to be signed? >> certainly that was the substance of the conversation. >> what was her response? >> i understood their focus on those transactions, and the transactions she would sign it.
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>> mr. lynch is recognized for five minutes. >> thank you, mr. chairman. how important is it for your firm, for mf global to protect client funds? >> it is a critical accommodation. >> ms. williams, question, how important is it that you protect client funds, is that a peripheral responsibility come how would you classify? >> a very critical and important. >> steinkamp? this is a core responsibility. this isn't some esoteric rules, this isn't some common you know, accounting error. this is central. this goes to the very trust that your firm relies upon and the
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whole market lies upon in order to function and we had $1.6 billion of customer money to go walk, and none of you know anything about it. none of you are aware of it. this is not a small amount of money. $1.6 billion money that was entrusted to you and that whole reason for a segregated account is to protect the clients' money. >> it's absolutely disgraceful what has happened here and it's disgraceful because you sit there and say we did nothing about it. i was on vacation it was a new york i was doing of a global thing. it's not believable, and forgot to tell you protecting
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farmworkers, families that invested their savings, their hard earned life savings, and they trust you and this industry is supposed to protect their interest. and they were robbed and nobody knew anything about it. $1.6 billion. let me ask you under the cftc rules 11.23 it permits the firm and this is a problem we have to look at the regulations at some point to add its own funds to the customer segregated accounts. i understand the practice. how do you tag the funds that you put in their and you mingle with so-called segregated funds which are not if you are adding the funds in my opinion but how
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do you tag of those funds? >> i would defer to my colleagues of more knowledge on matt. as you pointed out it is ingrained -- >> the central responsibility you don't know? >> how they are tagged in the bank account, no, i do not know. i know they need to be kept in the bank account that is as customer segregated funds account. >> any of media on this if we are rule 123 allows the firm to mingle with the funds to put a buffer in that account along with customer funds that are segregated how do you tag of the funds and distinguished them from customer segregated funds?
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>> if i may for a moment take an opportunity to charge declaims segregation and secured fund. >> how about you just answer my question? >> judging on the other responses since i sat down here some time ago the declaration of the fifth amendment was more helpful to this committee than any of your answers. so i don't want you going off on any long explanation because based on everything that's come out of your mouth full three of you, there's been nothing that has owned up to the responsibility for any of the stuff that's gone on even though you were all three in major positions of responsibility. , is pleased to answer the question that i asked. how do you tag of the funds and keep them separate from the customer segregated funds in the same account. >> the collateral is deposited
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in to the segregated or secure environment, they become coaming gold with a secured segregated fund to reduce the mix of its indistinguishable. >> it's just a balanced, the balance of the segregated funds, and then you know the margin is the you put on top of that is that what you're telling me? so there is no ability once the fund is in there to distinguish in the acid from another. >> we would track the investment in the excess segregated fund on a daily basis. >> but if you had a security of the fund, you could take securities that replaced by customers or you could take securities based on the company's deposit.
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>> i'm trying to figure a way to prevent this from happening again. i think there is a loophole that this is a situation where the regulation that's in place hasn't protected these people having $1.6 billion stolen out of their account, and i think somebody in the firm, somebody in the industry should have recommended a better method of protecting them than things exist right now. i am over on my time and i yield back. estimate mr. pure is recognized. >> thank you. i heard mr. lynch say that the clients were robbed.
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do you think that is inappropriate term? >> i don't know how to describe it three >> they put the money there and they can't get it back. is that with the definition is of rob? >> this is magnificent. >> one of the highest paid lawyers in the country. bonnie and clyde. you have people said things electronically and nobody is responsible and you can't even declare that was robbed or stolen.
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>> you seem alarmed when you came back into the office that the funds were taken. why were you alarmed? we've gone through the 24 hours. wednesday it didn't reconcile and you are a little bit alarmed. why were you alarmed? >> i was alarmed when juliette gordon pushed a microphone. stat sorry, i wasn't alarmed -- >> whatever term you used the city were distressed, you wouldn't have done it. why would you not have proven that? >> why would i have not proved it? >> based on the previous day of information i had. >> is it right or wrong i guess that is binding yet. is it right to take the money by the end of the day? is it illegal? >> if it was utilized in customer funds. estimate is it illegal to hold it over night? or to hold it for your?
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is it illegal to take customer funds and shore up the sinking ships per year? >> i don't know what was done -- >> i'm not accusing you. i know what's done to read you just said that it was sort of found alarming over what you use if i was presented with a request to approve $175 million. >> weakness we've missed the deadline. was it a legal deadline what the deadline? what does it matter. she said she didn't know if it's stealing or not. estimate of the understand we were talking about two different items. but my reference in the written testimony with respect to the deadline being messed on
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wednesday for the repayment is what i was concerned about that had been brought to my attention those that were not paid back by the end of the day did not violate the firm was an ordeal for compliance at the end of wednesday which had been breached and was an internal policy to assure that the firm invested in the excess segregation and secure funds. stacks of there is no prohibition against the fund this? >> access segregated secure. islamic there is no external prohibition? >> not that i am aware of. >> so it is against the law for 75 years and the testimony is incorrect? so, you still got the funds basically you've taken them and sold -- ridgely the 1.6 billion
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is still not against the law but you did what was fair and square. is that right? >> fair and square. i'm hearing the other witnesses say it's time. it's okay. is it okay? >> you took the money and you're supposed to give it back if they want it. if i can't get my money back to the bank the bank has taken it to me. it can't get my money back the bank is taken. they put the money with you and they can't get it back. is that right or wrong. estimate the legal counsel obviously can't declare it to be against, nothing like that. so, tell me. >> i understand why mr. camano and mr. lynch are frustrated that nobody had the authority to
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move it and nobody is against the law. now we can't really declare this is reassuring to the american people who might want to know that the money they're putting in the safekeeping of people like you all is not quite in safekeeping after all. i think it sounds a loud enough message that you can't find the legality or the illegality. i think that is the message that is going out today. >> shame on you. thank you. i yield back. >> now the gentleman from california ms. waters is recognized for five minutes. >> thank you very much, mr. chairman. i was talking here about some of the accounts that i've read in the newspaper there has been an attempt to describe, customer
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accounts as opposed to other accounts, and i suppose. estimate it was kept in the same account as client money, and of course one said the client money had been taken out and put in another account, and then the money was taken from that account to pay overdraft, and when he asked about where it came from, someone was able to say that it came from an account other than the current account, so let me ask do you know anything about another account where the client money was paced on the payout from that account
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to help take care of the overdraft? >> to the days of my knowledge i wasn't involved in that, so i had not known about the details of the movements. >> do you know about the details of what accounts are official accounts of the company, one, two, three, four, ten, 15, d you know that much? >> they were obviously accounts that were held in the holding company. those accounts are very different than the separate accounts that are held in each of the regulated entities. in my role i wasn't involved in the detail of those accounts which are managed by the senior professionals we had in each of the regulated entities, so there is very specific and specialized rules that apply to each country. >> you find sarbanes oxley the
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certification is adjusting to the internal controls of the global corporation every year and a test that you're certifications are inaccurate, then you know that you're not -- when you know you're not, you can face civil and criminal penalties, so if that my question is are you confident that your internal controls are adequate at a time that you find them in each period? corker end? if. estimate of the year and as you mentioned as well as the first quarter and thereafter as part of signing those controls which are a snapshot at a point in time because there are a lot of review certifications, etc., over all of the controls across the world.
