Skip to main content

tv   U.S. Senate  CSPAN  April 3, 2012 5:00pm-8:00pm EDT

5:00 pm
>> do you think the fda has a right to require these images on cigarette packages? >> well, i think that goes back to the first amendment argument, and i am going to suggest that they do, but i may be wrong. >> i don't know if it violates the first amendment right. um, it does seem to be crossing a boundary that i don't think the government has any business sticking their nose in. >> do you think that ordering tobacco companies to use these labels is constitutional? >> i think it's fair that people know what kind of product they're buying. >> cigarette smoking is many, many decides. it can start with the lungs which is most commonly, people know it can cause emphysema, it can cause lung cancer. and then if you go from head to toe, you can have throat cancer. people who do smoke are more prone for having cardiac disease, in layman's terms,
5:01 pm
heart attacks. people can have strokes, it can cause osteoporosis sis, thinning of the skin. ♪ but i believe in whatever you do. >> mandating these warning labels, is the government abusing the constitutional right of freedom of speech? individuals still enjoy freedom of speech or freedoms from speech. however, commercial speech does not have as much protection as individual free speech. according to a supreme court ruling, all the government needs to do is pass two criteria to be able to control commercial speech. first, they must show substantial interest. substantial interest in this situation is alerting the public of the risks of smoking. it can save the government billions in health care cost. second, does the law further that interest? showing gruesome pictures of dead and dying people will
5:02 pm
definitely further that interest. therefore, according to the supreme court the government appears to have the right to mandate these labels. >> ah! >> people who are addicted to cigarettes are going to continue smoking. i mean, it might cause people to think twice like the younger, younger kids, but as far as people quitting, making people get smoking, i don't think so. >> i think some people are going to do it regardless. >> i think it'll cause some people to think seriously about it, yeah. >> after seeing it, would you consider smoking? >> probably not at all. >> why? >> i don't want my lungs to look like that. >> if you were to want to smoke, do you think this picture would stop you? >> yes. >> yes. a lot. >> these labels absolutely are not too graphic. they have been field tested by the food and drug administration. we also have experienced it in
5:03 pm
other countries. what we have learned is that strong emotive, graphic warning labels are the best way to get the attention of young people and the best way to get young people to actually think about the smoke hazards of smoking. there are no negative consequences of graphic warnings, only positive effects, and those positive effects are that more kids will think about the health effects of smoking and, hopefully, fewer kids will stop. >> what is your opinion on those graphic images? >> unfortunately, they're very realistic and tell the tale of what happens to some people. >> for real life, a lot of people aren't aware of what it can really do, and i think if somebody sees it on a package, it will maybe change their mind about smoking. ♪ >> since 2001 teen cigarette smoking has decreased in canada, but at roughly the same rate teen smoke anything the u.s. has decreased warning labels -- without warning labels. just 18% of americans believe
5:04 pm
these labels will decrease the number of moakers, 880% -- 88% believe americans are already aware of the risk. >> don't you just crave those? eat up, fill your stomach and clog up those arteries. don't bother going to work together. so what if your family doesn't have any money? if you drive, you'll die. thinking about hitting the slopes? you won't be thinking much more about anything if you do. before you decide to -- [inaudible] with your friends, keep in mind there's a good chance you can wind up like this guy. oh, and by the way, we all received an a on our test. >> go to to watch all the winning videos and continue the conversation about today's documentary at our facebook and twitter pages. former mf global assistant treasurer edith o'brien exercised her fifth amendment right last week at a hearing before a house financial services subcommittee. the focus of this third hearing
5:05 pm
by the subcommittee was mf global's collapse last october. mf global's cfo of its north america division and the general counsel also testified saying they're cooperating with federal investigators and regulators to find out what led to the collapse and where customers' missing funds are. it's estimated that more than $1 billion in customers' funds are still unaccounted for. >> previously agreed. there are members that are not necessarily may attend this hearing that are not a member of the oversight and investigation committee, and i ask unanimous concept that those members be allowed to participate in the hearing today as well. i'm going to go ahead then with my opening statement. this is the third hearing that we've had on mf global. it's the eighth largest bankruptcy in the history of this country, but more importantly, it's about trying
5:06 pm
to ascertain what happened where farmers, ranchers and customers lost over a billion dollars' worth of their money. now, we remind folks that this is a hearing and not a trial in that the bottom line of what we're trying to accomplish today is, basically, to do an autopsy on how a 228-year-old company came to its demise last year. it's important that we understand what was going on corporately, what have going on from a regulatory -- what was going on from a regulatory standpoint and really what was going on within the systems that support this entity and these businesses. the reason that is important is that, obviously, there was a breach, and people lost their money. but more importantly, it's going to be important for us to make sure that whatever deficiencies that happened, that corrective 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, basically, different aspects of this, of
5:07 pm
the last days and months and years of mf global, and today this hearing will be focused really 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. and 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. and so with that i yield to the ranking member, mr. cap yang know, for his remarks. >> thank you, mr. chairman. and thank you for having this hearing. i want to associate myself with all the comments you just made. that's exactly what i'm doing. i've approached this, i am not looking for someone who stole money. if somebody stole money, the justice department will find them, and that's their role, not
5:08 pm
our role as i see it. i see our role as finding out what happened to make sure it doesn't happen again, to see if there are rules or accounting principles that need to be clarified, whatever it might be. if there is criminal wrongdoing, well, just to encourage the proper authorities to do their job, not necessarily us. but i also want to talk about some of the events that led up to today's hearing. i think it was pretty well known that there was some news stories last week that were based on a memo that was leaked inappropriately. i have spoken to the chairman about it. we agree that that was -- things happen unintentionally, so be it, it's done. and i actually want to congratulate the chairman for the addendum to the memo to clarify that position. i think that took a lot of good wisdom and a lot of courage and foresight to do that, and it was well written and, i think, right to the point. but ial want to make sure, and the chairman and i have talked, i want to be clear that i'm on the record to say up until now this subcommittee, in my opinion, has worked very well. i have a good relationship with
5:09 pm
the chairman. i don't know that we -- i'm sure we have differences of opinions on certain matters, but not to the approach of this committee. we have a responsibility, and we're doing it and will continue to do it, but it has been done mostly in a bipartisan and cooperative matter. this raised some issues last week with some members on my side, i think legitimate issues, i raised them with the chairman. i think they're worked out, i believe they're worked out, but i want to be clear as we go forward, material of the committee belongs to the committee. it does not belong to a member. material of the committee is required by house rule 11 to be shared amongst all members equally. equally. it is not subject to the termination of staff or any other member what to do with that material. and, again, i think the things this week were inadvertent, and that's fine. things happen, you cleared them up. but i want to be clear that going forward i expect that every person who works for or with this committee or members
5:10 pm
who serve on this committee will try to work in a cooperative manner knowing full well there will come a time when we have differences of opinion, and we will voice them vociferously and all the other ways that we do. as far as information, as far as trying to get to the bottom of this and other matterses, the oversight committee's job is to protect the american people. we may have different views on how to do that, but i don't think any of us disagree on that responsibility. with that, mr. chairman, i want to thank you for the conversations we've had to try to clarify some misunderstandings this week, and i look forward to working with you in the future. >> yes. and i want to say that i appreciate the ranking member and appreciate his cooperative spirit. i think this committee, quite honestly, and i agree with him, has worked in a very bipartisan way because, ultimately, you know, we work for the american taxpayers. they give us the responsibility to oversee markets and entities, and we, i know he takes this seriously as i do, and so i thank him for his remarks. now i yield to the chairman of the full committee, mr. bachus, for two minutes.
5:11 pm
>> thank you, chairman fuguen bauer, for convening this hearing to examine events in the tumultuous final days of mf global. i commend you for the subcommittee's continued careful and comprehensive review of the facts. through two hearings, this being the third, there have been dozens of interviews by the staff, reviews of thousands of pages of documents which -- and those documents as they came in, members were notified that they were here. but maybe we can improve that communication. the oversight and investigation subcommittee and the full committee have resolved to find out what led to the loss of $1.6 billion in customer funds. we need to understand what happened at mf global both for the benefit of ranchers and farmers who lost money as well as the american public which benefits from a properly and
5:12 pm
effectively-functioning commodity market. what we learned to date is that notwithstanding the promise of dodd-frank, the regulators would work together. there's very little evidence of regulatory coordination in the supervision of mf global. in fact, fenra, some four or five months before, was asking questions, but those questions -- the sec and finra on one side and the cme, the commodities futures trading board 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 to greater vigilance over the safekeeping of mf global's customer funds. we also have learned that internal controls do not work if they can be readily short circuited by a company's ceo.
5:13 pm
and while not all of the facts are yet known about the role of mf global's ceo, jon corzine, and what they played in the spectacular collapse, the subcommittee's investigation leaves little doubt that mf global was in many ways his corporate alter ego and that, ultimately, the responsibility for what happened in the firm's chaotic final days rests with him. today's hearing will examine whether customer funds were used to meet the firm's demand for cash in its fateful last week. according to a preliminary report filed by the bankruptcy trust, margin calls were a major source of stress to the firm in its last week. to help learn from -- we hope to learn from witnesses today whether this liquidity crunch at mf global led someone at the firm to improperly use customer funds to meet the firm's need for cash. in order to get to the bottom of what happened and who was involved, the subcommittee
5:14 pm
needed the cooperation of various banks that conducted business with mf global. a thurm of those banks were contacted about testifying today, but only jpmorgan chase volunteered to appear before us. financial institutions may understandably be reluctant to testify on complex transactions because of the time and resource it takes to insure the testimony is accurate and complete. jpmorgan chase's cooperation, therefore, is very much appreciated. mf global was the eighth largest bankruptcy in the nation's history, but that's not what makes its failure noteworthy. firms of all size fail every day. for every reward, there's a corresponding risk. that's part of the free market. however, a $1.6 billion of customer money is not a risk that should exist in an effectively-regulated free market. i hope this hearing will bring us closer to understanding what went wrong and where that money
5:15 pm
is. thank you to our witnesses, and 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, and so as i think has been said before, this is not, this hearing is to find out what happened, not to accuse any of you of any wrongdoing because that, that hasn't been demonstrated. and so we appreciate your testimony. you're not on trial here. you are simply in a fact-finding mode. and i have been struck by, i've looked at your resumés, your background. you're very qualified, and you have a very good reputation, all of you. so thank you. >> i thank the chairman, and now the gentleman, mr. lynch, is recognized for two minutes or however long. >> thank you, mr. chairman.
