The Hagstrom Report

Agriculture News As It Happens

Corzine balks at testifying before Ag committees

Jon Corzine
Jon Corzine
Jon Corzine, the recently resigned CEO of now bankrupt commodities firm MF Global, is apparently not going to testify voluntarily before congressional committees investigating the bankruptcy and the loss of customers’ funds.

Senate Agriculture Committee Chairman Debbie Stabenow, D-Mich., who had given Corzine until 2:30 p.m. today to respond to an invitation to appear, said in a news release that the former senator and governor from New Jersey had not agreed to testify, and that she would ask her committee to issue a subpoena to compel him to appear.

Stabenow’s action came hours after the House Agriculture Committee voted unanimously to issue a subpoena for Corzine to appear before that committee on Dec. 8.

Stabenow said she would convene a business meeting of her committee on Tuesday. A vote of the full committee is required to make the current inquiry a formal committee investigation in order to give the committee subpoena power. Stabenow has scheduled a hearing on MF Global on Dec. 13.

Sen. Debbie Stabenow, D-Mich.
Sen. Debbie Stabenow, D-Mich.
“MF Global’s customers, including many farmers and small business owners, trusted this firm to make purchases on their behalf and now their money is missing,” Stabenow said in a news release.

“A matter of this magnitude requires a thorough investigation, and that investigation must obviously include testimony from company executives,” she said. “I would expect that MF Global executives would come speak with us voluntarily, but if they will not, then we must be prepared to take necessary action.”

Stabenow noted that the FBI is investigating possible criminal conduct related to the MF Global bankruptcy.

The House Agriculture Committee vote to subpoena Corzine to testify was unanimous by voice.

House Agriculture Committee Chairman Frank Lucas, R-Okla., said the committee took the action after he asked Corzine to testify and received a letter from Corzine’s lawyer, Andrew Levander of the New York firm Dechert LLP, that Corzine would not be available next Thursday.

Lucas told reporters he did not know if the letter meant Corzine would not be available on that date or whether the letter was “a delaying tactic.” Lucas said the committee would be flexible if the specific date was the problem.

Levander is a partner in the Dechert white collar and securities litigation group whom Corzine retained before announcing his resignation from MF Global on Nov. 4.

MF Global went bankrupt after its attempts to make a high rate of return through purchases of the debt instruments of troubled European countries came to light. Those purchases had been hidden through an accounting mechanism.

Brokers and financial advisers throughout rural America used MF Global to clear trades, and farmers, country elevators and others had money in accounts with the firm. Farmers and others were told that their money had been held in segregated accounts, but it appears that MF Global comingled those funds with company funds, and as much as $1.2 billion in customer funds is missing.

A bankruptcy trustee has returned some of the money to customers, but farmers and others throughout the country still have funds tied up, and some believe they will never get all their money. There is no insurance on funds held in the futures accounts of firms like MF Global.

Rep. Frank Lucas, R-Okla.
Rep. Frank Lucas, R-Okla.
“Jon Corzine’s testimony is critical to fulfill our objectives on behalf of our constituents, which is why we have taken this extraordinary step to ensure his attendance,” Lucas and ranking member Collin Peterson, D-Minn., said in a news release after the vote. “It is our hope the hearing next week will lay the groundwork to address the situation and begin to restore confidence."

The hearing, Lucas said, will “examine the facts and circumstances that led up to the bankruptcy, and the efforts under way to recover customer funds and return them to their rightful owners.”

Rep. Collin Peterson, D-Minn.
Rep. Collin Peterson, D-Minn.
To that end, Peterson told the committee he was “in full support” of subpoenaing Corzine.

Peterson said that he believes that in addition to Corzine, the committee needs to hear from the CME Group (the exchange where MF Global did business), the Financial Industry Regulatory Authority and Commodity Futures Trading Commission Commissioner Jill Sommers, who has been in charge of the MF Global investigation since CFTC Chairman Gary Gensler recused himself.

It is not so important to hear from Gensler, Peterson said, since he has recused himself. Lucas said the committee staff is still working on the list of witnesses.

Peterson said he wants to find out who knew about the bankruptcy before 2:30 a.m. on Oct. 31, when Gensler was awakened to be informed of the bankruptcy. Peterson said that he believes there were people who knew two days earlier that MF Global was about to go bankrupt, but that no one told the CFTC.

Although Peterson told reporters he believes he knows what happened with MF Global, he declined to give details. He noted, however, that MF Global, which was a troubled company, was trying to “make a deal” and that there “was a margin call.”

MF Global has been operating in recent years as a futures commission merchant — a firm that sells futures contracts or options on futures and accepts money or other assets from customers to support such orders — but its roots are in agriculture. The company traces its roots to a sugar trading business started by James Man in England in 1783 in London.

Man’s grandsons, Edward Desborough and Fredrick Man, gave their initials to the company ED&F Man, which expanded from sugar to coffee and financial instruments and operated as a cash commodities and futures brokerage partnership through the 1970s.

ED& F Man was listed on the London Stock Exchange in 1994 and evolved into the Man Group. ED& F Man split from the Man Group in 2000 following a management buyout and today, with operations in around 50 countries is a provider of sugar, molasses, animal feed, tropical oils, rubber, biofuels, coffee and risk management services.

The Man Group changed its name to MF Global in 2007. Corzine, a former senator and governor from New Jersey, became CEO in March 2010, and that fall told CME Magazine he wanted to turn the firm into an investment bank. Its losing positions in the European bond market were apparently a part of that strategy.

Through a bankruptcy court, former FBI director Louis Freeh has been named the trustee for the MF bankruptcy case.