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>> let me just ask you a test that you're certifications are accurate and you know that they're not you could face civil and criminal penalties comes with that my question is were you confident that your internal controls were adequate at the time you sign them at each quarter in? you felt good about your signature? >> my last final was in june and nothing came to my attention at that point in time that indicated that i shouldn't sign that. estimates of what you are telling us is you are not confident that there were internal controls that were adequate at the time you find them at the year end and each quarter. >> nothing came to my attention when i signed the law ossification that indicated
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there were any issues with internal control. estimate your confident? >> of the time of my finding. >> another is paid to the question of why ms global price waterhouse gave the company a clean report in the internal controls turn out to be compromised for them to lose 1.6 billion in customer funds to the best of your knowledge did they ever raised concerns about a massive global controls that they relate to the customer council in the firm? >> that's a very broad question and period of time. i would say that we worked closely and they performed their own assessment of the controls. it's the best of my memory nothing came up during my time that indicated an issue with segregation of client money is.
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>> so basically price waterhouse coopers gave the company a clean report when the internal controls turn out to be compromised to lose 1.6 billion do you think that price waterhouse was incompetent in doing that that they should take responsibility for that? >> pwc those as of may. they didn't raise any concerns to the best of my memory. >> did you not have to have confidence in the auditor? you have to feel that your auditor is competent and acting properly and that you have no reason to question them.
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estimate is performed in their own assessment of controls and reach their own conclusion. >> thank the gentle woman and now from florida mr. posey is recognized for five minutes. >> thank you mr. chairman. these are going to be easy questions. when we had the opportunity to question mr. courts line, i was advised and shocked quite frankly that he had not yet apparently been interviewed by the department of justice or any other authority so i just wonder have you been interviewed by the fbi department of justice or any other federal investigators? >> my lawyers have done with all the different leges regulatory agencies and investigative offices. that is the status of the moment. >> don't know if you're mumbling
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or if i don't hear good, but is that a yes or no? >> you haven't faced any investigators yet? >> i have not. >> i have. >> you talk to them face-to-face? >> yes, i have. estimate how long ago? >> i've spoken to them twice. >> what do you think was the most compelling question or a line of questions that they have? >> there were a lot of questions and topics discussed i can't think of them off the top of my head that was more compelling than another. >> i'm cooperating with the department justice and i am scheduled to meet with them on april 6th. >> have any have you been offered anything? >> let the record show all free said no to reduce the mckeithen
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of the investor should get their money back in one way or another. what do you think the odds are for the investors to get their money back? >> we have no basis to answer that. >> i don't know. it depends on whether or not the people -- >> it's still too early in the bankruptcy process. that's why we are trying to work and maximize its furious connect who do you think is most at fault for investors losing money from an account that was supposed to be segregated? >> because i don't know what actually happened, it's hard to answer that question. >> can you repeat the question,
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sir? >> there was a terrible failure here of some kind, but what it was, i don't know, since the of controlled the investigation and all information since october october 31. >> good analogy is a gambler is that a casino and if the casino doesn't provide more credit once the chips are gone he has to stop playing. he can't just reached over the table and take somebody else's chips. if he did, he would be in handcuffs quicker than you can say segregated accounts. isn't that what happened at mf global? >> i don't know what happened, sir. >> i don't know. >> i don't know. >> to be the experts a company decides that mf global there is a hell of a lot you don't know.
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if you want to give more insight cracks. estimate that's extraordinarily broad. >> take a shot at it. >> look, we are talking about what happened over a few days in an area that was handled by serious professionals, well staffed for segregation rules deeply within the finance, treasury and operations groups
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in chicago i share your frustration in not only what happens but again, we learned about this hours before the bankruptcy filing. we share that frustration and as i've done for my entire career 512 dhaka even on the first moment of learning there was a problem and understand it and do everything that has been cut off from that information. senate or any of you contacted by the cftc in their investigation? >> the cftc was at the meetings i attended with the department of justice to the estimate of sight of that were you contacted by them? >> on occasion after october 31st, there were representatives and the offices. >> would you have any idea why
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the would the masked to cease-and-desist their own investigation? >> i do not, sir to the estimate i'm not aware. one of three intelligent and able people want authority and responsibility at the firm that was handling that should have been handling with all degrees of integrity and trust, the hard-earned money of the farmers and ranchers and others who depend on you to do the right thing, and among you all with no disrespect meant, and ms. o'brien of course who is
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conspicuous in her absence it seems there has been a great effort to maintain plausible deniability that certainly the impression that one is left with. in your written statement, you know that as of wednesday, october 26, you received a call from the representative and informed that he wanted to meet with management discussing the various issues including liquidity and funding and that the cftc would also attend and focus on the segregated funds calculations. now, that presumably would have triggered a question you are highly capable person did that trigger a question in your mind as to whether or not there was a problem with of segregated funds?
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>> it would make sure we have the right people fair to discuss the status of the segregated fund, and that is exactly what we did a symbol for the detailed meeting that day. you didn't inform, the friend didn't inform the regulators as far as i can tell of the deficiency, the shortages until early monday morning, correct? according to your testimony. >> there was no regulatory deficiency that i was aware of until that sunday evening. >> it sounds as if there was an insufficient level of communication between your department, and yours, is that fair to say come and in all that
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was going on i would think that the top level at a firm of like this which is falling down around in your years practically. you say that your testimony obviously you were heavily involved in trying to sell mf global. would that not to an outside observer suggested that you were endeavoring that as vigorously as you could to make sure that the potential buyers for mf global were not alarmed by what would have been an overt violation of everything a firm like mf global should be doing on behalf of their customers and oh-la-la itself? >> to be very clear i was never aware of the period that you are describing or any time up until very late sunday night or monday morning that there were any issues regarding the funds. i made it very clear i was making sure that we were frequently updating the regulators, that included
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finance and treasury colleagues that were directly involved in those updates to it as we now know, if they were in our office is doing the review on fears the and friday. the regulators were in office is on the weekend. there was every effort in terms of myself and everybody i encountered to be transparent with the regulators. spend your absence, were you outside of the united states when these were occurring, just of curiosity? it certainly would seem to me that -- again, if you were trying to stave off the inevitable, when someone who knew and someone had to know, mr. course on an assumed there was very bad news coming, wouldn't it to be in the company's best interest in terms of trying to salvage it self that they keep as many of you silo as much as possible so to speak?