5:16 pm
i'd also like to thank the witnesses here today for helping this committee with its work. mr. chairman, i believe that in many ways you should be given credit for the attention you've 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 financial institutions and about what we can do to make sure regulators have the tools to prevent a situation like this from occurring in the future. we've explored these issues in some previous hearing, and i hope we have an opportunity to revisit them today. however, i must raise an issue of process with you today that's been mentioned by my ranking member, mr. capuano. i believe your side, you and your staff have been slow in sharing documents with our offices and other members on this side of the dais. my office did not receive a copy of the mf global, quote, break
5:17 pm
the glass plan, something that seemingly republican members had a copy of at least as of last february's hearings. moreover, the ranking member was unaware until this sunday that you were in possession of about 100,000 pages of documents relating 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, records, data, charts and files. i've not had access to the extensive portfolio of documents that your staff has obtained from mf global in preparation for this hearing. mr. chairman, i have no intention of going easy on mf global. we are of one mind here, and i'm incensed, as you are, about the breathtaking lack of care shown by employees at mf global in the handling of customer funds. but i'm also disappointed that as a member of this committee i've not received 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 our responsibility to
5:18 pm
the taxpayer very seriously. and, again, while i give you great credit for focusing on this issue and 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 this side of the dais will be privy to all the information that your office has obtained and will obtain. mr. chairman, i thank you for the time, and i yield back. >> i thank the gentleman for his remarks, and now i yield to the vice chairman of the oversight investigation committee, mr. fitzpatrick, for one minute. >> thank you, mr. chairman. so here we are in hearing three of a series of hearings investigating the facts surrounding the collapse of mf global. we know that throughout the week of october 24, 2011, mf global suffered a severe lack of cash that ultimately led to the firm filing bankruptcy on october 31st, and in those chaotic final days up to $1.6 billion in customer money went missing. at a time when americans already lack confidence in the financial
5:19 pm
markets, mf global provides another devastating example of how multibillion dollar securities firms can seriously impact middle class americans. like many members of committee, i've had constituents effected 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. but what these hearings are also designed to do is to provide insight into our financial markets and the regulatory regimes designed to protect them. the american people expect us to hold wrong doers expect bl and to protect those who play by the rules, so here we are as members of the house of representatives. we're here to stand in the place of millions of americans we collectively represent. we're here to find answers for them. i commend the hundreds of hours that subcommittee staff has spent devoted to digging deep into this matter. i look forward to the testimony of today's witnesses and the answers that we hope that you'll be able to provide. thank you, chairman. >> i thank the gentleman. and i ask unanimous consent that
5:20 pm
a letter from the commodity customers' coalition -- actually thanking the full committee, this committee for its work on mf global to part of the record today. without objection, so ordered. i'd now like to yield to the gentleman from texas, mr. canseco, for a minute and a half. >> thank you, mr. chairman. you know, back in the fall of 2008 as the financial crisis was unfolding, then-candidate obama stated in a debate the importance of, quote, holding ourselves accountable day in, day out not just when there's a crisis for folks who have power and influence and can hire lobbyists, but for nurses, the teacher, the police officer who, frankly, at the end of each month they've got a little financial crisis going, close quote. well, there's a big financial crisis going on right now for
5:21 pm
farmers and for ranchers across the country that can't access their portion of $1.6 billion that's gone missing at mf global. this past week we learned that ceo jon corzine likely wasn't the innocent bystander he claimed to be in front of this committee back 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 -- clamming up when the people in question is a former democrat senator and governor. and i hate to sound like a cynical, sound cynical, but i can't help but think that the, quote, power and influence, closed quote -- as president obama may call it -- that someone like jon corzine carries is exempt from a thorough investigation by the department of justice. the victims of mf global deserve their money back, but they also deserve to know what happened to
5:22 pm
it. this hearing and our continued investigation is of extreme importance, and i yield back the balance of my time. >> i thank the gentleman. now the gentleman from california, mr. royce s recognized for a minute and a half. >> thank you, mr. chairman. the clear problem that arose here, the clear problem that made bankruptcy the only option for mf global was that no one could account for what happened to over a billion dollars in segregated funds. as we're going to learn today. but more than leaving the various customers of mf global high and dry, what's happened is that those missing funds have rocked the foundation of the cftc's customer protection regime. rules governing segregated
5:23 pm
accounts, those rules have been around for 75 years. and they're not difficult to understand, reportedly, they're not difficult to enforce. yet the cftc has failed in this most basic task. so we go to commissioner o'malley's observation at the cftc. he says that, basically, he's arguing that since 2010 the cftc has been consumed with drafting new rules to regulate not just our driven -- derivatives markets, but the world's with much of the manpower at that agency dedicated to enforcing dodd-frank. and according to mr. o'malley, the cftc missed cracks in the system, and it has cost over a billion here in terms of the clients. at least hundreds of millions. so i'll end by quoting him. since the dodd-frank act became law, the commission has acted like a little child abandoning the old toy and swapping them
5:24 pm
out for the new. it has concentrated on swaps rulemaking while averting its gaze from the futures markets and their developments. therein lies the concern. the broader question that's got to be answered here regarding the ability and willingness of the cftc to insure customer funds are protected, and i yield back, mr. chairman. >> i thank the gentleman, and i yield to the ranking member, mr. capuano. >> thank you, mr. chairman. it's kind of interesting, start off trying to be bipartisan, and now i've just heard that president obama and the dodd-frank bill caused this problem, and i would like any member here who has any information whatsoever that the justice department, the sec, the cftc or any other appropriate agency has given mr. corzine or anyone else a pass on the investigation related to this matter. because if you do, i i would lie to see it, and it would be another matter that we don't have. i would like to know if
5:25 pm
dodd-frank caused this problem, then what caused lehman brothers? what caused madoff? i mean, i know we're all out here to make political points, i'm a politician too. but let's stick to the matter at hand. what happened here? if you know, go to the justice department and tell them. if you want to make political points, there's microphones out in the hall. that's the appropriate. >> will the gentleman yield? >> i sure do. >> well, i appreciate you yielding. the point that i'm 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 the this way. it is his observation that it has concentrated on swaps rulemaking while averting its gaze from the futures markets and their development. >> i would be happy to -- claiming my time. i would be happy to, i'd be happy to join with the gentleman to invite the director of the cftc back, and we'll ask him
5:26 pm
that question to see if he thinks here, publicly on the record that dodd-frank caused this problem. and if he did, i will simply agree with you and say, good job. but if he doesn't, then i would expect you to do the same. >> i thank the gentlemen. and now i'm going to recognize our first panel, ms. lorry farber -- lori farber, mr. henry stein camp, chief financial officer at mf global and ms. christine sor remember sky, chief financial officer of north america and ms. edith o'brien, assistant treasurer at mf global. i would ask -- recognize each of you now for your opening statement and, first of all, i need you to, please, stand and raise your right hand. do you solemnly swear and affirm that the testimony that you're about to give will be the truth, the whole truth and nothing but the truth? >> i do.
5:27 pm
>> thank you. you may be seated. without objection, your written statements will be made a part of the record, and at this time i will recognize ms. farber for your opening statement. >> thank you. >> chairman neugebauer and distinguished members of the subcommittee -- >> i'm sorry to interrupt you, but would you pull that a little closer to you and make sure that little light's on? there you go. >> it is. >> thank you. >> my name is lori fresher. since june 2009, i have served as general counsel at mf global. since the bankruptcy filing of mf global holdings, i have remained at the company to assist the bankruptcy trustee and the bankruptcy professionals in their effort toss maximize the value of the mf global estate. i hope my testimony will assist the subcommittee in its efforts to understand what happened during the firm's final days. i was born and raised in the
5:28 pm
bronx, new york. i received a bachelor's degree at the university of new york at buffalo and graduated from new york university school of law. prior to joining mf global, i served as general counsel of the commodities and/or fixed income trading units of two financial services firms. as general counsel at mf global, i supervised the legal and compliance functions. my -- >> mr. chairman, could i get her to bring the microphone close? when you look down, it gets very hard. i notice people in the back straining. >> sorry. hard to read. as general counsel of mf global -- is that okay? i supervised the legal and compliance functions. my responsibilities include managing the legal functions to support the firm's evolving business, advising the board and senior management and facilitating mf global's relationships with its regulators. mf global's legal department included approximately 17 attorneys and 12 other professionals. the firm's legal team was supported by several highly-skilled, outside law firms with expertise in various
5:29 pm
areas of law pertinent to mf global's operating businesses. the global head of compliance who had substantial experience and expertise in compliance matters and managed a global department of over 80 people also reported directly to me. i report directly to the chief executive, mf global, and interacted frequently with the board of directors. my focus during the last week of mf global's operations was to make sure the legal and compliance departments and outside come were available -- outside counsel were available to support the firm as it attempted to deal with the rapidly-unfolding events of mf global's last days. the firm's senior management and board of directors reacted to those events by, initially, seeking to sell all or part of the firm and severely reducing its balance sheet while also seeking to make sure the firm met all of its obligations. ultimately, when the sale of the firm became impossible, mf global holdings had no viable option other than to file for
5:30 pm
bankruptcy protection. throughout mf global's final weekend i personally was in mf global's offices in new york for all but a very few members as were many members of mf global's senior management. the board of directors was also present at the offices carefully monitoring events and receiving almost constant updates. ..
5:31 pm
>> for controlling the funds, and as a left efforting meeting your people as a potential buyer, and provide a fresh set of eyes to reconcile the errors. once this was clear, at approximately 2 a.m., we notified the regulators. after several hours of discussion, we made the bankruptcy filing. we've been assisting in the global efforts to maximize the shareholder. i will answer any questions you have. >> in your next -- that would
5:32 pm
be -- [inaudible] [inaudible conversations] whoever is in charge of sound in the building, turn these microphones up a bit. i'm having a difficult time hearing, and i think so are the other panelists. >> is that better? >> yes. >> thank you for the opportunity to make this brief statement. i'm henry, the chief financial officer of mf global holdings limited, a position i've held since april 2011. let me say at the outset i'm deeply saddens, upset, and frustrated that the money belonging to the mf's customers has not been returned in full. i know, however, my reactions are not compared to those of the people who are suffering with this issue. along with certain other senior
5:33 pm
executives of mf global holdings limited, i've remained at the post following the bankruptcy filing, and i'm working diligently with the chapter 11 trustee to do what i can to maximize the value of the firm for all interested parties. that said, because of the specific trustees' rules and policies, i have not been able to participate in the current efforts to return customer funds. while i'm deeply disstressed by the fact that customer moneys have not been fully repaid, i have limited knowledge of the specific movement of funds at the u.s. broker dealer sub subsidiary, mf global, over the last two or three days prior to the bankruptcy filing. this is in part because during those days i was taken up with other very serious matters. as a global cfo, i had many functions, and principle among them was the effort to one and
5:34 pm
share the consolidated financial accounts complied with all u.s. accounting and reporting rimes, and work closely with the investors and rating agencies. as the name suggests, mf global holdings limited, my employer, is a holding company with foreign sub subsidiaries, and each generally had its own or a regional chief executive officer, chief operating officer, financial officer, and others obligated to independently discharge the customary duties of the offices to the home jurisdictions regulatory requirements. all of the positions were fooled by highly experienced professionals. direct involvement with bank accounts or fund transfers has never been part of my duties. it is, of course, important to understand the way in which issues were handled. the subsidiary that acts as the
5:35 pm
futures commission merchant in the course of business. to avoid confusion, we have to refer to mf global inc. i'll call it mugi. all calculations were performed by mfgi personnel in chicago overseen by mfgi professionals. the client funds had been reviewed repeatedly by the firms auditors and regulators over a long period of time. as a general matter, i was not involved in the details of segregated funds, and in the course of my duty as global cfo nor were the calculations performed in chicago and reported to regulators on a daily basis. the week prior to the bankruptcy filing saw among other things multiple rating agency downgrades in quick succession, liquidity stresses, and efforts
5:36 pm
to sell all or a part of the firm. it was a time of constant pressure and little or no sleep with the significant number of critical issues to resolve. as the cfo of the holding company, my attention was focused on crisis management and strategic issues relating to the sale of the company. on monday, october 24th, 2011, moody's announced they were downgrading the credit rating down one notch leaving the firm with the lowest possible rating. this was followed by further downgrades throughout the week in the speed that placed extraordinary pressure on the liquidity. as the situation decreased, the sale of the business and/or the entire firm was pursued. in between my dialogue with the rating agencies, i dedicated my time to the due diligence necessary for the sale, almost exclusively in the period commencing on the evening of october 27th and ending with the
5:37 pm
decision to file for bankruptcy on the morning of october 31st. as i recall on sunday, as a deal of the acquisition when all or most of the company was at serious hands, i learned of the issue with the calculations. unfortunately, as the subcommittee is aware, the efforts to reconcile the segregation calculations were not successful, and the deal fell through. i, along with others from mf global, promptly notified regulators about the issues. i understand that the subcommittee, mfgi's customers, and the public have many unanswered questions about customer funds. i share the questions, and i'm personally extremely frustrated and disstressed it remains outstanding and client funds have not been repaid in full. i'm pleased to answer any the subcommittee's questions. thank you. >> thank you. you're recognized for five minutes as well. >> thank you.
