The investigation into the collapse of MF Global and its estimated $1.2 billion shortfall has narrowed to a key question: Were any transfers of customer money the firm conducted in its waning days legitimate?
The main U.S. regulator of the brokerage knows where the missing money went and now is trying to determine if the transfers were proper, a top official told the Reuters news agency Wednesday.
Jill Sommers, a member of the Commodity Futures Trading Commission who is heading the agency’s probe, told Reuters, “We are far enough along the trail that we know where all the money went.”
She also was reported to say, “We certainly don’t want anyone to believe that we don’t know what happened. We do know, and we see where all the transactions went.”
Her comments came one day after surprise testimony from the executive chairman of CME Group Inc. provided evidence that Jon Corzine, former MF Global chairman, knew about the transfers from customer accounts. In his own testimony, Corzine has denied ordering anyone to “misuse” customer money.
The CFTC and Chicago-based CME, owner of the financial exchanges where most MF Global trading took place, have been criticized for allegedly lax oversight of the brokerage, which filed for bankruptcy after risking $6.3 billion on European debt. CME, owner of the Chicago Mercantile Exchange and the Chicago Board of Trade, has said MF Global deceived both it and the CFTC and violated rules by moving customer funds to company accounts.
In testimony before the Senate Agriculture Committee on Tuesday, CME Executive Chairman Terrence Duffy said he had information that Corzine knew of a $175 million transfer from customer accounts. But the story was murky and might not contradict Corzine’s own statements.
Duffy said his information came from a CME lawyer who spoke with a CME auditor on the MF Global case. The auditor reported a phone conversation with MF Global executives the day of the bankruptcy filing Oct. 31.
In that talk, “one employee indicated that Mr. Corzine knew about the loans that it had made for the customer – from the customer segregated accounts,” Duffy said.
The Corzine reference caused a stir at the hearing. But Corzine has said he became aware of transfers from customer accounts Sunday, Oct. 30, while insisting he did not authorize them.
The CFTC and CME have portrayed themselves as on top of the investigation. They’ve also tried to downplay the potential shortfall.
James Giddens, the trustee in the bankruptcy, issued the $1.2 billion estimate, saying it may be too low. The CFTC has estimated a $600 million shortfall, and CME has indicated it’s more comfortable with the federal agency’s figure.
The federal agency and the exchange owner long have had close ties. Sommers used to be a Washington lobbyist for CME.
Giddens reiterated his shortfall estimate in testimony to the Senate Agriculture Committee on Tuesday. “No matter the exact amount of the shortfall, however, its probable size is significant and will substantially affect my ability to make a 100 percent distribution to former MF Global Inc. customers,” he said.