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it sounds like there was a profound failure of communication within the company itself that you don't know what happened in the that you are in this position now. should the american consumer, should the american investor, should our farmers and ranchers be concerned that there are other firms like mf global that operate in the same way? does your experience lead you to express any concern in that regard? should we be worried? >> i think once we know what happened, what went wrong we can answer that question. estimate of a yield back. >> i thank the gentleman and mr.
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mr. renacci is recognized. >> i'm going back to internal controls because we may not know the specifics but would you agree, iacp eight. i never stand internal controls. you would admit that for this to occur there had to be a breakdown in the internal control. you would have to read that, correct, yes or no? >> yes or no? >> in any time you have lots of money coming you have a situation like this there has to be a breakdown in the internal controls, correct? >> i don't disagree that something obviously went wrong. estimate in the internal controls because the internal control is how you stop this from occurring, wouldn't you agree? schaenman i'm going to go back to a follow-up to some of the questions that were asked, but
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they identified the management override of internal controls as a risk to ms global in audit papers produced in 2011. are you aware of that? skycam specifically recall that. >> you are the cfo of the company, and i actually have the work papers here that shows that the identified come if you are the cfo of a company and you were not aware that there was significant concern because of the override of internal controls for the attention of the company. >> there are many discussions that are held on all the various controls. there are hundreds of countries that operate. so we do have documents to be provided ahead of time for us to have a look. unfortunately we didn't get it. estimate your answers are going around in circles and that is the problem i think most of us
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are having. the global john karzai stated in his prepared testimony that he actively managed the european sovereign debt repurchased to the maturity portfolio. with his hands on action by the ceo wouldn't it be something that they were cautioning? isn't what this what they were talking about? >> i'm not sure whether there were controls for the inquiry or whether it was for the global that was referring to, but as a general point, i would say that any actions would have to fall at the regulated entities. estimate the internal controls state he can do what he wants and nobody can stop him. i think when he was. i asked my question the only person who could stop him was the board. he could override anybody at the board. would you agree that is the
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case? >> i have no memory of any comment like that off the top of my head. >> he can testify that but would you say he can make any decisions he wanted and the only person that can override it. it has been a feature you are the cfo. it's shocking that you are sitting here. >> i'm not aware. >> you are not aware of internal controls like that? >> they could override the actions. >> would that be a breakdown in the internal controls somebody that worked for price waterhouse could that be a brake on the internal control if the ceo could make decisions like that without anyone else overriding at? any other company. >> if they could override any control i agree with you they could be mitigating controls further down.
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estimate you answered the question is and then you started talking again to lead you to answer the when the problem in internal controls, correct? >> if that is the control. it doesn't matter what company is. on october 22nd lady imelda credit rating agency and you stated the global capital liquidity had never been stronger and its and its strongest position ever as a public entity. how can this be 11 week later they filed for the chapter 11 bankruptcy? >> that comment was made early on november 24th. and reflected the capitol and liquidity. i had been a businessman my whole life. i would never have been able to answer the questions the way you were answering. you are the ceo talking about liquidity, talking about the strong corporate position and you're testifying a week before that it's stronger than ever and
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files for bankruptcy one week later. >> for the capitol raises be completed in august with their cash still in hand to it >> this is october 22nd, again,y company that i would not know that we were in trouble in the position you are in. i'm sorry, but again i have audited major global companies and i am totally shocked he would sit here and say that you believe it was an strongest position it could be a week before they filed bankruptcy. >> you should know pryor, you are inside the company. >> i'm running out of time. i'm sorry. i yield back.
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>> let me back up all little bit and follow up on questions that mr. fitzpatrick asked you and this is regarding the october 28th jpmorgan request to ns global to certify and confirm the fund is being sent from ns global to jpmorgan more knott customer assets. khamenei iterations did you get? >> three. >> why? >> when i was asked to take a look at the certificate i was also asked to call jpmorgan and understand what they were focused on and get them with the needed. in that first call with jpmorgan the indicated very specifically the related transfers that they were focused on and that is what
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they were seeking assurances on. as i try to explain before, the certificate was broad and not that any individual could if the it reasonable inquiry potentially. estimate it is your opinion that it was a broad and it couldn't be signed. did you discuss it with anybody else? >> it was brought to address what they needed and they were very clear that what they needed was the transaction. >> did you speak to anybody about those letters? >> i spoke to esf o'brien about the transfers that jpmorgan was focused on. she provided me with copies on the transfers the match with jpmorgan and described to me and again, my very clear understanding is that if the compliance certificate was limited to the transaction and transfers she was able to sign
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at. >> to the of the concerns whether she should sign it or not? >> not as it related to the transfers. >> whether any of the transfers she was concerned about? >> we did not discuss any others to read the would be involved to some transfers, not others, to say everything has ever been done on those accounts at the beginning of time and any time in the future with an compliance they need comfort right now. let's get them comfort on with the need and provide appropriate >> did she ultimately sign any of those letters? >> by understand she did not. >> i do not. >> did you ever talk to mr. record -- if corzine? >> did you call jpmorgan yet, but there was my only conversation about it. >> y vose mf global not able to
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certify as ms. obrien hadn't used customer on this on october 28 and wouldn't use them in the future? >> first off, the certification is a bit broader than that. it was every transfer within compliance and basically all cftc rules. i certainly expect we would be able to make that with time. somebody would have to go back and make a reasonable increase and should be able to make the representation, not one individual that day. >> pardon me for interrupting the are in these forms they sent out from any of your house, aren't those normal forms, standard forms? >> i had never seen one before like that, and certainly in my general experience, asking somebody to represent, make a representation today that everything they might do in the future is in accordance with certain rules and you can say i have procedures in place to
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ensure it might be or something. >> were you not concerned about their concern? >> they did not express the concern, they said they filed with the transactions because the size and because the search of compliances of the had in place because of their own history or experience they were inquiring about. i do that and he's somebody i have tremendous respect for and i knew the futures industry had great respect for her she's a person i would rely on with rule 125 to respect don't run the clock on the please i have little time. estimate on october 30 if your copy on the internal global on e-mail at 4:27 p.m. in which one employee asked another whether it was permissible to send a customer segregated funding statement that showed a $952 million deficiency.