5:38 pm
chairman, ranking member -- >> i'm going to ask you to do the same thing and tilt it down just a little bit, and -- yeah, there you go. talk as loud as you can. i don't know what's going on here, but -- >> thank you for the opportunity to testify today. i'm christine, and at the time of the events in question, i was the chief financial officer of mf global, inc, the firm's north american broker dealer and futures commission merchants. in my position of cfo of mf global, i was responsible for the accounting and regulatory accounting team. in light of the subcommittee's focus on the events of the week of october 24, it is important to note that the departments responsible were transferring funds into and out of the company, treasury, treasury operations, and security operations did not report to me. i am aware that the subcommittee is particularly interested in the events of the week prior to
5:39 pm
october 30th bankruptcy. i will do my best to provide whatever information i can, but i was away for the majority of the week, and i apologize in advance if i'm unable to add that great deal of detail. on monday, october 24th, moody's downgraded our rating. on tuesday, there was an earnings call. on that same day, i left chicago for a previously 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 co-workers to ensure that all of the functions my office -- of my office would be covered. all of my colleagues and subsidiary board nants knew how to -- subordinates did know how to reach me if necessary during my absence. i had access to e-mails on my
5:40 pm
blackberry on my week off and read them when i could. i spoke to people from mf global only telephone from time to time throughout the week. all communications with mf global employees indicated that things were very busy, but i was assured that everything was under control, and at no time did anyone ever 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 believed that it would be better to return early given the level of activity at the firm. after receiving varying reports earlier in the day and upon arriving at the office on sunday evening, i was informed, in fact, there appeared to be a segregated secured deficit of approximately $900 million. i dove into thing thing with my
5:41 pm
team believing this must be an accounting error because such a large deficit was simply inconceivable to me. early monday morning, the assistant treasurer handed me a piece of paper that had a series of transactions that according to calculations accounted for the short fall in the segregated accounts. i realized the deficit and segregated and secured funds was not an accounting error. we informed a representative of the cme and my focus immediately shifted to identifying how firm funds within mf global which might be transferred into the segregated and secured environment as quickly as possible. we worked relentlessly throughout the early morning hours, and, indeed, throughout most of the day of october 31st to try to bring the unsecured accounts back to the appropriate levels. although some of the funds were transferred into the fcm's
5:42 pm
securitied accounts a number of wires were not executed by the bank, and we were unable to move sufficient funds to make up for the short fall. sometime on october 31st. i learned mf global filed for bankruptcy, that we were under specific protection, and that the firm could no longer engage in further financial transactions. shortly thereafter, the specific trustee asked me to stay on at mf global to assist in the wind down of the business, which i agreed to do. i look forward to addressing to the best of my knowledge and ability any questions that the subcommittee may have. thank you. >> thank you. we have been instructed that michelle bryan does not plan to give an opening statement at this time, and we'll, therefore, begin to ask our questions at this time. on friday, october the 28th,
5:43 pm
2011. mf global transferred $200 million from the segregated customer accounts to the house account and then subsequently sent $175 million from the house account to the mf global u.k. account to cover an overdraft. as you're aware in december, mr. corzine testified here that you assured him those transfers complied with the rules about customer segregation. reportedly, you dispute the testimony, and 10 let me ask you today, did you give mr. corzine assurances that the farmers' and ranchers' money that was in mf global account, the segregated accounts, did you give him asorningses that that money was
5:44 pm
not their money? >> on the advice of counsel, i respectfully decline. >> i'm sorry, you have to -- yeah. >> on the advice of counsel, i respectfully decline to answer based on my constitutional rights. >> i'm going to yield to see if you'd like to -- >> ms. o'brien, i understand and respect the constitutional rights, but there was an article in today's "wall street journal" or yesterday's, that stated that you are trying to negotiate immunity with federal investigators, and i'm curious if that article was accurate or inaccurate. i'm not asking anything about mf global, just is that news report an accurate report? >> on the advise of counsel, i respectfully decline to answer based on my constitutional rights. >> i yield back.
5:45 pm
>> mr. o'brien, we asked you here today to testify so that you could 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're extremely disappointed you have chosen to do that. do you intend to invoke your 5th amendment right to any question the subcommittee may ask you on these subjects today? >> i will. >> i'm disappointed, and because of your answer, but i believe that because i believe you have important knowledge, and i'm hopeful that maybe at some point in time you'll reconsider and come back and testify before this committee, and at this time, with unanimous consent, i'm going to dismiss mrs. o'brien from the panel. you are dismissed. >> okay.
5:46 pm
>> i'm going to continue questioning. what we'll do in this point in time, we'll reset the time, and we'll begin question and answer period again. on 10/28, mf global transferred $200 million from the segregated accounts and subsequently transferred $175 million to the u.k. affiliate to cover an overdraft. in an interview that you had with our committee, you stated that if you were working that day, it was very unlikely you would have approved the $175 million transfer because it could have violated fcc's net capital rules. can you explain that for me?
5:47 pm
>> the transaction, the $175 million transaction, as i understand it, was an intercompany alunes between mf global inc, and mf global u.k. limited. as i understand, the $175 million was being taken out of customers' segregation. there was two things i would have looked out with respect to the transfer. one, did the firms -- what was referred to and has been referred -- has the firm invested in excess segregation and secured funds, would that $175 million brought that level to a negative? the firm could still be in regulatory compliance, you it would have breached its own internal policy. the second consideration that would have had to be evaluated was its potential impact on the excess net capital of the firm,
5:48 pm
so if -- if that number without being adjusted would have brought, i believe, the firm to a potential under early warning situation, which wouldn't have been a rule violation, but would have required a recording to the regulators. >> so inset to go back to my -- so i want to go back to my question. had you been there on that day, would you have approved that 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 breached a regulatory rule, i don't believe i would have approved it. >> knowing what you know today, would you approve that transaction, yes or no? >> no. >> okay. thank you. you're aware of an e-mail that edith o'brien had, and states
5:49 pm
that -- is it normal course of business for the ceo to make instructions on wiring funds? i mean, is -- did that happen on a regular basis on your watch? >> no. >> so this would be out of the ordinary for mr. corzine cotall people instructing them -- call people instructing them how to wire money? >> yes, that would be an unusual event. >> i thank you for that. according to cme on the afternoon of thursday, october the 27th, a reference of cme group sent a letter to you, ms. serwinski, and mr. bolen i believe, and stated effective immediately any withdrawals from mf global inc have to be approved in writing by the cme audit department.
5:50 pm
basically telling mf global not to move capital from mf global without cme's approval. who did you tell that information to when you received that letter? >> i -- i don't recall. at the time, it went to the finance group, to myself, and i cannot remember, you know, exactly what i did with it back on that thursday. i recall having conversations where people were aware. >> so did y'all seek approval when you made the $175 million transfer to mf global u.k. before you moved that money? did you notify cme you were making that transfer? >> i was not aware of that transfer before it was made so i would not know that. >> so if you didn't -- you don't know who you gave the information to, and so maybe not everybody got the memo, is that
5:51 pm
what you're -- >> again, the memo went directly to key finance people, and so i -- and the key people operating the, you know, transfers and things all in chicago. i assume it was shared there, but i really don't -- i don't recall. >> i was interested in your testimony that you said you're the cfo for the global and addressing very important issues facing the company at that time as their cfo, is that your testimony? >> that's correct, sir. >> yeah. wouldn't you think the liquidity of a company would be one of the important aspects of a entity the size of mf global and based on its businesses, if they were having liquidity problems, would that be something the cfo should be involved in? >> sir, there were many things going on in that point in time. >> no, that was not the question. the question is liquidity of the
5:52 pm
corporation and important role of the cfo? >> the liquidity -- >> this is a yes or no question. this is not rocket science here. is the liquidity of the corporation an important piece of the role of the chief financial officer of a company? yes or no, sir. >> sir the liquidity is critical on a consolidated basis, yes. >> yes. so i'm surprised you have very little knowledge about the transfers and these were not small transfers of money, margin calls, people trying to liquidate positions to create liquidity, and you say you didn't have much knowledge to that? >> yes, sir. when it comes to liquidity, i was looking on a global consolidated basis. that, you know, was a transfer within mf global inc that was important, but there were many liquidity events occurring across the firm, not just in chicago, but across the whole globe that we were dealing
5:53 pm
with. >> and how was liquidity going? >> well, we slowly experienced throughout that week a drastic change in liquidity from the the wednesday to the friday, and we experienced, you know, in the last couple of days, significant liquidity stress. i think a call similar on thursday and friday was a run on the bank. >> i think my time's up. i now turn to the ranking member. >> thank you, mr. chairman. i actually don't have a clue what questions to ask any of you because i have the general counsel of mf global holding saying i didn't know behaves going on. i had nothing to do with this. i have the chief financial officer of mf global limited saying, it's not my job. i didn't do it and also said it's mf global inc's issue, not mine. i have nothing to do with it. they report to me, but i don't
5:54 pm
know anything. i have north america mf global inc saying i was on vacation. how am i supposed to ask you questions if none of you apparently knew what was going on or claim to not know what was going on, have no information whatsoever. how did the company run? did anybody in the company, anyone have authority to transfer customers' funds? anybody have that authority? i know you said in your written statement you didn't, but who did? >> well, sir, my responsibility was to oversee the global finance function. i was not responsible -- >> i know what you were not responsible for. i read the testimony. apparently, you were not responsible for anything. who was responsible for deciding to transfer customers' funds? who? if not you, fine, i read your testimony. who? >> the transfers of customer
5:55 pm
funds would be resident -- the authority would be resident in each of the local regular entities, so in chicago that would be -- >> who would that be? a name. >> between the finance team -- >> all right, so -- >> ms. o'brien's team. >> i read that in your testimony. i wanted to ensure i read it right. you have the authority; is that correct? did you have the authority to transfer customers' funds? >> i did not have the authority to transfer customer funds. in my opening statement, sir, the transfer of customer funds was managed by the treasury group, the treasury operations group, and the security operations group. >> all right. you were the chief financial officer. the treasury group doesn't report to you? >> no, they did not. >> who did they report to? >> they reported to the global treasurer. >> and who, in the treasury group, would be the main person responsible for making that decision? >> making the decision to --
5:56 pm
>> to transfer customers' funds. >> it would be the assistant treasurer of the global treasurer. >> and names. >> edith o'brien. >> i have not yet seen a corporate organizational table for all of mf global. i understand there was over 80 or 50 different companies. it's going to be fun to try to read it, but of all the people that are probably going to show up on the corporate ladder, i'm willing to bet that ms. o'brien's name or position will not show up, and she, however, was the only person, the top ranking person to say let's take all the customer funds and do whatever we feel like it. if that's the case, i think we've got more than a little of a problem here, and i would tell you that this hearing after reading this testimony and listening to you reminded me of a hearing we had on this
5:57 pm
committee i don't know how many years ago on enron. we had mr. schillings, and others, and i told them what i'm telling you. is it okay? apparently nobody did anything wrong, but there's a billion dollars missing. here's what you should be concerned with. not us. we're not the appropriate investigative body to determine who had the responsibility. here's your concern. the people sitting next to you. because somebody is going to say something to the appropriate investigators and say this is the person who had final responsibility. when that happens, there's going to be problems for those individuals. i wish i could find some wonderful things. one other question. all of you working for mf global before these problems arose; is that correct? did i read the testimony correctly? all working there before, and you're all still working there; is that correct? >> no. >> no longer there.
5:58 pm
>> i'll ask you -- some reports that mf global is considering bonuses. are you in line for some of the bonuses? >> as far as i'm aware, there's been no decision made on bonuses, sir. >> i think the trustee emphasized that in the statement. >> so i have well-paid employees of a major company that misplaced or misappropriated a billion dollars of customer funds, and yet, you're asking the trustee and bankruptcy issue not you, but somebody is asking the bankruptcy to give bonuses to the very people that may or may not have something to do with this? do you see that as a potential little issue? you think that would be appropriate for the trustee and bankruptcy at this point before we know what happened to be giving out bonuses to people who were there that may have had something to do with creating this problem? >> sir, that's not a decision that lies in our hands. that's, you know, we believe the
5:59 pm
trustee will make a decision -- >> yes, but do you think that's appropriate? you have a general counsel. would you advise your clients that's a good idea? >> totally deferred to the trustee. i'm focused on helping the trustee, his responsibility to figure out how to manage the bankruptcy estate, retain employees, and everything else. >> fair enough. i appreciate your consistency in having nothing to add to the discussion. [laughter] again, as i said from the beginning, i was not sure what questions to ask to add any information, and apparently, i've spent six minutes and done just that. thank you. >> i thank the gentleman, and now the -- mr. fitzpatrick is recognized for five minutes. >> thank you, mr. chairman. . .
6:00 pm
>> it would be a pretty significant piece of information that he received on the day the returned back from your vacation. correct? you don't remember who told you
6:01 pm
that you had a significant deficiency? >> originally when the calculation was done on saturday morning, it showed he deficiency. my department was assured by the treasurer -- or it treasury operations group -- but there was a room reconciliatory option. they spent saturday afternoon doing just that. that morning i boarded a flight back to chicago, i was informed that, in fact, the firm might have been truly under segregated at that time is of the 28. when i landed, and i received information that said no, we were not under segregated -- when i link to the office, i was told that yes, in fact, we were under segregated and that is when we looked to see if that could possibly be the case.
6:02 pm
>> missa risky, did you inform anyone of that fact? >> once we had determined that it had not been in accounting error but a deficit, we contacted the cme who was on the premises. i believe they were contacted by my colleagues at that point in. >> was that that saturday? >> no, that was very early in the hours of monday, october 31, or very late sunday, october 30. >> so you would have waited approximately two days to let anyone know at cme about the deficiency? >> i do not believe it was a deficiency at that point. if i mentioned, it was inconceivable to me that the firm could be under segregated by that substantial amount.
