(Bloomberg News) MF Global Holdings Ltd. Chief Executive Officer Jon Corzine knew that the company made a loan out of segregated customer accounts before it went bankrupt, CME Group Inc. chairman Terrence Duffy told the Senate yesterday.
Duffy, whose company is MF Global's regulator and principal exchange, faced questions about a shortfall of some $1.2 billion in missing customer funds. CME and Commodity Futures Trading Commission staff had been told a discrepancy existed in the customer funds, which by law are required to be kept separate from company funds.
On Oct. 31, the day MF Global filed the eighth-largest bankruptcy in U.S. history, "a CME auditor also participated in a phone call with senior MF Global employees, wherein one employee indicated that Mr. Corzine knew about the loans that it had made for the customer -- from the customer segregated accounts," Duffy said today.
Corzine in earlier testimony said that he couldn't explain why money was missing from customer accounts, and that he had been surprised to find out that money was missing from customer accounts on the night of Sunday Oct. 30.
The loan may have been for $175 million to a European affiliate of MF Global, Duffy said. He said he believed the loan was made from customer segregated accounts in the last few days before the bankruptcy filing. Duffy didn't say whether Corzine learned of the loans in advance of the funds being moved. He also didn't say whether the loans were a legitimate use of customer accounts.
Recently Aware
"We were told by MF Global that they transferred money to the broker dealer, 'stop looking for the accounting error,'" Duffy said. He said he was only made aware of the new information last Saturday.
Duffy's testimony follows that of Corzine and other top executives, who said today they couldn't explain the shortfall. Several members of the Senate who asked questions said it was unbelievable that the top executives couldn't explain the absence of such large funds from customer accounts.
MF Global Inc.'s customers may be able to reach its parent company's assets to help pay for their shortfall, said James Giddens, the trustee in charge of liquidating the broker-dealer. Giddens said the shortfall in segregated accounts is still estimated to be $1.2 billion or more.
"I don't think we're magically going to come to a pot of gold at the end of the rainbow," Giddens told the Senate.