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why would a mf global employees hesitate to share such information as a regulator? >> i am not aware they would be hesitant. in fact they were within our offices in new york and working with those people in chicago. if you think this is the calculation in these complex times and all you would have a reasonable sign off and people would know that. people would say yes in the report. >> so did you instructed employees to release the information? >> i did not but if i recall correctly, recalling the e-mail you are referring to, somebody else would respond yes, give it to them. estimate before i run out of time, mr. chairman, if i may
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with mr. steenkamp when they're began to read sure calls at funds at mf global? >> i have no memory of knowing that the shortfall prior to the sunday. sunday we found out that there was a shortfall, and originally we had heard that the shortfall was for the friday, but that the might have been for the first day as well although that might have just been an accounting error and that time we were finding out it was just so unbelievable that there could be a shortfall that everyone was under the impression that there was some accounting reconciliation that wasn't working and that was causing it and that's why as you have heard the testimony there was a big effort to work together to try to resolve that to respect that you are aware whistles of trustees that the shortfall
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began october 26. is that correct? >> you are aware october 26 to begin debate of the shortfall? >> you are aware of it. are you aware were not aware the 26 to october being the shortfall de? from whenever source. estimate it went bankrupt on the 21st. is that correct? >> i don't have that knowledge. >> my time is way over. >> the gentleman from california , you are recognized for five minutes. >> thank you, mr. chairman. did you have the opportunity to
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speak to gary dinsmoor prior to mfg de spurring bankruptcy? in your opinion, where his priorities protecting customer funds or making sure the company was sold to the broker-dealers? >> my conversations with mr. dinsmoor work related to the topics. he was very focused on the customer funds, and he along with his colleagues wanted an update on where we were in concluding the sales. >> let me also ask you to your knowledge was mr. courts line in contact with mr. prior to mfg declaring bankruptcy? >> i assume you were talking about the last dates? >> i am not aware they had any
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discussions. >> so there wasn't any conversation of his conversation with mr. dinsmoor? >> that is correct to the best of my recollection. he may or may not have been, i am not sure, on a call with a large number of regulators at 2:00 on saturday afternoon with many regulators and i do not know if he was on that call. >> what may ask another question. if we go back to june of 2011, concerned about mf global european debt exposure and it got directed to increase its capital requirements. do you agree with the directive on that score?
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>> the understanding and i wasn't involved in their early understanding, but over a period of time probably starting in june or early july had conversations with the firm about their view of the appropriate capital treatment for the positions come and they ultimately led to their determination i believe in august of 2011 different capital treatment was appropriate to disconnected john corzine every time, he apparently didn't because he flew to d.c. to meet with them to set them to overrule, correct? >> i should say that my accounting colleagues, hour
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outside counsel all disagree to my knowledge with their view on what the appropriate capital treatment was for the position under the rules as they were written so yes it did make a determination and to some extent it is the topic that was discussed with the al-sayyid council that there should be a meeting treacly on something so important. >> we can go to another question which is interesting. mr. serwinski testified that she would not have approved the $170 million transfer on october october 28th to cover the mf global overdraft. do you remember that? and do you find it interesting
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that mf global blew past the same capital requirements that john corzine lavitra >> as i recall mr. serwinski's testimony with basically the facts if there was a concern that violated certain rules she wouldn't approve the transaction , so that's that part. i'm not sure that finally did the same rules that were lobbied against. i need a little help understanding the question and i'm glad to address at. >> my time is expired but i want to thank you for the testimony today. we are going to have a little
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bit of fallout, but what i want to do because i think that we have kind of dance around this issue a little bit, but this is a glass of water and i hope you can see that. can you see the black line whacks his the segregated account, so the segregated account all of the water below the line belongs to the customers and all the water above the line so that is for the common practice for the company to keep excess company funds in the segregated account, is that correct? you sometimes have company funds in the segregated account, right? this isn't rocket science, so this is the company account so this line here is what it would take to get the company back from being overdrawn. the only way the customers lose money is when you take some of the company's money out and as
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long as you are at the line, you are in compliance, is that correct? >> when you do this, are you in compliance? so the only way customers can lose money is when you take their money and put it in the company's somewhere else, is that right? what you are supposed to do is if you take money off and buy it you're supposed to securitized, so theoretically if this doesn't have moderates got collateral, is that correct? now we've got that everybody understands money was lost because money was taken out of the segregated account that belonged to the farmers and ranchers and investors. does everybody agrees? that's the only way to you can do that. how else does the money get out if you don't take it out?
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this isn't rocket science, folks. can you show me, can you tell me another way customers would lose their money better than money being taken out? >> they could be losing money on their trade if they are making losses. estimate that they would go back proportionately. so, mr. steenkamp i want to go back to something that's kind of -- are you familiar with mr. rosen and mr. stockman? >> they were the chief risk officers. >> were you aware both of those made recommendations that the maturities in the foreign sovereign debt were a potential risk to the company? >> i became a cfo in april, but
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i was aware there were many discussions between the board and mr. karzai and the risk officers around risk limits. >> are you aware of a document called a break the glass that was put together by your firm? who prepared the document? >> there was a working group put together. they were members of treasury, members of finance, members of risk, treasury because that was like a scenario analysis document so it requires the input. >> did you participate in not? that was when that you put that document to get there? >> the original request was made in august i believe by the board, and was completed when? >> was presented to the board about the middle of october.
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>> is it ironic that you put together the break the glass scenario and senate 14 days before you declare bankruptcy? >> it's very prudent and common to have a document like this, and the initiation was many months prior to estimate do you agree with any that the customers would have lost money people took money out of that account and didn't put it back? yes or no? >> except for the example that i need. >> we are not going to accept. the only way they lose money if they lose money on their positions, but if you meant out their positions, the only way the customer lost over a million dollars as to somebody to take more money now than they were supposed to, yes or no.
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>> to know whether there is -- >> i just want to get some definitive answer under the way that the law miss operates, somebody can lose money from a customer other than his net decision is taken out of the account that shouldn't have been taken out, yes or no estimate i didn't have enough to investigate that. i am appalled you can't answer a simple question like that. stat if you are not being honest with the panel stomach the customers lose money if people take money out of the account and not put it back. >> there is a permissible secured calculation. >> but there would be collateral >> the calculation rules allow and permit if the clients gave
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the firm $100 under the secure rules there is one available the does require it can require less than that $100 to be required to be maintained in the secure environment. >> i'm just talking about if this were the money that belonged to customers and you put it all out that that's the way you lose money, right? >> is this the way you lose money? you took money out that shouldn't have been taken out? >> with the exception of what mr. serwinski described you have an obligation to return the customer funds. >> what happened when they declared bankruptcy was nobody put the money back, did they?