6:03 pm
>> but it was in fact deficient by that substantial amount. is that correct? >> it was brought to my attention in the early hours of october 31, that yes, it was in deficiency. >> under segregation is a significant violation, is it not? >> yes, to be under segregated is. >> to do inform any regulator or manager of this significant fact? >> i did after it was confirmed that it was an under segregated situation. >> on saturday the 28th jp morgan sent a letter that it had the authority under cfc rules to replenish an account that mf global had over john. apparently jp morgan sent three drafts of that letter asking mf global to confirm if transfers were proper, is that correct?
6:04 pm
>> yes. >> at any time, did anyone to add mf global refused to sign the letter? >> not in any discussions with me. no. >> were you told that anybody at mf global refused to sign the letter? >> no,. >> so you have no information of anybody at mf global refusing to sign that letter, correct re/max. >> the first letter was asking one individual to confirm that everything that has ever been done in the history of those account and anything that would be done in the future within compliance of the cfc rules. i think the you know it was a very hectic time. no one individual, as far as i know, and this is not an area that i supervise or have direct involvement with, but no one individual would be making all this transfers. my understanding was that j.p. morgan confirmed that there were
6:05 pm
two related transfers. that is what they were seeking assurances on. if they related to that, we would be able to make that. i understand importance of getting it quickly to them, getting them comfortable, and getting a letter for what they needed and we would get it signed. >> did you tell edith o'brien about the letter being sent? >> i forwarded a copy of the letter to edith o'brien. >> did you tell her he needed to be signed? >> certainly, that was the substance of our conversation? what was her response? >> at that point i discussed it with her, i understood the focus was on those two transactions and my clear understanding from speaking to edith o'brien was if it was related to those two transactions she would sign it. >> mr. lynch is recognized for five minutes. >> thank you, mr. chairman.
6:06 pm
mr. berger, how important is it for mf global to protect client funds? >> is a critical obligation to. >> ms. serwinski, how important is it that you protect client funds we met is that a pro- liberal responsibility? how would you classify a? >> it is a very critical and important -- >> mr. steenkamp, so this is an essential core responsibility? this is not some esoteric rule, some accounting error. this is central. this goes to the very trust that your firm relies upon and the whole market relies upon in order to function. we have $1.6 billion of customer money taking a walk. and none of you know anything about it. none of you are aware.
6:07 pm
this is not a small amount of money. $1.6 billion in money that was entrusted to you and that the whole reason for a segregated account is to protect the clients money. it is absolutely disgraceful. it is utterly disgraceful what has happened here. it is disgraceful to you sit there and say we knew nothing about it, i was on vacation, i was in chicago, i was in new york, doing the global thing. it is not believable at all up here. it is utterly disgraceful. it is disgraceful not only for mf global, but i think for anybody in your industry, because it is such a central principle in protecting clients. hard-working farmers and grain operators, families that invested their savings, their hard-earned work. their life savings.
6:08 pm
they trust you, and you are supposed to protect their interests. and they were robbed. nobody knew anything about it. $1.6 billion. let me ask you. under cfc rule 1.13, and this is a problem, we have to look at the regulations at some point -- it commits funds to segregated accounts. i understand the practice. how you tag your firm funds that you put in there and you call mental -- you mingle funds -- is laurie ferber, how do you tag those funds? >> i think that is an accounting question. i would defer to my colleague who have knowledge on that.
6:09 pm
>> so you do not know the central responsibility in protecting customer funds. you don't know. >> how funds are tagged in a bank account, i don't know. i know that customer funds need to be kept in a bank account that is a customer segregated account. >> ms. serwinski, mr. steenkamp, do you have any idea on this? april 1 allows the firm to call mental funds, -- to mingle funds, along with customer funds that are segregated, how do you tag the funds and distance them from customer segregated funds? >> ms. serwinski? >> if i may take an opportunity to try to explain segregation and secured funds -- >> how about you just answer my question and.
6:10 pm
>> judging on your other responses, since i sat down here some time ago, edith o'brien's declaration of the fifth amendment is more helpful to the committee than any of your answers. i don't want to going off on a long explanation did based on anything else that has come out of your mouths, all three of you, there has been nothing there that has owned up to the responsibility for any of the stuff that has gone on here. even though you are all three in major positions of responsibility. please answer the question that i asked. how do you tag the funds and keep them separate from the customer segregated funds in the same account? >> cash or collateral is deposited into the segregated or secure environment. they become mingled with the customer secured and segregated
6:11 pm
funds. >> so it is indistinguishable? >> on a dollar for dollar basis -- >> so it is just a balance. you know, the ounce of segregated funds -- is that what you're telling a? there is no ability to distinguish assets from others'? >> we would track the firm's investment in the excess segregated and secure funds on a daily basis. >> but if you had to sell securities out of that fund, you could take securities out that were placed in their by customers, or you could take securities out based on the company's deposit in their? >> i'm trying to figure out a way to to prevent this from happening again. >> i understand, sir. >> i think there is a loophole
6:12 pm
here -- this is a situation where the regulation that is in place has not protected these people, these grain operators and farmers from having $1.6 billion stolen out of their account. i think somebody in your firm -- somebody elder in the industry should've recommended a better method of protecting them. i realize i am over my time and i yield back. >> i thank the gentleman, and now the chairman from new mexico. >> thank you, mr. chairman. mr. entry, i heard mr. lynch say that clients were robbed. i see his point there. do you think that is an appropriate term? >> tease me? >> yes or no.
6:13 pm
>> i don't know how to describe it -- something terrible happened. i don't know how to describe it. >> the money is not there, they put the money there and it is not there and they cannot get it back. is that the definition of stolen? >> one of the highest paid lawyers in the country. bonnie and clyde were chums. they drove around, you had people send things to you electronically and you can even declare whether they were robbed or stolen. >> ms. serwinski, you seemed alarmed when he came back to the office that these funds were taken. why were you alarmed? now that we have gone through
6:14 pm
the 24 hours -- why were you alarmed? >> i was not alarmed on wednesday -- >> whatever term you use, you said you were distressed. why would you have not done that? why would you not have approved that? >> why but i am not approved a? number one, based on the previous day's information i had -- >> is it right along, that is what i'm getting at. is it right to take that money at the end of the day? is illegal? >> if it was utilized in customer funds,. >> is illegal to hold it overnight? is a illegal to hold it for over a year? is illegal to take customer funds and use them for a year? >> i don't know what was done --
6:15 pm
>> i did not say -- i did not accuse you. you just said it was -- you found it alarming with whatever words to use. >> i believe i said that if i was presented with the request to approve $175 million intercompany -- >> you missed the deadline to pay it back. you miss the deadline. what was the deadline? was it a legal deadline? what was the matter? ms. laurie ferber said she didn't know if it was stealing or not. >> chairman, i think that we understand we are talking about two different items. my reference in the written testimony with respect to the deadline being missed on the wednesday for the repayment of intercompany loans is what i was concerned about. on thursday, that had been brought to my attention.
6:16 pm
those intraday loans that were not paid back by the end of the day did not violate -- the firm was in regulatory compliance at the end of wednesday. it was an internal policy that had been breached that made sure that the firm had been investigated -- >> so there is no extra no prohibition against using external funds? >> external -- >> there is no extra no prohibition? >> not that i am aware of. >> so mr. royce, his testimony is and correct them. you still have those funds, basically. you have taken them. you're telling me that the 1.6 billion is still not against the law, that you did what was fair and square? is that right, mr. steenkamp? i hear the other two witnesses saying it is fine and okay.
6:17 pm
is it okay? >> sir, it is not knowing what actually happened. it is impossible -- >> you took money and your spouse to be able to get it back. if i can't get my money back, then the bank has taken it. these hog farmers put their money with you and they can't get it back. is that right or wrong? morally right or wrong? it doesn't matter anymore. your legal council cannot declare it to be against the law did. >> sir, i think there are a lot of different concepts being combined -- >> i think i can understand why mr. lynch and mr. -- i think i understand why they are frustrated. it is okay. we can't really declare why it is okay.
6:18 pm
this is not reassuring to the american people who might know that their money is not in safekeeping after all. it sends a message that you all can't find a legality about it. that is the message that is going out today. mr. capuano said if i'm, shame on you. thank you. i yield back. >> i think the gentleman. now the gentleman from california is recognized for five minutes. >> thank you, very much. mr. chairman. i was just talking with staff here about the accounts that i have read in the newspapers, where there has been an attempt to describe customer accounts as opposed to other accounts. i suppose what i am hearing is
6:19 pm
that company money was kept in the same account as client money. of course, once at the client money had been taken out and put in another account, and then the money was taken from that account to pay overdraft. when mr. jon corzine asked where it came from, someone was able to say that it came from an account other than the client account. let me ask mr. steenkamp, do you know anything about the another account with a client money was placed prior to the payout from that account to take care of the overdraft? >> to the best of my knowledge, i was not involved in those transactions. i had not known about the
6:20 pm
details. >> to know about the details -- do you know about the details about what the official accounts of the company -- were there one, two, three -- how many? >> there were several counts and the holding company. those accounts are very different than the separate accounts that were held in the regulated entities. in my role, i was not involved in the detail of those accounts which were managed by the senior professionals we had in each of our regulated entities. each country is different. different rules apply to each country. >> as the cfo global of the corporation to acquire every year -- your certifications are
6:21 pm
accurate. do you know that you are not -- when you know they are not, you could face civil and criminal penalties. my question is, were you confident that your internal controls were adequate at the time used in them at year end and each quarter. >> i became the cfo in april 2011. i had control year and that he mentioned, as well as the first quarter. as part of signing those controls, which is a snapshot in a point in time, -- >> let me just ask. is the cfo, and your tasks and cfo actions are accurate, and you know that they are not, you could face double and criminal
6:22 pm
penalties. with that, my question is were you confident your internal controls were adequate at the time that you signed them at year and in each quarter end. you felt good about it? >> might last quarter was in june. nothing came to my attention at that point in time that indicated that i should not sign it. >> so what you're telling us is that you are not confident that there were internal controls that were adequate at the time that you signed at year end and at each quarter end? >> no, ma'am. nothing came to my attention as of june when i signed the certification that indicated there were any issues in internal control. >> so you are competent? >> at the time of the signing, nothing came to my attention otherwise. >> a lot of attention has come
6:23 pm
to why it mf global -- why they were given a green report in june when they lost at least 1.6 billion and customer funds. did they ever raise concerns about mf global internal controls while you were employed at the firm? >> that is a very broad question during a very long period of time. i would say that we work closely with pwc, the best of my memory -- nothing came up during my time as cfo that indicated an issue with segregation of client money. >> so price waterhouse coopers gave the company a green report in may, and the internal
6:24 pm
controls turned out to be enough to lose $1.6 billion. you think that price waterhouse wasn't competent? and enduring that, they should take some responsibility for that? >> man, i cannot comment on the independent review that pwc does. they did not raise any concerns to the best of my memory. >> do not have to have confidence in the auditor? >> you have to feel that your auditor is competent and acting properly and you have no reason to question them. >> the auditors perform their own independent assessment. >> i think the gentlewoman.
6:25 pm
now the gentlewoman -- the gentleman from florida is recognized for five minutes. >> thank you, mr. chairman. these are going to be easy questions. when we had the opportunity to question mr. jon corzine, i was advised in shock, right frankly, that he had not yet been interviewed by the department of justice or authorities. i was just wondering, mr. steenkamp, have you been interviewed by the fbi, department of justice, or any other federal investigators? >> my lawyers have done -- have cooperated with all the legal officers. >> is that a yes or no? >> through my lawyers, yes. >> you have not face-to-face talk to any investigators at? >> i have not.
6:26 pm
>> ms. serwinski. >> yes i have. >> how long ago? >> how long ago. >> i have spoken to them twice. >> what do you think is the most compelling along the line of questions that they had? >> there were a lot of questions and topics discussed. i cannot include one off the top of my head that was more than compelling than another. >> ms. laurie ferber? >> i'm scheduled to meet with them on april 6? let the record show all three said no. you all indicated that you got the investors should get their money back. ms. laurie ferber, what do you think the odds are that they will get their money back or mac. >> we have no basis to answer
6:27 pm
that. >> ms. serwinski? i don't know. it depends on whether or not the people -- >> mr. steenkamp? >> it is early in the bankruptcy process. that is why we are trying to work and maximize it. >> who you think is most at fault for investors losing money from an account that was supposed to be segregated? mr. steenkamp? >> sir, because i don't know what actually happened, it is hard to answer that question. >> ms. serwinski? >> can you repeat the question, sir? >> ms. laurie ferber? >> ali said there was a turbo failure here of some kind. what it was, i don't know.
