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S. HRG. 112–504 

INVESTIGATIVE HEARING ON 

THE MF GLOBAL BANKRUPTCY 

HEARING 

BEFORE THE

COMMITTEE ON AGRICULTURE, 

NUTRITION AND FORESTRY 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

DECEMBER 13, 2011 

Printed for the use of the 

Committee on Agriculture, Nutrition and Forestry 

( 

Available via the World Wide Web: http://www.fdsys.gov/ 

COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY 

DEBBIE STABENOW, Michigan, Chairwoman 

PATRICK J. LEAHY, Vermont 

TOM HARKIN, Iowa 

KENT CONRAD, North Dakota 

MAX BAUCUS, Montana 

E. BENJAMIN NELSON, Nebraska 

SHERROD BROWN, Ohio 

ROBERT P. CASEY, Jr., Pennsylvania 

AMY KLOBUCHAR, Minnesota 

MICHAEL BENNET, Colorado 

KIRSTEN GILLIBRAND, New York 

PAT ROBERTS, Kansas 

RICHARD G. LUGAR, Indiana 

THAD COCHRAN, Mississippi 

MITCH MCCONNELL, Kentucky 

SAXBY CHAMBLISS, Georgia 

MIKE JOHANNS, Nebraska 

JOHN BOOZMAN, Arkansas 

CHARLES E. GRASSLEY, Iowa 

JOHN THUNE, South Dakota 

JOHN HOEVEN, North Dakota 

CHRISTOPHER J. ADAMO, Majority Staff Director 

JONATHAN W. COPPESS, Majority Chief Counsel 

JESSICA L. WILLIAMS, Chief Clerk 

MICHAEL J. SEYFERT, Minority Staff Director 

ANNE C. HAZLETT, Minority Chief Counsel 

(II) 

(III) 

C O N T E N T S 

Page 

HEARING(S): 

Investigative Hearing on the MF Global Bankruptcy .......................................... 1 

Tuesday, December 13, 2011 

STATEMENTS PRESENTED BY SENATORS 

Stabenow, Hon. Debbie, U.S. Senator from the State of Michigan, Chairwoman, Committee on Agriculture, Nutrition and Forestry ............................ 1 

Roberts, Hon. Pat, U.S. Senator from the State of Kansas .................................. 2 

Panel I 

Blew, C.J., Farmer/Rancher; Chairman of the Board, Mid Kansas Cooperative 

Association; Director, Board of CHS, Inc.; Hutchison, KS ............................... 9 

Hainline, Jeffrey W., President, Advanced Trading, Inc., Bloomington, IL ....... 6 

Hupfer, Roger, Grain Elevator Operator, Freeland Bean & Grain, Inc., Freeland, MI ................................................................................................................ 5 

Tofteland, Dean, Farmer, Luverne, MN ................................................................ 8 

Panel II 

Abelow, Bradley, President and Chief Operating Officer, MF Global Holdings 

Ltd., New York, NY ............................................................................................. 34 

Corzine, Hon. Jon S., Former Chairman and Chief Executive Officer, MF 

Global Holdings Ltd., New York, NY ................................................................. 33 

Steenkamp, Henri, Chief Financial Officer, MF Global Holdings Ltd., New 

York, NY ............................................................................................................... 36 

Panel III 

Duffy, Terrence, Executive Chairman, CME Group, Chicago, IL ........................ 77 

Giddens, James W., Trustee, Securities Investor Protection Act liquidation 

of MF Global, Inc., New York, NY ...................................................................... 75 

Sommers, Hon. Jill, Commissioner, Commodity Futures Trading Commission, 

Washington, DC ................................................................................................... 73 

APPENDIX 

PREPARED STATEMENTS: 

Abelow, Bradley ................................................................................................ 96 

Blew, C.J. .......................................................................................................... 99 

Corzine, Hon. Jon S. ......................................................................................... 101 

Duffy, Terrence ................................................................................................. 123 

Giddens, James W. ........................................................................................... 128 

Hainline, Jeffrey W. ......................................................................................... 134 

Hupfer, Roger .................................................................................................... 137 

Sommers, Hon. Jill ........................................................................................... 139 

Steenkamp, Henri ............................................................................................. 151 

Tofteland, Dean ................................................................................................ 159 