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>> not to my knowledge. >> are there any members that want to have a follow-up on the panel? >> i'm sorry, i was looking through my papers and i don't find your resume. >> i have a postgraduate degree in accounting in johannesburg to respect what kind of a great point did you graduate with? more or less? >> it was different, probably my average was around 78%. estimate how many hours of accounting did you have? >> i don't know off the top of my head. it was for years to mature years graduate and post your graduate and there were ncta.
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>> do you remember things in the past but you don't remember some real big significant things and just trying to bring that to the attention of the public watching today because they are wondering who the hell is in charge of all these companies appear. ms. serwinski, when we have a -- when we think we've dipped into those funds like the water poured out of that class and does not secure, it is there a requirement to notify someone? who would have to be notified? >> the regulators would have to be notified. >> nobody inside the institution? >> they would be notified, the requirement, the regulatory requirement -- >> you didn't have an internal process that would say we are just kind of messed up here, and
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the assistant treasurer i think is who we ascertained earlier could have made those calls. as we've got a couple of people may be days authorized the dipping into the sun was at that level plastic glass, and so who would they have to notify to put the funds out? >> it is a process whereby the situation would have been escalated at the very least the stocks committee to rectify what ever contributing factor existed that led to -- >> so there was somebody? >> yes.
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>> the firm was on regulatory compliance to the best of my so you're saying that there is no buildup over time? >> i am saying that the firm was on regulatory confinement to access segregated rules until i was aware on sunday night that i was not in compliance on sunday. >> thank you, mr. chairman. >> any other members? this will be the last one. >> thank you, mr. chairman. i appreciate you actually trying to help us unravel some of this. you are the only one who has answered questions beyond a yes or no. we appreciate your willingness.
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mr. steenkamp, is it correct that your work consists of making this access free? >> yes, i'm not an expert in bankruptcy. >> or do they go to the creditors that mf global holdings? spin it. >> sir, that is for the trustee to determine. >> you you have no idea? under oath you have no idea what i'm talking about? >> sir, i believe that it is up to the trustees of the holding company. i am not sure how that process works allocating assets --
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>> we propose playing you -- paying you and mr. bradley abelow and others? >> know others have been finalized or pose as of yet. >> do you believe you deserve a bonus? >> i believe for all the hard work we have been doing we ask that we be fairly compensated. we are not part of the discussion. >> fairly compensated in the future, but not the compensated for this huge loss. would you accept bonuses if the motion is approved by the bankruptcy court? >> if the trustee determines fair and reasonable compensation -- >> because you are so brokenhearted over the loss of these investors. how do you think they will feel that you are awarded money money that was stolen from their segregated accounts to pay for
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the bonus and legal fees of the very people who are running the company that eluded the account's? >> i'm sure the customers want their money returned. >> are you familiar with a principle called willful blindness? >> is a term used on individual criminal situations where they claim not being liable. >> i am not sure what that means the. >> you have any idea that applies in this case are not. >> i would assume -- it is something that i am concerned with the. >> who was responsible for putting mf global into liquidation?
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>> anyone from the fec, representing creditors are trading counterparts. >> the sec would've been appalled -- one cannot file themselves under it. i believe it is the sec that has to make an application or do that. i believe it was a period of time when the regulators were deep in conversation amongst themselves. >> was the fec involve? >> he was certainly aware who organized the conference call early in the morning on october october 31. >> who was involved in placing the holding company in chapter 11, allowing the assets to clear the creditors and counterparties? >> the board may determination that the company was going bankrupt. >> anyone in particular on the board? >> no. it was directors. >> okay. i yield back.
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>> i think the gentleman and i think the panel. at this time, you are dismissed, and we will call up the second panel. thank you for coming. you [inaudible conversations] >> i want to welcome the second
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panel is diane general mark, mr. daniel roth, president officer of the national futures association, and suzanne cosper, financial accounting standards board's. i will remind each of you that you written statement will be made a part of the record, and we ask you to summarize your testimony in five minutes. sir, you are recognized. >> chairman isabella, ranking member and members of the subcommittee. my name is diane genova. i am the executive general council for j.p. morgan chase. i was one of the j.p. morgan officials dealing with the mf global over the weekend on october 31, 2000. i appreciate the opportunity of the subcommittee of organizing these events. i would also like to thank
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chairman bachus for organizing this committee. as i will describe in more detail, j.p. morgan professionals work through the week of october 24, to accomplish two main goals, first to provide first-rate operational clearing and settlement to mf global. second, to make sure that we do not wind up in a position where we had extended credit to mf global without proper collateral and security protections. contrary to what we are trying to accomplish, let me describe briefly the banking services of j.p. morgan and other financial institutions provided to mf global. these are services that banks typically provide to merge and operations of firms like mf global. first, mf global maintain a large number of cash demand deposit accounts, much like a retail checking account. at j.p. morgan, as well as other banks.
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second, mf global used j.p. morgan as well as bank of america and other banks for cleaning services. third, j.p. morgan served as the administrative agent for two committed revolving credit facilities, one consisting of 22 and one of 10 banks that mf global had put in place. finally, mf global had entered into securities lending and repurchasing arrangements. these serve as a tool for mf global. as noted in my written statement, we worked hard to assist mf global, our client when it began having problems. these efforts, which would in turn then if it transports customers, include several options. we sent employees to assist mf global to unwind its securities
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lending arrangement. by doing so, mf global was able to regain access to the securities it had posted as collateral, and then sell those securities to generate additional quiddity. j.p. morgan also attended an auction at 4.9 billion securities held by mf global, involving multiple market participants. this is another way that we assisted in its liquidity. we also assisted with same-day liquidity whip respect to security. this measure are provided liquidity on the fastest possible basis, faster than the one or two business day, the regular settlement for such trades. since the bankruptcy, j.p. morgan has engaged with committee staff to assist the subcommittee in its examination.