6:28 pm
the trustees have controlled all information since october 31? a good analogy is it a casino does not provide credit, once the gambler's chips are gone, you have to stop playing. you cannot reach over the table and take someone else's chips. if the gambler did, he would be in handcuffs quicker than you can say segregated accounts. however, in essence, is that what happened at mf global? >> i don't know what happened, sir. >> ms. serwinski? i don't know. >> i don't know. >> is laurie ferber? >> i don't know. >> the scope of mf global, there is sure a lot you guys don't know.
6:29 pm
>> is there anything else that you might know the might want to share with us to give us more insight? >> i'm happy to address every question. that is extraordinarily broad. >> take a shot at it. >> where to start? we were talking about what happened over a very -- a few days that were handled by professionals, professionals, -- deeply within the finance and treasury operations groups in chicago. i share your frustration in what happened, but again, we learned about this hours before the bankruptcy filing.
6:30 pm
you may have more information than we do. i share that frustration. as i have done for my entire career, i wanted to dive in from the first moment of learning there was a problem and understand it and do everything i could. but we have been cut off from that information. >> were any of you contacted by the cftc during the investigation? >> there were some meetings i attended with the department of justice. >> outside of that, were you at contacted by them? >> on occasion after october 31, there were representatives from the cftc in our offices. >> would you have any idea why the cftc would have been asked to cease and desist their own investigation? >> i do not, sir. >> i do not.
6:31 pm
>> thank you, mr. chairman. i yield back. i thank the gentleman. >> now, the gentlewoman from new york. >> thank you, mr. chairman. here we have three intelligent and able people who are in positions of tremendous authority and responsibility at a firm that was handling -- that should've been handling with all degrees of integrity and trust the hard earned monies of farmers and ranchers and others who depend on you to do the right thing. among you all, with no disrespect meant, and ms. edith o'brien, who was conspicuous in her absence, it seems that there has been a great effort to maintain plausible deniability. that is certainly the impression
6:32 pm
that one is left with. ms. laurie ferber, in your written statement, you note that as of wednesday, october 28, he received a call from a representative. the sec informed you that they wanted to meet the next day to discuss issues including liquidity and funding. the tsetse would also look into segregated funds calculations. now, that presumably would've triggered a question -- again, you are a highly capable person did you are an attorney. given that trigger a question in your mind as to whether or not there was actually a problem with the segregated funds a mac. >> we would make sure that we had the right people there to discuss the status of the
6:33 pm
segregated funds. that is exactly what we did. assemble for a detailed meeting with the cftc. >> but you did not inform -- some did not inform the regulators as far as i can tell -- of the deficiency, the shortage is until early monday morning. >> there was no regulatory deficiency that i was aware of until that sunday evening. >> it sounds as though there was an insufficient level of communication between your department and yours, ms. serwinski. is that fair to say in the heat of everything that is going on? i would think that the top level at a firm like this, which is clearly falling down around your ears, you said you are heavily
6:34 pm
involved in trying to sell mf global. would that not too an outside observers suggest that you were endeavoring as vigorously as you could to make sure that the potential buyers for mf global were not alarmed by what would've been an overt violation of everything a firm like mf global should be doing on behalf of their customers and, indeed, the law itself. >> i was never aware during the period you are describing or any time on sunday night or monday morning that there were issues regarding the segregated funds. i made it very clear i was making sure that we were frequently updating the regulators. i included finance and treasury colleagues in their updates. we all know that the cme was in our offices through the weekend.
6:35 pm
every effort -- in terms of myself and everybody i encountered, to be very [inaudible] with the regulators. >> ms. serwinski, in your absence, were you out of the united states when these things were turning? >> no, i was not -- >> certainly it seems to me that again, if you were trying to stave off the inevitable. when someone new, and someone had to know, jon corzine elise had to know. wouldn't it have been in the company's best interest in terms of trying to salvage itself in the sale that they keep as many of you silent as possible, so to speak? it sounds like there is a profound failure of communication within the company itself that you guys don't know what happened and you are in this position now.
6:36 pm
>> should the american consumer and investor, should our armors and ranchers, be concerned that there are other firms like mf global that operate in the same way? >> does your experience of mf global lead you to express any concern in that regard? should be be worried, mr. steenkamp? >> i think that once we actually know what happens, then we can take action. >> mr. chairman, i yield back. >> i think the chairwoman. sir, you're recognized for five minutes. >> mr. steenkamp, i'm going to go back to internal controls. we may not know the specifics. but would you agree, you are a
6:37 pm
cpa, i understand internal controls. but there would have to be a breakdown in internal controls. would you admit that? it is an important question. yes or no. >> any time you have lots of money and you have a situation like this, there has to be a breakdown into a internal controls? >> i do not disagree that something went wrong -- >> and it was part of the internal controls because internal controls is how you stop this from occurring, wouldn't you agree? >> that could potentially have been. >> i'm going to go back to some of the questions that ms. waters asked. price waterhouse identified the management override of internal controls is a risk at mf global in their audit work papers produced in 2011. are you aware of that?
6:38 pm
>> i cannot specifically recall that. >> you are the cfo of the company. i actually have the work paper here that shows that they identified -- you are the cfo of the company and you were not aware of that there was significant concern because of the override of internal controls? >> served -- >> there are hundreds of controls that are operated in the firm -- >> this is a significant one. >> we asked for certain documents to be given just ahead of us. >> i think most of the colleagues here are having -- mf global's cfo jon corzine said that he actively managed the
6:39 pm
sovereign debt to the maturity portfolio. with hands-on action by the ceo -- wouldn't it be something they were cautioning? wasn't this what they were talking about? >> again, i am not sure if that was controlled for mf global or what was referring to -- just as a general point, i would say that anything -- any action jon corzine in the framework -- >> if you can do anything he wants and nobody can stop him, that is not very good internal control. he could override everybody except the board? would you agree that is the case? >> i have no memory of any comment like that off the top of my head. >> he did testify that. were you aware that he could make any decisions he wanted and the only person that could
6:40 pm
override it -- it is an internal control feature. you are the cfo. it is shocking that you are sitting here -- >> i'm not aware of the control. >> you are not aware of internal controls like that? >> i am not aware he could override any actions, sir? wouldn't have the breakdown is a cpa, wouldn't that be a breakdown of internal control if the ceo could actually make decisions like that without anyone house overwriting it? forget about mf global. any company. >> i agree with you. there could be mitigating controls in place. >> you answered the question asked, then you started talking again. he did answer that would be a problem in internal controls, is that correct? >> if that is the control --
6:41 pm
>> like i said, it doesn't matter what company. on october 22, in an e-mail to credit rating movies, you said that mf global has never been stronger and it is in strongest position ever for public entity. how could this be when one week later they filed for chapter 11 bankruptcy. >> that e-mail and that comment was made very early on monday morning on the 24th. it talked about the liquidity and the capital -- >> you are the cfo of the company. it is really shocking. i have been a businessman my whole life. i could never answer the questions the way you are entering them. were not talking about liquidity. we are talking about the strong corporate position. a strong company that files for bankruptcy a week later? >> that comment was made for any of the downgraded to place. it reflected a cash position
6:42 pm
that we had completed in august with that cash still in hand -- >> this is in october. october 22. again, it amazes me as a cfo of any company that i would not know that we are in trouble in the position you are in. i'm sorry, but again -- i'm a cpa. i have audited major global companies. i am totally shocked that you would sit here and say that you believe it was in the strongest position it could be a week before it filed bankruptcy. >> that was in regards to any downgrades -- >> you should know, you were in charge of the company. i'm running out of time. i yield back to. >> i thank the gentleman. now, mr. canseco from texas is recognized. >> mr. three. let me back up a little bit and follow up on some questions that mr. fitzpatrick asked you. this is regarding the october 28
6:43 pm
j.p. morgan request to mf global to certify and confirm funds being sent from mf global to j.p. morgan were not customer assets. now, how many iterations of these letters did you get? >> three. >> and why? >> when i was first asked to take a look at the certificate, i was also asked to call j.p. morgan, understand what they were focused on, and if it was appropriate, get them what they needed. in that first call with j.p. morgan, they indicated very specifically the two related transfers they were focused on. and that is what they were seeking assurances on. as i try tried to explain, the certificate was extraordinarily broad. it was not something any one individual could quickly signed.
6:44 pm
>> so is it your opinion that it was too broad and could not be signed. did you discuss with anybody else? >> it was too broad to quickly address what they needed, and they were very clear that what they needed was relating to two transactions. >> did you speak to any doubt those letters? >> i spoke to edith o'brien -- actually about the transfers that j.p. morgan was focused on. she provided me with copies of the transaction report on those two transfers. they matched what j.p. morgan had described to me. again, my clear understanding was that if the compliance certificate was limited to those two transactions or transfers, she would be able to sign it. >> right. but did she express you any concern about whether she should sign it or not? >> not if it related to those two transfers. >> were there any other
6:45 pm
transfers she was concerned about? >> we did not discuss any others. again, the compliance certificate asked for one individual to say that everything that has ever been done in those accounts since the beginning of time was in compliance. again, j.p. morgan needed comfort. let's get them comfort that was appropriate -- >> did she ultimately signed that she -- did she sign those letters? >> as i understand, she did not. >> did you ever talk to jon corzine about these letters? >> only when he asked me to take a look at it. he may have asked me if i call j.p. morgan. that was our only conversation about it. >> why would mf global not be able to certify as edith o'brien did not, but the firm had not used customer funds on october 28 and would not use them in the future?
6:46 pm
>> actually, the certification was a bit broader than that. it was every transfer that was in compliance with any cftc rules. i would certainly expect that we would be able to make that with time. somebody would have to go back and make reasonable in worry and should be able to make that representation. >> pardon me for interrupting you. but aren't these forms that they sent out from j.p. morgan or any other house, aren't those normal forms? are those standard forms? >> i have never seen one before like that, brought like that, and certainly, in my general legal experience, asking someone to represent is in accordance with certain rules is not inappropriate -- >> would you not concerned about their concern? >> they did not express concern. they saw these transactions
6:47 pm
because of the size -- and because of certain compliance as they had in place because of their own history and experience , they were inquiring about those. they knew that the futures industry had great respect for them. she's the person i would rely on -- >> don't run the clock on me. i have very little time here. on sunday october 30, you were copied on an e-mail at 4:27 p.m., in which one employee asked another whether it was permissible to send the cftc a fund's statement that showed a 952 million-dollar deficiency. why would mf global employees hesitate to share information with the regulations -- with the regulator? >> i'm not aware that they would
6:48 pm
be hesitant. in fact, the cftc was in our offices here in new york. the cme was in chicago working with the people. this is the copulation, this is the time -- you would have some reasonable sign off and want people to know that. people said yes, then the report -- >> so you instructed employees to release the information? >> i did not. but if i recall correctly, if ira m. are calling the e-mail you're referring to, give it to them. >> before i run out of time, if i may have with mr. steenkamp, on what date the day or again to be -- what date were there a shortfall of mf global?
6:49 pm
>> sir, i have no memory of knowing if any shortfall prior to the sunday. on sunday we found that there was a shortfall. originally we had heard that the shortfall was for the friday. but it might've been for the thursday as well, or that might be an accounting error. at the time we were finding out, it was so unbelievable that there could be a shortfall that everyone was under the impression in the night that there was some accounting reconciliation that was not working and that was what was causing it. as you heard in the testimony, there was a big effort to work together to try and resolve -- >> but you are ultimately aware, especially with the trustees, that the shortfall begin on october 26. is that correct? >> i don't work for the trust -- >> are you aware of october 26 being aware of the shortfall? >> i've been reading in the
6:50 pm
papers -- >> are you aware were not aware of the 26th of october? mac from whatever source? >> is that correct? >> i don't have that knowledge. >> my time is way over. i thank the gentleman and the gentleman from california, mr. royce. you are recognized for five minutes. >> thank you, mr. chairman. his laurie ferber, did you have an opportunity to speak with gary gensler prior to declaring bankruptcy? >> no. >> in your opinion, were his priorities protecting customer
6:51 pm
funds, or making sure the company was sold to enter dealer broker's? >> my conversations with mr. gensler are related to topics. but he was very focused on the customer funds and he, along with his colleagues, wanted an update on where we were in conclusion. >> let me also ask you, to your knowledge, was mr. jon corzine in contact with mr. gary gensler prior to mf global declaring bankruptcy? >> i assume you're talking about in the last days? >> prior to bankruptcy. right. >> i am not aware that they had any discussions. >> so there was not any conversation jon corzine had with you about his conversations with gary gensler?