Page

IV 

QUESTION AND ANSWER: 

Stabenow, Hon. Debbie: 

Written questions to Hon. Jill Sommers ........................................................ 179 

Roberts, Hon. Pat: 

Written questions to Terrence Duffy .............................................................. 172 

Written questions to Henri Steenkamp .......................................................... 181 

Written questions to Hon. Jill Sommers ........................................................ 180 

Written questions to Bradley Abelow ............................................................. 166 

Baucus, Hon. Max: 

Written questions to Hon. Jon S. Corzine ...................................................... 170 

Written questions to Henri Steenkamp .......................................................... 181 

Boozman, Hon. John: 

Written questions to Terrence Duffy .............................................................. 175 

Written questions to James W. Giddens ........................................................ 178 

Chambliss, Hon. Saxby: 

Written questions to Hon. Jon S. Corzine ...................................................... 170 

Written questions to Terrence Duffy .............................................................. 172 

Written questions to Hon. Jill Sommers ........................................................ 180 

Johanns, Hon. Mike: 

Written questions to Terrence Duffy .............................................................. 173 

Abelow, Bradley: 

Written response to questions from Hon. Pat Roberts .................................. 166 

Corzine, Hon. Jon S.: 

Written response to questions from Hon. Max Baucus ................................. 170 

Written response to questions from Hon. Saxby Chambliss ......................... 170 

Duffy, Terrence: 

Written response to questions from Hon. Pat Roberts .................................. 172 

Written response to questions from Hon. Saxby Chambliss ......................... 172 

Written response to questions from Hon. Mike Johanns .............................. 173 

Written response to questions from Hon. John Boozman ............................. 175 

Giddens, James W.: 

Written response to questions from Hon. John Boozman ............................. 178 

Sommers, Hon. Jill: 

Written response to questions from Hon. Debbie Stabenow ......................... 179 

Written response to questions from Hon. Pat Roberts .................................. 180 

Written response to questions from Hon. Saxby Chambliss ......................... 180 

Steenkamp, Henri: 

Written response to questions from Hon. Pat Roberts .................................. 181 

Written response to questions from Hon. Max Baucus ................................. 181 

(1) 

INVESTIGATIVE HEARING ON 

THE MF GLOBAL BANKRUPTCY 

Tuesday, December 13, 2011 

UNITED STATES SENATE, 

COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY, 

Washington, DC 

The Committee met, pursuant to notice, at 10:06 a.m., in room 

SH–216, Hart Senate Office Building, Hon. Debbie Stabenow, 

Chairwoman of the Committee, presiding. 

Present: Senators Stabenow, Harkin, Conrad, Nelson, Brown, 

Klobuchar, Bennet, Gillibrand, Roberts, Lugar, Chambliss, 

Johanns, Boozman, Grassley, Thune, and Hoeven. 

STATEMENT OF HON. DEBBIE STABENOW, U.S. SENATOR 

FROM THE STATE OF MICHIGAN, CHAIRWOMAN, COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY 

Chairwoman STABENOW. Well, good morning. We welcome all 

those and thank all those that will be with us this morning for a 

very important hearing. The Senate Agriculture, Nutrition and 

Forestry Committee will now come to order. 

Before this Committee today are just a few of the former customers of MF Global, which at the time of its bankruptcy had 

38,000 customer accounts. 

In the days preceding the collapse, it became apparent that MF 

Global would no longer survive as a company. 

While companies often make bad decisions and fail, no one expected the violation of one of the foundational principles of the futures markets: the protection of customer money. On Monday, October 31, at 2:30 in the morning, MF Global revealed that an estimated $900 million in customer money had gone missing—unaccounted for. MF Global filed for bankruptcy a few hours later. 

Now we are here left with more questions than answers. The 

customers are here still waiting to get their money back. And the 

executives and the former CEO of MF Global are here to tell us 

what they know. And the regulators are here to tell us where they 

are in the process of getting that money back and what they should 

do in the future to better oversee the financial management of customer funds. 

The Agriculture Committee oversees the futures and swaps markets in part because those markets are critically important for the 

successful functioning of America’s agriculture economy. As I have 

said many times, nearly 16 million people have jobs because of agriculture in this country. And in this difficult economy, agriculture 

2 

has been one of the few bright spots. And, frankly, we want to keep 

it that way. 

