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MF Global: A search for answers and millions of dollars

Star Tribune

December 13, 2011

Article by: Jim Spencer

As an auditor raises questions about who knew what and when at MF Global, farmers want to know where their money went.

WASHINGTON - Former MF Global CEO Jon Corzine knew of loans made from supposedly segregated customer accounts days before Corzine says he found out, the head of the group that audited the bankrupt brokerage alleged Tuesday.

Terrence Duffy, executive chairman of CME Group, told a Senate hearing that an MF Global staffer told one of his employees that Corzine knew $175 million the firm loaned to a European affiliate came from segregated customer accounts.

Duffy said CME Group provided the information to the Department of Justice, which is pursuing a criminal investigation into the eighth-largest bankruptcy in U.S. history.

Corzine has twice testified under oath that he was not aware customer funds were missing until Oct. 30, just before the firm's collapse.

"You sort of tossed a bomb here," Sen. Pat Roberts, R-Kan., the ranking member of the Senate Agriculture Committee, told Duffy.

The collapse of MF Global has become a topic of intense interest in Congress, where multiple committees are looking into what happened to customers' money, a big piece of it from Midwestern farmers who used MF Global for options and futures accounts. At least $1.2 billion in customer funds is missing.

Corzine, a former U.S. senator and governor from New Jersey, continued to insist Tuesday that he never authorized the misuse of customer funds. He told the senators that he doesn't believe anyone "could construe anything I said as an authorization."

Among those who are missing money is Minnesota farmer Dean Tofteland. He didn't mince words about what he thinks happened to $253,000 he had deposited in his futures and options account at the bankrupt brokerage.

"Commingling money is stealing money," Tofteland told members of the Agriculture Committee earlier in the day.

Tofteland, who raises wheat, corn and pigs in Luverne, stressed his sense of betrayal as he waits to see if he will recover the $253,000, plus another $100,000 he lost when he was forced to liquidate hedges held at MF Global.

"These funds were not an investment in MF Global," Tofteland told committee members, including Sen. Amy Klobuchar, the Minnesota Democrat who invited him to testify. "These funds were not a loan to MF Global. These funds were simply collateral required by the exchange as a guarantee for my promise to deliver the bushels that I priced."

Four panels in the Senate and House have subpoenaed Corzine to testify under oath about what happened at MF Global. Most of the questions surround $1.2 billion from customers like Tofteland, whose funds were supposedly segregated from other money MF Global invested.

As he did last week in the House hearing, Corzine offered no explanation of where the missing money went. Nor did Bradley Abelow, MF Global's president and chief operating officer, or Henri Steenkamp, the chief financial officer of MF Global Holdings Ltd. Both appeared with Corzine before the Senate panel.

Several senators grew openly frustrated with the trio's inability to answer questions or to give the names of individuals who could.

"How many heads do we have to have until we find someone who knows what went on?" Roberts, his voice rising almost to an angry shout.

Later, Roberts called the executives' attempts to deflect responsibility "ridiculous."

Customer funds in 36,000 MF Global accounts have been affected by the bankruptcy. Collectively, hundreds of Minnesota farmers and grain elevator operators saw millions of dollars' worth of accounts frozen. Many have not gotten all of their money back.

'Establishing a record'

Klobuchar pressed Corzine on the fact that in the hours before MF Global filed for bankruptcy Corzine not only discovered that $900 million was missing from customer accounts, but was also told someone had transferred the money to the broker-dealer side of MF Global. Such a transfer could violate trading rules, if not the law.

The first priority is to find the missing money and get it back to farmers like Tofteland, Klobuchar said. At this point the bankruptcy court has approved distributions that total roughly 72 cents on the dollar, but few customers have actually gotten checks for that amount.

The second priority, Klobuchar said, is to get the major players to explain under oath what they knew and when they knew it. "What we're doing is establishing a record" for civil or criminal cases, said Klobuchar, a former prosecutor.

Tofteland said he felt like a guy who dropped off his pick-up truck at a car dealership for an oil change and returned to find it had been put up for sale because the dealership hadn't been paying its bills.

"The real question is what happened to the money," Tofteland said. "The bank knows if one penny is missing in my checking account. Someone knows what happened. If there's a debit, where's the credit?"

The Minnesota farmer also spoke of the importance of holding those who broke the laws accountable. He used the analogy of electrifying a fence to hold cattle in place.

"If there was some wrongdoing," he said. "We need to put a little charge in the fence."