6:52 pm
>> that is correct, sir. that is my recollection. mr. gensler may or may not have been -- i'm not sure. there was a call at two clock on saturday afternoon with many regulators. i do not know if mr. gensler was on a call. >> let me ask you another question. if we go back to june of 2011, there was concern about mf global and they're dead of scripture -- they're dead exposure exposure on that? >> over a period of time, probably starting in june, or early july, there were
6:53 pm
conversations as far as the firm about their view of the appropriate capital treatment for their positions. those conversations ultimately led to their determination, i believe, quite late in august of 2011. a different capital treatment was appropriate. >> let me ask you this. did jon corzine -- he apparently didn't because he flew to dc to meet with the sbc -- sec to overrule. correct? >> mike thompson council, -- my accounting councils all disagree with the rules as they were
6:54 pm
written. yes, the firm did make a determination. to some extent, it was discussed with outside counsel. there should be a meeting with directly the sec on something so important. >> let me go to another question, which is interesting. ms. jon serwinski indicated thae would not approve the transaction on october 28 to approve the overdraft. do you remember that? >> and do you find it interesting that mf global went past the same capital requirements that jon corzine lobbied for?
6:55 pm
>> if i recall serwinski's testimony, it is basically the same fact. if there was a concern that violated certain rules, she would not approve a transaction. i am not sure that it violated the same rules that jon corzine lobbied against. i need a little help understanding the question. i'm glad to address it. >> my time is expired. but i want to thank you for your testimony here today. i appreciate it. >> i think the gentleman. we are going to have some follow up here. what i want to do because i think we danced around this issue, this is a glass of water, and i hope you can see that black line. can you all see the black wind
6:56 pm
their? this is the segregated account. the segregated account, all of the water below the line belongs to the customers. all of the water above the line -- that is a legal for in common practice for the company to keep excess company funds and the segregated account. is that correct? >> you would sometimes have company funds and company money in the client funds in the same account? correct? >> this black line is what it would take to get the customer are being over john. -- you take some of the companies money back and as long as you are at the line, you are in compliance. is that correct? >> yes. >> when you do this, are you in
6:57 pm
compliance? >> no. the only way customers can lose money is when you take their money and to put it in the companies money or somewhere else. is that right? >> what you are supposed to do is when you take money out and borrow it, -- technically it has collateral in it. now we have that clear. everybody understands that money was lost because money was taken out of that segregated account that long to farmers and ranchers and investors. does anybody disagree with that? that is the only way he can do that. how else does is the money get out if you don't take it out? this is not rocket science, folks. >> ms. steenkamp -- mr. steenkamp, can you tell us other ways that money can be
6:58 pm
lost other than by taking in our? >> the other way they could lose is by losing money on their trades. >> but the customer's account would go down -- mr. steenkamp, i want to go back to something that is -- are you familiar with mr. roseman and mr. stockman? >> yes, they were the cheap -- >> were you aware that they made recommendations that the repos to maturities in the foreign sovereign debt were potential risks to the company? >> i became cfo in april, so what i was aware was there were numerous and many discussions between the board and jon corzine and the chief officer and a board meeting to risk
6:59 pm
limits. >> are you aware of a document called break the glass that was prepared by your firm? >> [inaudible] >> there was a working group put together in the firm. they were members of treasury, members of finance, members of risk. treasury operations. that was a scenario -- straight scenario of this document, sort will ride the input -- >> did you participate in the? >> yes, i did. >> did you put the document together? >> the original request was made in august by the board. >> it was completed in? >> it was presented to the board sometime around middle october. .. ..
7:00 pm
>> yes or no? yes or no? >> sir, i'm not an expert on that to be able to know whether there is -- >> i'm not -- i'm just -- i'm not talking about what happened. i just want to get some definitive answer here. under the way that the law operates, the only way someone can lose money is from a
7:01 pm
customer other than his net position is that money is taken out of an account that shouldn't have been taken out. yes or no? >> sir, i don't have enough knowledge to answer that. i mean, -- >> i'm appalled you can't answer a simple question like that 6789 i think you're not being honest with this panel. do you agree with the analogy that the only way the customers' net of positions lose money is taking money out of thing the and not put it back? >> there is a permissible secured calculation -- >> has to be -- have to be -- there would be collateral in that other glsh the secured rules allow and permit if a client gave the firm $100 under the secured rules, there is an al alternative method available that can require less than that $100 be required to be maintained in the securitied
7:02 pm
environment. >> but if we're -- i'm not talking about secure, but if this was the money that belonged to customers, and you poured it out all, that's the way you lose money; right? >> i'm -- i -- yeah, yeah. >> yes. okay. thank you. >> i think that's correct. >> this is the way you lose money for customers; correct? taking money out that shouldn't have been taken out. >> with exception to what was described, you have an obligation to return funds. i agree with you, yes, sir. >> exactly. what happened on when they declared bankruptcy was nobody put the money back, did they? >> not to my knowledge. >> yeah. >> any members that want to have a follow-up with this panel? yeah.
7:03 pm
>> i'm sorry, i was looking through my papers, and i don't find your resumé. where did you get your education? >> i'm from south africa, and so i graduate degree and post graduate degree in accounting in johannesburg. >> accounting? >> correct. >> what's your grade point average more or less? >> it's different in south africa, it's percentages. my average was around 78%. >> how many hours offing thing did you have -- of accounting did you have? >> i don't know off the top of my head. it's three years, graduate, and then one year post graduate. >> just trying to establish you remember things in the past, but you don't remember some real, real, real big significant things from less than six months ago. trying to bring that to the attention of the public who is watching today because they're
7:04 pm
wondering who the hell is in charge of all of these companies up here. ms. serwinski, when we have an overage, when we've taken -- dipped into segregated funds like the water poured out of that glass, and it's not secured, do you have to -- was there a requirement to notify someone? >> yes, there is -- >> who would have to be notified? >> the regulators would all have to be notified immediately. >> nobody inside the institution? >> they would be notified, but it's not -- i mean, the requirement, the regulatory requirement is that you -- >> i mean, but you didn't have an internal process that says, oh, we just messed up here, let's say we don't do it again, and the assistant treasurer could have made those calls. you got a couple people, and maybe they've authorized the dipping into those funds out of that little paper, and out of
7:05 pm
that little plastic glass. who would they have to notify? who just poured the funds out here? >> there would have been a process whereby the situation would have been escalated to, at the very least, our stocks committee, to rectify whatever contributing factors existed that led to -- >> so there's somebody to notify? >> yes. >> yeah, so you had a process. >> you're right. >> okay, so we dip into those funds, and we securetize them, return them by the end of the day, balance accounts, and all of that jazz, and we didn't do that, and so at what level does it -- did you ever discuss at what level it should go?
7:06 pm
i mean, these guys are the umbrella, and so if we're doing things that take people's money away from them without losing it, if you lose it fair and square, that's fine, but if the shepherd takes the wool off the sheep and sells it on the side so at what level should you have notified, should -- not you because you're out, and i understand, but at what level should they have been notified because now we're dealing with answers we have to deal with someday. surely you discussed that. is there a level? >> once the numbers were determined to be a true deficit, i believe they were informed. >> say that again. >> once it was confirmed that $900 million was true and in fact -- >> $900 the threshold or $100 million >> >> $1 would have been the threshold, sir. >> you got back an thursday, and
7:07 pm
nobody been notifying anybody, and everybody just said okay, mr. steenkamp said he didn't much care that they were doing that. i mean, surely there was some sequence that somebody was supposed to say the place is on fire. mr. ferber, that never rose to your attention? that was never really your concern. at what point would you be concerned with missing customer accounts? >> i would be concerned with any missing customer funds. >> okay. she says that we have dipped in and maybe don't have it collateralized, and that was on wednesday or thursday. wednesday or thursday it really became evident. >> excuse me, sir -- >> i don't believe i said that. the firm was in regulatory compliance on wednesday. >> you're saying we did it all saturday night?
7:08 pm
all saturday? there's no build up over time? >> no, what i'm saying, sir, is that the firm was in regulatory compliance with the excess, segregated, and secured rules until i was aware sunday night we were not in compliance at the close of business friday. >> so you think the entire billion went in one day. okay, thanks, mr. chairman. i yield back. >> thank you. any other members? >> yeah. >> it'll be the last one. >> thank you, mr. chairman. ms. ferber, i appreciate you actually trying to help us unravel this. you are the only ones answered questions beyond yes or no or mostly i don't knows. we appreciate your willingness to not dodge questions. mr. steenkamp, is it your duty to make assets available for trustee free? >> yes, i -- >> the answer's yes. is it for the benefit of
7:09 pm
customers? >> i'm not an expert in bankruptcy. >> go to the creditors and mfg holdings such as -- >> sir, -- >> you don't know that either. okay. so you wouldn't know if any of the assets has a pool of assets available to pay back customers? >> sir, that's for the trustee to determine. >> you have no idea? you absolutely have no idea. under oath you have no idea what i'm talking about? >> sir, i believe chapter 11 trustee is of the holding company, so it works with the creditors, but, you know, i'm not sure how that process works around allocating assets around the firm. >> recently propose paying you and others substantial bonuses for helping recover assets? >> sir, there's been one discussion, but no bonuses had been proposed as of yet or been finalized. >> now, do you believe you
7:10 pm
deserve a bonus? >> sir, i believe for all the hard work we're doing, we're just asking to be fairly compensated. we are not part of the discussion whether that includes bonuses or not. >> fairly compensated in the future, but not decompensated for the huge losses you may have been comparable in. will you accept bonuses if the motion's approved by the bankruptcy court? >> first, if the trustee determines that's fair and reasonable company sages -- >> because you are broken hearted by the loss sufferedded by the investors. how will the customers feel about the idea of using money that could be use the to reimburse them stolen from their accounts under the watch of you and others to pay for the bonus and legal fees at the very people running the companies that lewded the accounts. >> sir, the customers want all their money returned. >> are you familiar with the principle called willful
7:11 pm
blindness? it's a term used when an individual seeks to avoid similar criminal liability by putting himself in a position claiming to be unaware of facts rendering him liable. >> i mean, i'm not specifically aware of that, no. >> any idea whether that applies in this case or not? >> well, i would assume if one takes the fifth, for example, that's something one's concerned about. >> okay. ms. ferber, who was involved in the decision to put mf global into liquidation? >> first, let me say, we had bankruptcies -- >> anyone from the fcc, cftc, creditors or trading couldn't parts? >> the fcc would have been involved only one can want file
7:12 pm
themselves. i believe it's the fcc that has to make that application or do that. i also, obviously, there was a period of time overnight where the regulators were deep in conversations among themselves. >> was mr. cook and fcc involved? >> he was one who organized the conference call where we were asked to notify the regulators early on the morning of the 31 #st. >> all right. who was involved in placing mfgh, the holding company, in chapter 11? >> the board made the determination that the company would file for bankruptcy. >> okay. the board and particularly anyone in particular in the board? >> no. directors. >> okay. i yield back. >> i thank the gentleman, and thank this panel, and at this time, you're dismissed, and we'll call up the second panel. thank you for coming.
7:13 pm
[inaudible conversations] >> i want to welcome the second panel, ms. genova, mr. roth, and ms. susan cosper, standards boards.