Situations like what happened at MF Global threaten that success. Our farmers and ranchers have lost trust in the system. They 

believed that there were safeguards in place to protect their money 

in exactly situations like this. 

A fundamental principle of futures trading is that customer 

money must always be kept separate from the firm’s money. It is estimated that as much as $1.2 billion in customer money 

is missing. I know that every member of this Committee, and certainly the customers who are here today, and those across Michigan and across the country, would like to know what happened to 

that money. It has now been a month a half since the firm collapsed, and customer money is still nowhere to be found. 

This is not the Dark Ages. MF Global did not keep their books 

with feather quills and dusty ledgers. The rules about keeping customer money segregated are pretty straightforward. That it has 

been over a month and teams of lawyers and forensic accountants 

still cannot figure out what happened raises very troubling questions. 

So I am very eager to hear from the executives, as well as the 

trustee, as well as the front-line regulators about what happened. 

This hearing is about three things: getting the customers’ money 

back, holding anyone engaged in wrongdoing accountable, and ensuring that proper customer protections are in place so that something like this does not happen again. 

The customers here today, and the thousands of others across the 

country whose money is missing, deserve answers. And I hope we 

can get some of those answers today. 

I would now like to turn to my colleague and friend, Senator 

Roberts, for his opening remarks. 

STATEMENT OF HON. PAT ROBERTS, U.S. SENATOR FROM THE 

STATE OF KANSAS 

Senator ROBERTS. Thank you, Madam Chairwoman, for calling 

this hearing on MF Global’s bankruptcy and its effect on our Nation’s economy. 

As you have said, this Committee has jurisdiction over the futures markets and its regulator—the Commodities Futures Trading 

Commission. The futures markets provide businesses and investors—whether they are individuals, companies, farmers, ranchers, 

cooperatives, or others—the opportunity to manage risks. 

In light of recent events, it is imperative that this Committee exercise its oversight responsibilities to understand what happened in 

the days leading up to MF Global’s bankruptcy, who was involved 

in any actions that resulted in the company’s downfall, and how to 

move forward. 

First and foremost on my mind is how customer accounts will be made whole. Reports indicate anywhere between $600 million and 

$1.2 billion of customer funds are missing. 

The fundamental rule in the futures markets business is to segregate—to keep apart—customer accounts and company accounts. 

Some believe this rule was broken in this case. If this is the case, 

that is what we are here to find out. 

3 

Among the witnesses today are officials from MF Global who can 

help answer the many questions that I and other members of the 

Committee have. 

According to testimony given in previous hearings before this 

Committee and in the House, customer funds were accounted for 

on Wednesday October 26 and believed to be accounted for on Friday, October 28. Yet by Monday October 31, they were gone. 

CME’s press release of November 2 states, and I quote, ‘‘It now 

appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid 

detection insofar as MF Global did not disclose or report such 

transfers to the CFTC or CME until early morning on Monday, October 31, 2011.’’ 

Funds do not simply disappear. Someone took action, whether 

legal or illegal, to move that money. And the effect of that decision 

is being felt across the countryside. 

Now, the buck stops somewhere, and between the three witnesses from MF Global here today, I hope we can find out where 

those hundreds of millions of dollars landed. 

Since MF Global’s bankruptcy on October 31, we have heard 

from many investors, businesses, farmers, ranchers, and their 

bankers across the country that are caught up in this event. 

Today we will hear firsthand from those hit hardest by MF 

Global’s collapse. I truly appreciate Mr. C.J. Blew from Hutchison, 

Kansas, taking time, his valuable time, appearing today, as the 

other witnesses have done, to provide a description of the impacts 

on their business interests and their farming operations. 

We will also hear from CFTC Senior Commissioner Jill Sommers 

who is leading the investigation and enforcement actions at the 

Commission since Chairman Gensler has allegedly removed himself 

from these matters. So thank you, Commissioner Sommers, for appearing here today. 

I also thank Mr. Giddens, the bankruptcy trustee in this matter, 

for agreeing to be here. Customers have plenty of questions for you, 

as I do, about how money can be returned to those owed. I know 

you have worked very diligently to return funds to customers, and 

I appreciate your efforts. 

