On Dec. 8, five weeks after MF Global filed for bankruptcy, former MF Global Chairman and CEO Jon Corzine came before the House Agriculture Committee to tell them he was "stunned" to discover on Oct. 30 that there was a shortfall in MF Global customer-segregated funds.
Corzine’s testimony broke a long silence — he resigned days after the filing — but didn’t offer many answers to the thousands of customers whose lives had been turned upside down five weeks prior. Not that many of the members of the committee knew what questions to ask. They did know one: Did you move customer money? Corzine said "[there was] no intention to ever authorize the transfer of customer funds."
Asked the question in numerous ways, his response was basically the same each time: There was never any "intentional comingling of funds," leaving the option that funds may have inadvertently been moved into a house account.
More revealing was testimony from CME Group Executive Chairman Terry Duffy who stated, "At about 2:00 a.m. Monday (Oct.31), MF Global informed the CFTC and CME that customer money had been transferred out of segregation to firm accounts."
While stories citing unnamed sources claimed MF Global comingled customer funds with the firm’s capital and a curt release by CME Group on Nov. 2 hinted at the firm’s wrongdoing, this was the first clear statement of it. It had for more than five weeks been an official mystery. And the mystery was growing as three weeks into the process, Nov. 21, the liquidation trustee, James W. Giddens, doubled what had been a firm estimate of the shortfall. After weeks of work and sporadic communication less was known, except that the shortfall could be $1.2 billion or more instead of $633 million.
Another revelation at the day’s testimony was acknowledgement by the trustee of the rights of customers. Trustee counsel James Kobak, citing bankruptcy law on customer-segregated funds said, "It is crystal clear. I don’t think it is just a priority; it really says customers have exclusive right to these funds."
Up to this point, trustee pronouncements of a claims process had frustrated customers and their representatives who believed customers’ interests were not being defended and the trustee did not understand the meaning of segregated customer funds.
This was a good day for MF Global customers and if not the end, the end of the beginning.