7:14 pm
remind each of you that your written statements will be a part of the record, and we ask you to summarize your testimony in five minutes. ms. genova, you're recognized. >> thank you. i'm dianne genova. i was one the jp morgan officials dealing with mf global over the weekend before it filed for bankruptcy protection on october 31st, 2001. i appreciate the opportunity to appear before the subcommittee to describe those events, and i'd also like to thank chairman baucus for noting our cooperation in appearing before this committee. as i'll describe in detail, we worked through the week of october 4th to accomplish two main goals. first, to provide first rate operational clearing and settlement support and services
7:15 pm
to mf global, and second, to ensure we did not wind up in a position where we had extended credit to mf global without proper collateral and security protections. to understand what we were trying to accomplish, let me describe briefly the banking services that jp morgan, along with other financial institutions, provided to mf global. these are fairly standard services that clearing banks typically provide to support the day-to-day future broker and dealer operations of firms like mf global. first, mf global maintained a large number of cash demand deposit accounts much like a retail checking account at jp morgan as well as other banks. second, mf global used jp morgan as well as bank of new york and other banks for clearing services. third, jp morgan served as the administrative agent for two credit facilities, one consistenting of 22 and one of
7:16 pm
ten banks that mf global had put in place. finally, mf global had entered into securities lending and repurchase arrangements with jp morgan, and these served as a financialing tool for mf global. as noted in my written statement, we worked hard to assist mf global, our client, when they began experiencing problems. these efforts, which would in turn benefit mf global's customers, included several actions. we sent a jp morgan team to mf global's offices on friday, october 28th, to assist mf global with the ongoing efforts to unwind its security lendings arrangements. by doing so, mf global was able to regain access to the securities it posted as collateral, and then sell securities to generate additional liquidity. jp morgan also facilitated an auction of $4.9 billion of
7:17 pm
securities held by mf global involving multiple market participants, another way to assist mf global to generate liquidity. we also agreed to provide same day liquidity for the auction sales acting as agent for mf global with respect to securities, custodied with jp morgan. this measure provided mf global with liquidity on the fastest, possible basis, far faster than the typical one to two day business days for regular settlement for such securities trades. since the bankruptcy, jp morgan assisted with staff. among other items, we shared the perspective on the events surrounding overdrats they had in london and the questions we asked mf global to make sure customer segregated funds were not used to satisfy those
7:18 pm
overdrafts. in my written submission, i explain the principle point of contact between mf global and jp morgan. i also discuss 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 segregation obligations. briefly, i took the lead in reaching out to laurie ferber and the deputy general council and received assurances from both of them that mf global understand the customer segregation rules and complied with them. over the course of our conversations, we discussed the contents of a letter we asked to confirm mf global's come license -- compliance with the segregation rules. as you heard ms. ferber testify earlier today, she and her deputy raised concerns about the scope of our proposed letter.
7:19 pm
we narrowed the letter as they requested. as ms. ferber also confirmed earlier during this hearing, we were told the narrowed version of the letter would be signed. although the letter ultimately was not signed that weekend before mf global filed for bankruptcy, we believe we have been given clear and credible assurances that the transfers were lawful. i would like to thank the committee for the opportunity to share with you our perspective on this manner, and i'm happy to answer any questions you may have. >> thank you. mr. roth, you're recognized. >> thank you, mr. chairman. i'm dan roth, president of the national futures association. for the longest time, for decades and decades, the futures industry had an impeccable reputation, and a well-earned reputation for financial integrity. obviously, the events surrounding mf global dealt a blow to that reputation, and i think all of us involved in the
7:20 pm
regulatory process need to be thinking about the types of regulatory changes we can make to try to prevent this thing, this occurrence, from happening ever again. at nfa when we consider the types of changes we might implement, they fell 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 would implement through rule making, and a third category of changes that requires congressional or cftc action, and what i'd like to do today is describe for you where we are on each of the three categories and what the initial recommendations have been. with respect to the issues involving coordination with other self-regulatory bodies, those issues involve how we monitor firms for compliance with segregation requirements, and coordination with the other sro's is critical to us here. all are required dob members of
7:21 pm
the nfa, but where the designated self-regulatory organization only for those fcms not members of the exchanges. it's very important for us to work with exchanges to develop the changes. back in december, the chicago america tile exchange announced a change, and other apartments included the exchange members of nsa, kansas city board of trade, intercontinental exchange, and that group met for the last several months looking at what we do and how we do it and how we can do it better, and we've developed initial recommendations, reviewed those recommendations with other committees at nfa including the community and public directors, and several weeks ago announced four initial recommendations. these are just initial recommendations. more work to be done, but those four basically, number one to require all fcms to submit daily segregation reports with their
7:22 pm
designated self-regulatory organization. right now, that obviously gages extends only to fcms are members which we want to extend that to all fcms. if our experience, that's a useful risk management tool because you can see not just where the firm is on a given day, but spot trends and fluxuations and what seems unusual and catch attention and prompt further action. the second change that we're recommending has to do with what we call a segregation investment detailed report. currently, we get reports on a monthly basis from fcms in which these reports show how customer funds are invested and where they are held. we want to take that requirement, and, again, extend to all fcms and move reports from a monthly to a bimonthly basis. the third thing we want to do is perform more periodic spot checks for fcms compliance
7:23 pm
segregation requirements. each fcm audited twice a year, once by an outsiding thing firm, and we -- outside accounting firm, and we want to supplement those audits with periodic surprise visits to monitor compliance with various components of the segregation regime. the fourth rule that we're proposing has to do with accountability. we want to make sure that if a firm is drawing down, excess segregated funds, that if a firm makes in any given day, draws down by 25%, then two things have to happen. number one, a principle of the firm, such as the ceo or cfo has to sign off on those dispersements drawing down, and number two, there has to be immediate notification to the regulators. that will not only improve accountability and also give
7:24 pm
regulators important notification about potential problems to reagent, but it also -- react, but it also captures intraday transangsts. now we have just have the close of the previous day. if a firm were to wire funds out of segregation during the day and wire them back in by the end of the day, that will not be captured in the daily segregation reports, but would be under this rule. those are the four initial recommendations of the sro group. we -- i'll mention we have a special committee of the public directors looking at other issues. one of those is fcm disclosures to make it easier for customers, especially small customers to do due diligence on fcms. we want to identify that information most meaningful to customers without overwhelming them. we want -- it's information like the firm's capital requirement and excess capital, segregation requirement, and excess
7:25 pm
segregation, employees employed, hedge trading, identify pieces of information and require fcms to disclose that to nfa to put on its welcomes and make that available for -- website and make that available for customers to make it easier for them to do due diligence. these are initial recommendations. the committees continue to work. there's other issues to look at including possible changes to the bankruptcy code, and we look forward to working with the industry and the commission in congress to develop changes needed. thank you. >> thank you. ms. cosper, you are recognized for five minutes. >> i'm susan cosper, i oversee the staff work associated with the projects and the boards' technical agenda, and i want to thank you for the opportunity to participate in today's important
7:26 pm
hearing. i understand you want to me to explain, and i'll do my best to do so, but i have to give a brief overview of the manner in which accounting standards are developed. the fasbi is an independent and the securities and exchange commission. since 1973, established standards of financial accounting and reporting for public and private entities and non-for-profit organizations. those are recognized adds authoritative, generally accepted accounting principles by the fcc for public companies and the american institute of certified public accountants for other non-governmental entities. an independent standard fitting process is the best means of ensuring high quality accounting standards because it relies on the collective judgment and input of all interested parties through a thorough, open, and
7:27 pm
deliberative process. the processes are open, afford due process to all interested parties, and allows for extensive input from all stake holders. it's important to note they have standards, it doesn't enforce them. they have to comply with the standards, and they are charged with ensuring that auditors of public companies performed an audit. i'll try to explain how repurchase creams work and how they are treated under current accounting standards. in a typical repurchase agreement, a company, known as a transfer securities to a couldn't party, the transferee in exchange for cash for a simultaneous agreement for the counterparty to return the same or equivalent security at a fixed price or future date. the price paid includes an
7:28 pm
interest rate. the motivation for entities is finance related. current accounting guidance is in most agreements accounted for as secured borrowing. the guidance is based on the confidence that they maintain the control 69 security under most repurchase agreements since the transfer is temporary and because the transferor has to transfer the asset before maturity. another type of repurchase agreement, repossession before maturity with a separate agreement to repurchase this security. in these traction actions, the transferrer never gets back the transferred security. because the repurchased date is the same of the securities maturity date, the counterparty instead redeems the security and the transferrer pays the transeree the difference of the proceeds received and the agreed
7:29 pm
upon repurchase price. here, the transerrer does not have respective control over the security. i understand that a specific question is how loss and value and the underlying security would be accounted for if the repurchase agreement is considered a secured borrowing or sale. in a transfer of the securities that ising thed for the secured -- accounted for in the secured borrowing, the transerrer recognizes the cash as proceeds with the action swelt the liability of the obligation to return the cash to the transferee. it remains as an asset on the transfer's balance sheet and declines the value of the security reduces the company's overall net worth. in repossession of maturity, transactions accounted for, cash increased, the security is removed from the balance sheet, and a gain or loss is recognized. a forward repurchase commitment, a derivative, is also recognized in the financial statements.
7:30 pm
they have the credit risk associated with the securities. it's accounted for this, and finally, whether the transaction is a repossession or repossession to maturity, they are required to make disclosures about assets transferred including quantitative and qualitative can continuing involvement, the risks that is exposed to, and the amount recognized, and gains or losses on transferred assets. thank you again, and i would be pleased to answer any questions about the standards. >> thank you very much. >> thank you, i appreciate the opportunity. again, thank you, all, for coming today.
7:31 pm
i actually find this panel for tech technical and hopefully more enlightening. we'll fient -- find out. i want to start out by making clear what i think our role is or where i am at the moment. if there was a criminal activity, i just don't think that's congress' role to investigate criminal activity. expose it, but those who do a better job, do it. if that's the case, so be it, but, of course, i'm not aware anybody knows that or doesn't know that. there's two issues that i think this panel relates to both. two issues really come to my attention that raise sures questions, the salt segregated accounts, and rules, and, again, i want to distinguish the rules from the way if they might have been used improperly. that would be an inappropriate use of it, but the rules, even if they were applied properly, still raise questions to me, and i want to start with the rule, and to me it's mostly statement
7:32 pm
140, but reading the statement, there's other ways to refer to it and 860 and basically it's a repossession is booked as a sale, and that has been reported in the media whether it's appropriate or not. it's appropriate to the layman, not necessarily to the technician. that effectively takes it off the books, and it makes it look like the company is healthier than it is in any normal sense of the word because in my definition, reading the rules, it's not a sale. they still have control over it. they still get it back, and i understand that's the reasonable difference of opinion, but i wanted to make sure that -- not maketure, first of all, i want to ask reviewing current standards, not necessarily relating to mf global. i understand that's not your function. that's others' functions, but at least having now knowing where we are, being here today, knowing that this rule has had
7:33 pm
something to do with the concerns here, and knowing that it is subject to debate how it should be interpreted. i need to know whether it is in review, whether the rule is appropriate rule moving forward in order to provide true transparency and consistent application of whatever rule you come up with because thus far, the rule is applied inconsistently, not necessarily intentionally, but because it's a difficult rule with lots of subsets. i wanted to hear from you whether it is reviewing the current rules as you have them, and, again, not giving away what you may or may not do, but i have to know whether you are reviewing them with a thought of addressing them at some point. >> thank you. . we strive to improve accounting standards, and once we were aware there were concerns with repossession to maturities, we undertook an effort to understand what concerns were in
7:34 pm
the market place. we performed outreach to practitioners and users to understand what the concerns may be. that outreach did not identify issues with the rule or diversity in practice, however, there's been concerns because of the market practices that changed since the rule was originally put into place. that is originally repossession to maturities, securities transfers were high quality treasuries, and it's come to our attention that companies are now using riskier securities, so taking that information, we discussed that with the boshed. we are working at understanding whether there's changes to be made and/or enhance disclosures to be made. >> it's not the first rule,
7:35 pm
ongoing process, that's what we do with laws what you do with accounting rules, and in the normal course of events, what would you expect? just a ballpark idea of hoping it takes for you to conclude its review of this and decide whether to amend it or not amend it. how long do you think that might take? >> we expect to start discussing changes we may make next month, and we expect to issue a standard by the end of the year. >> end of the year? okay. thank you, appreciate it. just out of curiosity, if i had some money i was holding with you, would you let the chairman pick up the phone to you and say, hey, i want to use mike's money for a day or two, and i'll pay it back tomorrow. would you let him do that? he's a nice guy, and i trust him, but would you let him do that? [laughter] >> i'm not sure what the context is, but it doesn't sound like i would. >> good. i feel better you would not because i'm not aware any
7:36 pm
financial institution in the world lets that happen in any legal capacity; yet, we have co-mingle funds. it's kind of funny. i think they should be in politics whoever came up with the term. co-mingle termed called segregated accounts. it's the opposite of segregated. it's co-mingled, and under that responsibility from everything i read, how could you possibility know whose money is whose in a co-ming led account? >> the obligation to keep a minimum of client money in the account belongs to the fcm. they have the obligation to figure out what money is theres and what belongs to clients. >> it's a clarity. >> it would be mf global. >> that's what i thought. no way in the world if you knew they had an account of $100 or a $100 billion how much is
7:37 pm
customer money and how much is not customer money. >> that's correct. we would not have the information. >> you kind of have to trust the other guys? >> well, we know that they have a legal obligation to comply with the rules and they are regulated entities. >> okay. mr. roth, i will tell you that i've read your statement. i like some of the things you propose. i want to congratulate you for that. i guess i first ask because you're trying to address this very issue. i'll go further in a minute, but at least for the first question, are the other sros following your lead on the issue, reviewing the issue, and maybe making proposed changes how this gets done? >> >> the four recommendations are outlined by the sro committee as well as other exchanges we spoke to that were not on the committee as well as our fcm advisory committee we spoke to as well as public directors on the board, all supportive of the changes. can i just go back for a second? i don't want to use up your
7:38 pm
time. >> you can try. as long as the chairman is indulgent. >> i just want to point out that excess segregated funds are important for the protection of customers. there's multiple customers with money in the accounts. if one customer incurs substantial trading losses, that excess segregated fund is a way of making good that customers' short fall to protect all the other customers. >> yeah, i guess at some point somebody has to explain to me how using my money protects my money. today's not the day, and i guess the last question, way over time, but the last question, and i think i know the answer, but i'll ask anyone. why don't you just say stop co-mingling funds? if any of the companiesment to invest their own money, good luck. why the hell do they have to use my money? >> the reason we allow fcms to have their own funds in the
7:39 pm
segregated account is for precisely the reason i described which is to say to protect other customers. in the event of one customer incurring the trading loss, creating a short fall this that account -- >> how does this protect me if another customer loses their money, and unknown to me, somebody else uses my money to cover their loss. i didn't -- it was not my game. it's my money. i didn't play that game, and yet you take my money to protect another customer. >> no, sir. >> who lost the money because they gambled. >> no, sir. can i try to explain it? >> you can try. >> if there's an fcm with two customer, and each has $100 in the account so that the segregated required is $200. customer one loses not only all of his money, but a debit position. he's incurred, a $50 trading loss, in the hole $50. that account with $200 now that has $50. to protect that customer who didn't have that loss, that's
7:40 pm
why the firm has its own money in there. >> you didn't protect me. i didn't have the loss. you protected the guy -- >> no. >> i'm way over time. another day, mr. roth. i have yet to understand how me not gambling and protecting randy's gambling losses somehow helps me, and i -- i i'm willing to be educated. looking forward to education, but i got to tell you, it makes no sense to anybody else i know except, and, by the way, any place elsewhere people can pick up the phone and use other money at jp morgan? is this the only one or someplace else? >> i'm not aware of any other circumstances. >> okay. mr. roth, it's not the place. i'm way over. >> i want to visit with you sometime if possible. >> i'd like to, thank you. >> i'd just say one of the things, as you know, part of the goal of this committee is once we have completed our investigation and our oversight,
7:41 pm
we're going to publish a report that will be approved by the committee, and what we hope to accomplish by that once we ascertain the pitfalls, we want to work with everybody to come up with what are reasonable solutions, if there's holes in the current system to fill, and obviously, the mf global thing points out there are ways food that whether -- one the issues i think we have to make sure we address is if people -- if there's mall -- malfeasance there, you can pass all the rules and laws you want there, but that doesn't keep malfeasance from happening. we look forward to having the discussion. i yield to the gentleman from knocks for five -- new mexico for five minutes. >> thank you, for the record, i have not seen him gamble as way his life savings, but want to keep the good name of the chairman clear.