The Chairman has said it. Producers must have faith in the safety and stability afforded by the futures market. 

The need for faith and confidence in the ability to manage one’s 

own risk is why we and this Committee will continue to push to 

get to the bottom of what happened. 

Thank you, Madam Chairwoman. We have several witnesses 

today. I look forward to hearing from all of them. 

Chairwoman STABENOW. Thank you, Senator Roberts, and thank 

you to all of our members that are here today, and we will ask you 

to submit opening comments for the record. We do have three panels with us today, and we want to move directly to our witnesses. 

And we thank all of you for being here today, for coming and joining us. We made a decision to ask you to speak first because you 

are the focus of why we are here. You are the focus of the financial 

markets and making sure they work well, and our number one 

focus is to make sure that you are made whole and have confidence 

in the markets moving forward. So we thank all of you for being 

4 

here. As you know, we welcome your written testimony and ask 

you to keep your oral testimony to 5 minutes today. 

Our first panelist is an MF Global customer from Freeland, 

Michigan, Roger Hupfer. I welcome you today. Mr. Hupfer is the 

president and markets director of Freeland Bean & Grain, Incorporated. He also sits on the board of directors and trustees for the 

Michigan Bean Shippers Association. So we welcome you. 

Next up we have Mr. Jeff Hainline, president of Advanced Trading, Incorporated, in Bloomington, Illinois. Prior to joining Advanced Training, Incorporated, in 1982, Mr. Hainline was a crosscountry trade, a barge freight trader, and a merchandising manager for Behimer and Kissner. He is also a member of the National 

Grain and Feed Association’s Risk Management Committee and the 

CFTC’s Subcommittee on Convergence. 

Next I would like to ask Senator Klobuchar to introduce our next 

witness from Minnesota. 

Senator KLOBUCHAR. Well, thank you very much, Madam Chair. 

I am pleased to introduce Mr. Dean Tofteland from Luverne, Minnesota. Luverne is a town of 2,600 people, and he and his daughter 

came all this way because they care very much about this issue. 

His family grows corn, soybeans, and raises pigs on their farm. He 

currently has over $200,000 in what was supposed to be a segregated MF Global account which he cannot access and which he 

may never fully recover. 

He is not a speculator, Madam Chair. He, in fact, invested to 

manage risk, locking in prices ahead of the growing season so he 

was protected against price fluctuations that could eat into his 

profits. If he does not get access to his account soon, he is not sure 

what he is going to do for next year’s crop, and he is just one example of hundreds of farmers that we have in our State right now 

that want to get their money back and want to get this resolved. 

Thank you very much, Madam Chair. 

Chairwoman STABENOW. Thank you. 

Finally, along with Senator Roberts, I welcome Mr. C.J. Blew, 

who, along with his wife, Becky, operates a diversified crop and 

cow-calf operation in south central Kansas. Since 2005, he has 

served as the director for his local co-op, Mid Kansas Cooperative 

Association, located in Moundridge, Kansas. He currently serves as 

its chairman. 

So, again, we welcome all of you, and I would ask at this point 

that you rise so we can administer an oath to you. If you would 

stand and raise your right hand. Do you swear that the testimony 

you are about to present is the truth, the whole truth, and nothing 

but the truth, so help you God? 

Mr. HUPFER. I do. 

Mr. HAINLINE. I do. 

Mr. TOFTELAND. I do. 

Mr. BLEW. I do. 

Chairwoman STABENOW. Thank you very much. 

Mr. Hupfer, your testimony, please. 

5 

STATEMENT OF ROGER HUPFER, PRESIDENT AND MARKETING MANAGER, FREELAND BEAN & GRAIN, INC., FREELAND, MICHIGAN 

Mr. HUPFER. Good morning, Madam Chair, Ranking Member 

Roberts, and members of the Committee. My name is Roger 

Hupfer, and I am the president and marketing manager of Freeland Bean & Grain in Freeland, Michigan. I want to thank you for 

this opportunity to give you an overview of our company and how 

the MF Global bankruptcy has impacted our business. 