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amongst other items, we have shared our perspective involving overdrafts j.p. morgan had in london, and questions that we ask mf global to make sure that customers segregate -- segregated funds were not used to satisfy those overdrafts. in my written submission, i explained the principal points of contact between mf local and j.p. morgan. i also discussed the circumstances on friday the 28th, that caused us to ask mf global to confirm in writing that they were in compliance with their customer service obligation. i took the lead in reaching out to laurie ferber, mf perverse general counsel, and the deputy general counsel. i received assurances from both of them that mf global understood the customer segregation rules and had complied with them. over the course of our
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conversations, we discussed the contents of the letter we had requested to confirm mf global's compliance with customer service segregation rules. as you heard ms. ferber testify earlier today, she and her deputy had concerns about the scope of the letter. we now read the letter as they requested. as ms. ferber also confirmed earlier during this hearing, we were told that an arab version of the letter would be signed. although belinda was ultimately not signed, that weekend before mf global filed for bankruptcy, we had been given clear and credible assurances that the transfers were lawful. i would like to thank the committee for the opportunity to share with our perspective on this matter and i am happy to answer any questions you may have. >> thank you, you are recognized. >> thank you, mr. chairman.
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my name is dan roth and i am the president of the national futures association. for the longest time, decades and decades, the futures industry had and impeccable reputation and a well-deserved reputation for integrity. optically, the controversy surrounding mf global has dealt a blow and all of us need to be thinking about the types of regulatory changes we can make to try to prevent this kind of occurrence from ever happening again. when we considered the changes we might implement, they fall into three basic categories. there were certain changes which we felt we could accomplish only in coordination with other self regulatory organizations. there were other changes we thought we could implement through rulemaking, and there is a third category of changes that would require cftc action. what i would like to do is describe to you where we are in those three categories and what our initial recommendations have
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been. with respect to the issues involving coordination with other self regulatory bodies, those issues involved how we monitor firms for compliance with segregation requirements. and coordination is very critical to us here. all are required to be members of mfa, but delegated regulatory members need to help develop these changes. back in december, the chicago mercantile exchange jointly announced the form of a committee. the other participants included the kansas city board of trade, and the minneapolis trade exchange. we are taking a look at what we do and how we do it and how we can do it better. we have built some initial recommendations. we have reviewed those recommendations, including members of the community and
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public directors, and just several weeks ago announced for initial recommendations. these are just initial recognitions, but those four are basically requiring all axioms to submit daily segregation reports with designated self-regulatory organizations. that obligation extends only to those who are members. i experience that that will be -- not as where the firm is on an any given day, but you can stop into the team unusual and catch her attention and will prompt further action. the second change we are recommending is called a segregation investigation detailed report. currently we get these on a monthly basis from the fcms. these show how customer funds
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are being invested and where they are being held. we want to take that requirement and extended to all fcms and move them from a monthly to a bimonthly basis. the third thing we want to do is perform more periodic spot checks for fcm compliance with segregation. each fcm is audited twice a year, we want to supplement those examinations which go into great detail for segregation compliance. we want to supplement those audits with periodic visits to monitor compliance with various components of the segregation. the fourth rule that we are proposing has to do with accountability. we want to make sure that if a firm in is drawing down its segregated funds, that if in any given day it draws down upon by 25%, and two things have to
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happen. a principal of the firm, such as the ceo or cfo has to sign off on those funds. number two, there has to be immediate notification to the regulators. that will not only improve accountability and also give regulators important notifications about potential problems to which they can react, it will also capture transactions. the daily segregation reports we get now reflect the firm's status at the close of the previous day. if the firms were two wire funds during the day and wire them back at the end of the day, that would not be captured in the daily report, but it would be captured under this rule. those are the four initial recommendations. let me mention that we also have a special committee of our public direct your looking at other issues. one of those fcm disclosures, we want to make it easy for customers, especially small customers to do due diligence on
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their fcm. it is like information like the firm's requirement and segregation requirement and it allows an amount of leverage that is not hedge training. we want to identify both pieces of information and will higher fcms to disclose that information so that nsa will put it on its website and make it available to try to make it easier for them to do due diligence. let me emphasize again that these are initial recommendations, both are special committee and other committees continued work at the issues, including to the bank and we look forward to working with the industry and congress to try to develop regulatory changes that are needed. if you. >> thank you. ms. cosper, you are recognized. >> chairman, ranking minority
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member and members of the subcommittee. my name is susan cosper, and i am the technical director of the accounting board. i oversee the technical agenda. i would like to thank you for this opportunity to speak at today's important hearing. i understand the committee would like me to explain the current accounting and reporting standards related to repurchase agreements. i will do my best to do so, but first i would like to give you a brief overview of in a manner in which accounting standards are developed. we are an independent organized organization. since 1973, we have established standards of accounting and reporting, not-for-profit organizations. those standards are recognized as authoritative, generally accepted accounting principles by the fe e. for public companies and by the american
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institute of certified public accountants for other non-governmental entities. an independent fair practice is the best means of assuring the standard since it relies on the collective judgment and input of all interested parties through a thorough, open, and delivered office in with that he said, the accounting standards board due process to all interested parties and allowed for input from stakeholders. it is important to note that although it does upheld accounting standards, it does not enforce them. the pca opie is in charge of the course of auditing standards. let me try to explain how the standards work. in a typical repurchase agreement, the company also known as a transfer transfers
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for exchange of cash for the simultaneous agreement at for the counterparty to return the same or equivalent security for a fixed price at a future date. the price paid includes an interest rate, which is like a lending rate for secured arlene. >> current account guidance result in most repurchasing guidelines. since the transfer is temporary, and because the transfer as to repurchase the asset before maturity. another type of repurchase agreement. a repo to maturity before sale is a separate agreement. in these transactions, the transfer never actually gets back to transfer security.
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because the repurchase date is the same as the securities maturity date, the counterparty instead redeems a security and the transfer simply plays the transfer the redemption and agreed-upon repurchase price. in this transaction, the transfer does not have control over the transit security. i understand that a specific question is hal in value the underlying security would be accounted for if the agreement is considered a parliament or sale. in the transfer of a security, the transfer recognizes the cash as proceeds of a transaction together with a liability for the obligation to return the cash of the transfer he. the security declines in the value of security with that would reduce the company's overall network. in a repo to maturity, the transactions were -- were
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accounted for, the securities removed from the balance sheet, and a gain or loss was recognized. a derivative is also recognized in the financial statement since the transfer maintains the risk, any objection after the agreement is accounted for reliability, which reduces the overall net worth of the company. finally, whether the transaction is a repo or a repo to maturity, some things are required to under gap to make disclosures about those who have been transferred, including quantitative and qualitative information about the transfers continued involvement, the risks that the transfer continues to be exposed to, including credit and liquidity risks, and gains or losses on transferred assets. thank you again, and i would be pleased to answer any questions
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about the standards. >> thank you. mr. capuano for five minutes. >> thank you, mr. chairman. thank you all for coming today. i actually find this panel -- hopefully, more enlightening. i want to start out by making clear what i think what our goal is, based on the hearings we have in the research we have done. if there was a criminal activity at mf global, i do not think that is congress' role to investigate criminal activity. exposing it, but let the people who do a better job do it. of course, at the moment, nobody knows that or doesn't know that. there have been two issues that i think have come to my attention. that is the so-called segregated accounts. some of the rules.