7:42 pm
the -- the -- mr. roth, would -- i mean, should there be a statement that warns him his money could be used to cover other people's losses? should that -- >> well, i think -- >> it was not in the suggestions, but -- >> there's fellow customer risk of loss, one of the things talked about in the segregated funds regimen, and that's a situation in which one customer incurs huge trading losses. the firm's own capital is not sufficient to make good those trading losses, and that can result in a short fall in which non-defaulting customers suffer. nothing to do with mf global as far as i know of. >> all customers know that? >> there's disclosures about that, but whether we need to -- i think it's an issue we can
7:43 pm
look at to see whether they can be made more clear. >> if it's something like the app disclosures, you know, read the things and say i agree, yeah, well -- >> it's not inflicting -- >> so -- >> i think that's an area ripe for studying. >> yeah. i mean, it ought to be in blinking lights, i mean, because there's people who lost $1.6 billion. >> excuse me, i'm sorry. that sort of fellow customer loss, risk much loss i talked about, as far as i know, had nothing to do with mf global. >> did mf global break laws in your opinion? well, i don't know the facts of the investigation. i know there's a short fall in customer funds, and that shouldn't happen. >> shouldn't happen. shouldn't be able to take that. do you have any of the trading firms dipping into the accounts to make things whole? >> we monitor firms on a daily basis. did special visits to the firms for which we're the dso back in
7:44 pm
december, confirmed all balances to outside sources. not aware of any other firm with a short fall in segregated -- >> were you monitoring m physical examination global? >> we were not the designated regulatory organization for mf global. >> what's others? >> there's around 75-80 -- >> don't list them here then. >> only customer funds that trade futures. we are the designated self-regulatory organization for about 26 of them. the other ones for the most part are the cme is the dsro. >> okay. ms. cosper, on your rules, now, so i've got the money, i get the money, and i buy us some security he asked me to buy. is that basically the initial transaction? >> well, base -- >> yeah, just trying to simplify it down so people like me can understand it. >> basically, congressman has a
7:45 pm
security which he -- >> yeah, we give him a piece of paper saying we bought this for you -- >> he transferred to you for cash. >> okay. and so the repossessioning the -- >> and at the same time enter into an agreement for the repurchase. >> takes that same security, puts it here, and borrows back against it; correct? >> that's correct. >> buy another security for someone else or ourselves so now then you did something with the money you got; right? >> not just in the bank -- >> they do something with the cash, but at the same time you enter into a forward purchase commitment. >> yeah, there's all sorts of legalities at the bottom of the day. itake my money he gives me, by a security, trade the security to someone else to get cash; right? i still have control over it, but i get cash; right? bring the cash back, and mf
7:46 pm
global was not sticking the money in the bank, not keeping it in jp morgan's bank, but doing something else with it; right? >> i can't comments to what they would have done with the cash. >> it's possible a repossession account to buy something else; right? >> use the cash however they'd like. >> okay. my question is is there a limit? you said that's all kosher from accounting standards; right? >> in a repossession to maturity transaction. >> yeah, it's kosher. a limit to the amount of times -- we get this security, trade it here, get money back and trade it. we could have 50-60rpas. is there a limit to where the accounting world says, that's confusing, maybe somebody has exposure here, and it's based on that one deal. do y'all ever -- is there a limit? >> that's a regulatory matter. we wouldn't be able to comment on if there's a limit. >> you as accountants don't think investors would have an
7:47 pm
opinion about that? >> however, the company that initially transfers the security is fully culpable. they recognize the liability. it hits their net worth. >> i know, back to the number of rpaas, and i think investors from an accounting stand point and i don't know much about anything really, just pigs growing up, but it seems like that's a significant thing for investors to know their money is being, rpa back and forth and back and forth. >> there's no doubt that this requires that the company that transfers security make diss
7:48 pm
close -- disclosures. >> time's over. ..
7:49 pm
>> as i previously mentioned, it is the obligation of the sem 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. normally, we do not ask questions about the account transfer. but in this case we did take the unusual step of asking questions. that was for two reasons. first, it has been my experience that when firms have had issues with clients -- with compliance with client segregation rules, it is often due to operational
7:50 pm
errors. those operational errors tend to occur under times of stress when there is a lot of trading and things going on in the company. given the situation that mf global, that was just something -- it gave me some pause. the second was that the funds were being -- who knew that the funds were going to ultimately be used to pay overdraft in an account with j.p. morgan. therefore, if there was an error, j.p. morgan would be the one and a the fitting from that error, and we did not want to benefit from an error. we thought it was prudent to seek assurances. >> is that why the first letter was written so broadly? >> the first letter was written probably because it was put together to get assurances. we had not thought it through completely as to what we really needed. >> then the subsequent letter
7:51 pm
satisfied their needs and desires, is that correct? >> yes. we revise the letter to reflect what we really wanted to no. >> and they ultimately sign and send it to you? >> no, they didn't. i personally had conversations with laurie ferber and her deputy, who gave me all 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 had concerns about, that, in fact, the letter would be signed. >> one more question. on october 29, mr. john jon corzine said that there was potential buyers of mf global. is that true? >> i know that there is
7:52 pm
discussion within j.p. morgan about evaluating whether pieces of mf global and their business might be attractive to us. after an evaluation, we decided that it really was not a good business fit. >> thank you. mr. roth, congress passed the dodd-frank belt using the logic of 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 fail to enforce the most basic of rules that monitor commodities accounts. in your opinion, how did the new rules and regulations written by the benefit producers in rural areas that rely on small local banks or credit? >> i believe the expression is above my pay grade.
7:53 pm
i tend to venture an answer, nonetheless. i can tell you that i have been an mfa for 29 years. i have been in the regulatory process for futures for a long time. i know that there is -- whenever bad things happen, there is a tendency to write new rules. that is sometimes very helpful. i think the rules we are proposing are very helpful rules. ultimately comes down to a matter of enforcement. i don't care what are the rules you have, ultimately, at the end of today, it is about enforcement. that is true in the future's regulations area, and it will be true in the swaps area as well. >> should the cftc focus efforts on writing new rules for do a better job enforcing and? >> i believe the way the statute is set up is the cftc is an oversight agency for the nfpa. >> thank you for your candor. i appreciate your questions, and i leaned back -- i yield back
7:54 pm
the balance of my time for any questions if there are any. >> i thank the gentleman. i just have a couple questions. mr. genova, this 175 million transactions has got a lot of scrutiny. a lot of that precipitated from calling mr. jon corzine directed would that be a normal call that the ceo of the company -- and would you call the treasure? what was significant about mr. corzine being called and being informed he was over john? >> i think in the context, this would be -- the company had just been downgraded to junk.
7:55 pm
mr. zuber would have concerns about his company. it would be his normal practice, such as an overdraft in town. to call the most senior person than he knew. this would be something that isn't ordinary sap that was in some distress. >> was about this time you dispatch your team to go over and have a presence? refresh my memory. when did you all dispatch your team to go over to mf global? >> we went to mf global on friday, october 28. it was to help them and see if we could do things for them to help raise liquidity. >> what they? >> friday, october 28. >> is that the same day they
7:56 pm
covered the overdraft? >> that is the same day that they covered the overdraft, just. >> yes. >> one of the things you said he said was that the alert was placed on this company. so someone was approving this transfers in j.p. morgan? >> i would just like to clarify what debit alert means. because of concerns about the company and their financial condition, we would not transfer funds out of the account unless there were funds in the account. the more normal course is to facilitate on transactions, we would transfer funds that are really there, in a sense, creating an overdraft. basically, the debit alert means
7:57 pm
no overdraft. but it does not mean that we approve each transaction. if there is money in the account and the client asks us to move the money, we execute the client instructions. >> you can't put them on cod, you had to have the cash on demand. >> yes. >> mr. rob, i used an analogy. about how customer funds went missing -- this bottle was full in the water below this blog to the customers, water below that we poured into that class. that is the way customer funds go missing. except that if some of the money -- some of the people and their money in the account had big losses. do you have any reason to believe that there were significant customer losses that precipitated the fact that the
7:58 pm
farmers and ranchers bottle is empty now? >> my knowledge is based on what i read in the press. i do not have any reason to believe that issue is involved in this case. >> the way that money went missing is that people took out money that should've been taken now? >> as far as i can make out, yes. >> i want to think this panel. i want to thank the previous panel. this is an important hearing. it is important not only to the people that lost money in mf global, it is also extremely important to the marketplace moving forward. mr. rock would probably agree with me. we need to make sure that people have the competence that when they do business with these firms that their money -- the only risk they are taking as their own risk and not taking the firms risk as well. i will close by saying that we will keep the record open for additional days.
7:59 pm
some of my colleagues may have additional questions for the panel. your replies to that will then be made a part of the permanent record. with that, we are adjourned. [inaudible conversations] >> are special booktv programming continues over the next several hours as we focus on the lives of william at buckley and pat buchanan and ronald reagan. up next, timothy stanley. in about two hours,


info Stream Only

Uploaded by TV Archive on