Our company is a family-owned and -operated full-service agribusiness. We originated in 1983 and have provided almost 30 years 

of uninterrupted service to our local community. We operate two 

country elevator facilities, which accept corn, soybeans, and soft 

white and red wheat, and we also receive, process, and ship edible 

beans to various domestic packagers, canners, as well as interests 

in Mexico. We also provide feed, fertilizers, seeds, crop protection 

products, and custom application service for our customers. We are 

members of the National Grain & Feed Association, the South East 

Grain & Feed Association, and the Michigan Agribusiness Association. We are fortunate to have Jim Byrum representing our agribusiness interests in Michigan. He has been a great asset to our 

industry. 

We take great pride in how we operate our business, and we 

work very diligently with our customers to help them achieve their 

marketing goals. Our customers place great confidence and trust in 

us when delivering their commodities to our facilities, and they expect us to provide and maintain competitive, perpetual marketing 

programs to assist them with their risk management. 

It is this very confidence and trust that was shattered by the MF 

Global bankruptcy. The industry has always operated under the assumption that our funds were in a safe and secure place by being 

kept in segregated accounts. We were in total shock when we found 

out otherwise. Misuse of these funds for other purposes is not only 

unethical, but also criminal. Those responsible for oversight fell far 

short of fulfilling their responsibilities in this matter. 

Our company has plans to expand and construct a new state-ofthe-art grain receiving and storage facility with groundbreaking 

scheduled for 2012. This new facility will help us meet increased 

demand and give us the ability to load out grain unit trains. With 

this increased demand, how will we be able to effectively manage 

the increased volatility and price risk and place our hedges with 

confidence if the very integrity of exchange-based futures trading 

is in jeopardy? Also, how do we know if there are other clearing 

firms that might be in financial trouble by being involved in bad 

investments and poor management? 

There are several livestock and dairy producers in Michigan that 

have a much greater amount of capital at risk than some of the 

commercial grain companies. I can personally give you an example 

of a customer of ours who has more capital at risk than we do. All 

he was attempting to do was to sell his cash grain and hedge by 

buying call options. He is not a speculator; he is just a prudent operator. If this situation is not resolved, I feel it will have an impact, 

a very negative impact, on rural communities across the country. 

6 

When I put together my testimony, I called three other elevator 

operators in Michigan and asked for their input. One of them made 

this comment. He said, ‘‘It is really sad when my risk management 

program needs risk management.’’ 

I can speak for our company and on behalf of the other agribusiness firms that have been impacted by this disaster that we expect to be made whole and have all of our funds returned to us in 

a timely manner so that the integrity of the exchange can be restored. 

Again, I want to thank you for this opportunity to share my 

views with you today. I would be happy to respond to any questions. 

[The prepared statement of Mr. Hupfer can be found on page 137 

in the appendix.] 

Chairwoman STABENOW. Thank you very much. 

Mr. Hainline? 

STATEMENT OF JEFF HAINLINE, PRESIDENT, ADVANCED 

TRADING, INC., BLOOMINGTON, ILLINOIS 

Mr. HAINLINE. Thank you, Chairman. My name is Jeff Hainline, 

and I am the chairman of Advanced Trading. Advanced is a nonguaranteed introducing broker that did business with MF Global. 

Our customers are farmers, elevators, grain processors, meat producers, and owned about 3,000 accounts there. Advanced Trading’s 

customers and its business, with large sums still unaccounted for, 

are suffering from confusion 6 weeks after the failure. 

I suggest the Committee have most of its focus in this initial effort on the crucial issue that must be dealt with immediately. In 

the grain industry, 100 percent of each year’s supply is produced 

within a narrow time frame and used throughout the year. As 

such, the business is overwhelmingly dominated, like few others, 

by inventory management and financing. Depending on market behavior, borrowings can amount to many times the net worth of the 

elevator company, but lenders make funds available at very competitive rates because the loan is well secured by verifiable presence of grain in the elevator and the financial soundness of the futures hedge. 

The futures market is the essential central financial instrument 

upon which world grain commerce is entirely based, and any 

change in the lender’s assessment of risk on what can be an extremely large and rapidly increasing loan balance would alter their 

financial relationships with grain businesses in a dramatic fashion. 