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i want to distinguish the rules from the way they might have been used improperly. even if they were applied properly, it's the leaves questions to me. to me, it is mostly statement 140, but there are other ways -- it is basically the rule that says this is book is a sale. that has been reported in the media. it is according to the agreement, not the technician. it effectively takes it off the books. it makes it look -- it makes the company look like it is healthier than it really is in any normal sense of the word. in my definition, even reading the fast the rules, it is not a sale. they still have control over it, , they're still getting it back, i understand this is the reason for opinion. i wanted to make sure -- not
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make sure. first i want to ask -- at least now knowing where we are, being here
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>> i'm going to go further and minute. >> are others following your lead on this issue and making some proposed changes as to how this gets done? >> i'm sorry. the four emendations i outlined
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were supported by all who are part of the committee come as well as other exchanges that we spoke to, as well as our advisory committee that we spoke to, as well as our public directors on our board. they have all banned supported. >> as long as the chairman is in belgian. >> i just want to point out that x. x. segregated funds -- excess segregated funds. if one customer incurs substantial losses, that access segregated funds is a way of making good that customers shortfall to protect all the other customers. >> i guess, that someone will have to explain to me how using my money protects my money. i heard that today. i am way over my time. my last question, and i think i know the answer, but i will ask anyway -- why don't you just say
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mingling funds should be stopping at if you want to -- why the hell do they need to use my money? >> the reason we need to allow to have fcms use their own funds in the segregated account is precisely the reason that i re: described. it is to protect other customers. in the event of one customer experience a loss and creating a shortfall in that account -- >> how does it protect me if another customer loses money and unknown to me, someone else uses my money to cover their loss? it was not my money. i did not play that game. yet you are taking my money to protect another customer. >> no, sir. >> who lost their money because they took a gamble -- >> can i try to explain it? >> if it is an fcm and customer
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number one loses not only all of his money, he goes into a deficit. he has a 50-dollar trading loss. he is in the whole. the account now has $50. to protect that customer who had that loss,. >> but you didn't protect me. he protected the guy who -- i am way over time. we will have to go through this another day, met mr. raab. >> i am not sure how this helps me. i'm willing to be educated. i'm looking forward to education. but it makes no sense to anybody else i know >> is there anyplace else where people can pick up the phone and use money at jp morgan? is this the only one or is there some place else? >> i am not aware of any --
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>> ma'am, i am way over time to. >> i will speak to another time. >> i'd like to. thank you. >> i will like to say this. as you know, once we have completed our investigation and oversight i want to publish a report that will be approved by the committee. one of the things that we hope to accomplish from that is once we ascertain exactly where the pitfalls are, we want to work with everybody to come up with reasonable solutions if there are holes in the current system that need to be filled. obviously, with mf global going south, we must address this. one of the issues we must address is if there is malfeasance, we should pass all rules and laws, but that will not keep it from happening. we look forward to having that discussion. i now yield to the gentleman from new mexico for five
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minutes. >> is determined, just for the record, i have not seen the gentleman gambling his life savings away. i want to keep the good name of the gentleman clear. should there be a statement that one's mr. capuano in his money could be used for covering others' losses -- >> [inaudible] >> there is a customer risk of loss, one of the things that you talked about in the segregated funds regimen. that is the situation where one customer incurs huge trading losses. the firm's own capital has to make good those trading losses. that can result in a shortfall
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in which non-defaulting customers suffer a loss. to all customers know that? >> i think that there are disclosures about that. but i think it is certainly an issue that we can look at to see whether those disclosures can be sharpened and made more clear. >> those disclosures are something that you have to read clearly -- >> yes. >> do greek? >> that is an area that needs to be make their. >> it ought to be made in blinking lights. they are people that lost 1.6 million. >> that sort of fellow customer loss, risk of loss that i talked about, as far as i know, had nothing to do with mf global. >> did mf global break any laws in european? >> i don't know the exact investigation. i know that there is a short on customer funds, and that
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shouldn't have been. >> do you know of any other trading funds that are dipping into the segregated accounts to make things whole? >> no, we monitor our bronze on a daily basis. we monitor our firms on the daily basis. the bounces were confirmed to outside sources. i'm not aware of any other firm -- >> were you ever monitoring mf global. >> i beg your pardon? >> did you ever monitor mf global. >> no, we were not the regulatory firm monitoring and. >> there are around 75 to 80 that were holding customer funds and trade futures. we are the designated self-regulatory organization with about 26. the other one, for the most part, is related to the dsl. >> okay. ms. cosper, the money --
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mr. capone is money that he has put on the security, please simplify down where we can understand that. >> basically, congressman capuano would have a security -- >> that he transferred to you -- >> that he transferred to you for cash to. >> and so the repo account -- >> and that the same time he entered into an agreement -- >> so the repo account takes on security that security and sets it over here and borrows money against it? >> that is correct. >> and then we buy another security for someone else for ourselves so -- >> he's done something with the money that you had, right? >> they would do something -- >> but at the same time you enter into a poor purchase commitment.
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>> yeah, but this is all part of legalities that are part of the line. i take money that he gives me and i trade that security to someone else to get cash, right? and i still have control that i get cash, right? and i bring that cash back in those mf global accounts -- they were keeping it in jp morgan's bank. they are buying something else, right? >> i could not comment as what they did. >> the repo account would buy something else, right? >> they can use the cash -- >> my question is, is there a limit to? you said that that is kosher from accounting standards. >> in a repo to maturity transaction, it -- >> is there a limit to the number of times -- so we get the security and we traded him and we get it back and we traded. so 50 or 60 rpms, is there in
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the limit where they say this is confusing and we have exposure -- is there a limit to the number of -- we would not be able to comment on if there is a limit. that is a regulatory matter of. >> do they have an opinion about that? >> the company that originally transfers the security is fully culpable for the credit risk associated with that security. at the value of that security -- the value declines. it reduces the network. >> i'm back to the number of r cocco p. a. -- i don't know much about this -- i raised pigs growing up. i think that is important that
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people know -- it's a house of cards. >> it is no doubt that the company that transfers the security continues to make disclosures about the involvement in risk associated with that. >> my time is up, mr. chairman. when you start your meetings, we could talk about these things, most of us are not knowledgeable about mf global. all we know is that $1.6 million of money disappeared. we have a panel of people where none of them can remember doing anything. you guys are the ones that have answered the questions. at some point you want to consider the ethical legalities. mr. chairman, i yield my time to. >> thank the gentleman from new mexico.
