Is MF Global’s Mystery Solved?
After weeks of allegedly not knowing where the missing MF Global’s customer funds stood, the mystery may have been resolved this past week.
Ex-CEO Jon Corzine started the week by appearing in front of the Senate Agriculture Committee on Tuesday. In the previous week at the House Agriculture Committee, Corzine maintained that he didn’t know where the missing $1.2 billion of customer funds was. He reiterated this on Tuesday and added, “I never gave any instruction to misuse customer funds.”
The star of Tuesday’s hearing was CME Group Inc. (NASDAQ:CME) Executive Chairman Terrence Duffy. Testifying as MF Global’s regulator and exchange, Duffy said the information would show that Corzine knew about the missing customer funds and the alleged improper transfers.
Duffy, who was also scheduled to appear before the House Financial Services Committee on Thursday, used his testimony to contradict Corzine.
Duffy stated that Corzine was aware of what was happening with the money and said, “A CME auditor also participated in a phone call with senior MF Global employees wherein one employee indicated that Mr. Corzine knew about loans that had been made from the customer segregated accounts. CME Group has provided this information and the names of these individuals to the Department of Justice and the CFTC who are investigating these matters.”
The committee was not pleased by the news.
CFTC Finds the Money
On Wednesday, the Commodities Futures Trading Commission (CFTC) said the missing customer funds had been found.
Jill Sommers, who leads the CFTC investigation of MF Global, said in a Reuters article that regulators “are far enough along the trail” that they now know where the missing money went. She added, “Now it’s just finding out which ones of those transactions are legitimate and which ones of them are illegitimate.”
By Thursday night, the auditor noted by Duffy had been outed.
Meet Director of Audits Mike Procajlo. Procajlo did not speak with the media and a CME spokesperson would not comment on a corporate timeline containing information about the missing funds.
Through the CME timeline for the House Financial Services Committee, the exchange painted the following picture including Procajlo.
Prior to the firm’s implosion, MF Global officials were adamant that the missing customer funds were an accounting error because it was “too big to be anything else.”
On the day of the firm’s bankruptcy, early on October 31, the MF Global executives told Procajlo the customer fund shortage was real with almost $700 million going to the broker-dealer side for liquidity problems due to transactions, possibly beginning from October 26.
In addition, Procajlo was also told by MF that a $175 million segregated fund loan went to the firm’s U.K. office.
According to Reuters, Procajlo was involved in an early conference call with senior MF Global staff on October 31, “wherein one employee indicated that Corzine knew about loans that had been made from the customer segregated accounts.”
A few hours later, the firm declared bankruptcy.
Corzine answered to the timeline and its allegations by informing the House Financial Services oversight subcommittee on Thursday that he was unaware of the improper use of customer funds.
The ex-CEO reiterated, “Let me be clear. I did not instruct anyone to lend customer funds to MF Global or any of its affiliates, nor was I told that anyone had done so.”