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his he would like to know more about how to do that, he can call mr. jon corzine and i now yield to my good friend mr. canseco. >> ms. jen about, why did j.p. morgan request assurances from mf global that the firm was not properly -- improperly moving money from customer accounts. well, as i previously mentioned, it is the obligation of the fcm to know what funds in the account are their own and what are the customers accounts. therefore, -- and we would not have the information to be able to tell, we would only ask questions for every account transfer that would be in a normal banking relationship. but in this case we did take the unusual step of asking
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questions. that was for two reasons. first, it has been my experience that when firms have had issues with compliance and client segregation was, it is often due to operational errors. those errors can occur under times of stress with a lot of things going on in the company. given the situation that mf global, i thought that that was just something that -- they gave me some plots. the funds -- we knew that the funds were ultimately going to be used to pay an overdraft with j.p. morgan. therefore, if there was an error j.p. morgan would be the one benefiting from that error, and we did not want to benefit from an error. we thought it was prudent to seek us assurances. >> is that why the first letter
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was written probably? >> the first letter was put together to get assurances and we had not completely thought it out -- we got about what did we really need. >> then the subsequent letter satisfied their needs and their desires. is that correct? >> yes, that's true. we revised letter to reflect what they legally wanted to know. >> did they sign and send it to you? >> no, they didn't. i had conversations with ms. ferber and her deputy, who gave me assurances that they knew the rules, they were in compliance with the rules, and that when we finally revise the letter to only refer to the two transfers that i really had concerns about, but that letter would be signed. >> on october 29, mr. jon corzine told j.p. morgan was one
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of possible buyers of mf global. is that true? >> i know that there was some discussion within j.p. morgan about evaluating whether pieces of mf global business might be attractive to us. after an evaluation, we decided that it really wasn't a good business. >> thank you. mr. roth. congress passed the dodd-frank bill using the logic that more rules and regulations are an adequate substitute for enforcing existing laws. right now, the cftc is writing new rules at a furious pace. but in the case of mf global, they failed to enforce a most basic of rules that monitor commodities accounts. in your opinion, how did the new rules and regulations written by
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the cftc benefit producers into areas and make those who lie on small local areas for credit? >> i believe that the explanation is above my pay grade. i cannot -- i will tend to venture an answer nonetheless. i can tell you -- i have been in the regulatory process of futures for a long time. and i know that whenever bad things happen there is a tendency to write new rules. that is sometimes pretty helpful. i think that the rules that we are proposing here are very helpful rules. ultimately it comes down to a matter of enforcement. i don't care what set of rules you have, ultimately, at the end of the day, it is about enforcement. i think that is true in the future's area and in the swaps area as well. >> thank you. should the cftc be focusing efforts on writing new rules, or do you feel that they need to first do a better job of enforcing -- i guess your answer
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is -- >> yes. i believe the way the statute is set up is that the cftc is a oversight agency. >> thank you for your candor. i yield back to balance my time if there is any. >> i thank the gentleman. i just have a couple of questions. ms. genova, these transactions got in a lot of scrutiny. some of that scrutiny that was participated -- it was from j.p. morgan, they actually called j.p. morgan direct -- would that be a normal call that he would call the ceo of the company or would you call the treasure? what was significant about the
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gentleman calling jon corzine? >> i think in the context, this would be that the company had just been downgraded to junk. officer of the entire firm would have concerns about the company there would be issues such as a large overdraft in the count. this would be something that would be an ordinary step for a company in some distress. >> was about this time that you dispatched your team to go over and have a presence at -- refresh my memory. when was your team dispatched to go over to mf global? >> within two mf global on friday, october 28, and it was
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to help them see if we could do things to help them raise the liquidity. that was on friday, october 28. >> is that the same day they cover the overdraft? >> that is the same day that they cover the overdraft. >> i think one of the things you said is dead to alert was placed on this company, so you're looking at things to make sure they are appropriate. someone was approving those transfers at j.p. morgan and your own debit alert -- >> i would like to clarify what that means. debit alert means that because of concerns about the company's financial condition, we will not transfer funds out of the
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account unless there were funds in the account. the normal course is to facilitate client transactions. we would transfer funds out of the count that are not there, innocence creating an overdraft. basically, the debit alert means no object. but we did not approve the transaction. but if there is money in the account and if the client asks us to move the money, we just execute the client construction. >> so it's like a cod. >> yes. >> thank you. i used a little analogy about how customer funds went missing. the bottle was full and the water below this lawns to customers that reported in that class. except for the fact that if
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somebody -- if some of the people's money in the account had been lost. you have a reason to believe that there were significant customer losses that precipitated the fact that the bottle is empty now? >> mr. chairman, my knowledge is based on what i've read in the press. i don't have any reason to believe that that issue is involved in this case. >> so the way the money went missing was that people took out money that should not have been taken out? >> as far as i can make out in the press reports, that is right. >> i want to think this panel and the previous panel. i would like to thank the members and ranking member. this is an important hearing, and it is important not only to the people that lost money in the mf global, but it is important to the marketplace and mr. roth will probably agree with me. we need to make sure that people have confidence when they do business with these firms that
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their money -- that the only risk they're taking is their own risk and not the firms as well. i would close by saying that we will keep the record open for additional days and some of my colleagues may have additional questions. your replies to that will be made a part of the permanent record, and with that, we are adjourned [inaudible conversations]
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>> coming at next, a senate hearing on rising gas prices. after that, a pentagon briefing on their investigation into problems with the f-22 fighter jet. and then a discussion on the women's vote and campaign 2012. >> tomorrow on "washington journal", michael green, former member of the national security council, talks about south korean purity and a satellite launch by north korea. "the new york times" assistant business and financial editor richard morgan's and looks at fannie mae and freddie mac by the federal housing finance agency. and thomas miss him more and connie potter discuss the first records and surveys from the 1940 u.s. census. after an expiration of a 72 year
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confidentiality clause. "washington journal" live at 7:00 a.m. eastern on c-span í
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but we don't know what's going to happen. we don't realize what's going to happen, but they seem to because the crowd is with us now. if the momentum is behind us. >> a panel of gas and industry analysts and government officials testify on capitol hill on the causes behind rising gas prices. panelists including pulitzer prize-winning author daniel juergen agreed that prices at the pump may be worse if not for the increase in efficiencies and oil production in the u.s.. the geopolitical problems and disruption as applied has the most impact on gas prices.
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this is two and a half hours. >> this is an oversight hearing for the energy and natural resources committee hearing on organized this hearing to learn more about what is contributing to these higher pric


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