Each firm’s customer segregated capital is guaranteed by the 

capital of the clearing member. Thus far, no statement by the 

bankruptcy trustee that I have seen seems cognizant of the fact 

that segregated customer funds are guaranteed by the full capital 

of the clearing member. It is entirely clear to all that is a pre-condition of becoming a clearing member of the Chicago Mercantile 

Exchange and others. Absent the reality of that guarantee, the 

business cannot operate. 

Both priority and rapid execution of the priority of customer segregated funds and bankruptcies of clearing members must occur instead of years of uncertainty that stretch in front of us. This principle absolutely must be clear for futures exchanges. Futures conVerDate Nov 24 2008 08:54 Sep 14, 2012 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 C:\DOCS\75117.TXT MICHA
7 

tracts at the Mercantile Exchange and others are rightly regarded 

by lenders as financially sound precisely because and only because 

each clearing member guarantees its own capital as a first line to 

back the customer segregated funds, and the clearing corporation 

guarantees the trades between clearing members. Any ambiguity 

or hesitation as to exactly where those necessary guarantees stand 

will not only freeze the industry, it will certainly translate into a 

sizable multiplier effect in terms of lower prices to farmers and 

higher prices to consumers. 

It is not overstating the case to project that if the priority of customer segregated funds in a bankruptcy is not firmly entrenched, 

it will need to be in the wake of MF Global after the effects of not 

doing so become apparent. This is an absolute, necessary principle 

for U.S. agriculture, which is why this Committee must see that it 

is upheld. 

Many suggest making changes in separation between segregated 

funds and proprietary capital, but this could add complexity and 

bureaucracy. In the end, even if additional restrictions on financial 

instruments or accounting or other operational measures are proposed, we should remember a few things: that clearing members 

also have their capital pledged to their segregated customer funds 

against the single greatest threat they themselves face, which is 

that their customers defraud or go bankrupt on them. This has occurred with relative frequency, and because the capital of the clearing member itself was acquired to be paid into customer segregated 

funds, the other customers were made whole with little delay. 

We also know that new financial techniques will arise hereafter, 

that accounting rules ambiguities will always foster different opinions, and that financial executives will always take innovative 

steps to maximize returns. So establishing rules that would have 

precluded the last problem will not necessarily preclude the next. 

Exchanges have the greatest abiding interest of anyone in the 

solvency of the clearing members, the security and good will of 

their customers, and the trust of the fiduciaries that lend large 

sums to both. While the CFTC and the Committee should examine 

what the exchanges do carefully, the exchanges must propose 

changes that the CFTC should then consider. 

This Committee must use its authority and expertise to clarify 

the bankruptcy status of the FCM member’s responsibility to their 

customer segregated funds, which is the only way the futures industry at the financial heart of U.S. agriculture can possibly operate. That is the largest and most important issue, I feel, with MFG. 

In the end, we need to protect our efficient system, to be vigilant 

for possible corruption, to send a strong signal of deterrence. We 

need restitution of all segregated funds, and we need a reform of 

our system to prevent abuse. 

I would like to thank the Committee for its consideration and 

would welcome any questions. 

[The prepared statement of Mr. Hainline can be found on page 

134 in the appendix.] 

Chairwoman STABENOW. Thank you very much. 

Mr. Tofteland, welcome. 

8 

STATEMENT OF DEAN TOFTELAND, FARMER, LUVERNE, 

MINNESOTA 

Mr. TOFTELAND. Hello. It is an honor to be here today. I want 

to thank Madam Chairwoman Stabenow, Ranking Member Senator 

Roberts, and other honorable Senators of the Committee. I especially want to thank my home State Senator Klobuchar for her support. 

My name is Dean Tofteland. I am a farmer from southwest Minnesota. My wife and I raise corn, soybean, and pigs as well as four 

kids 8 to 13 years old. I have been a farmer for about 25 years. 

Throughout those years, I have used the futures markets to transfer risk from my farm to the CBOT by selling futures contracts. 

These contracts have enabled me and other farmers to lock in a 

selling price which could enable a profit on my production. 

Today I want to just briefly describe how this MF Global bankruptcy has impacted my bottom line as well as how it has influenced my confidence going forward in these markets. 

This past fall, following the harvest, I locked in prices on the 

CME for my 2011 production. I did this by entering into an agreement where I promise to sell a set number of bushels on the exchange at an agreed-upon price for a future delivery date. To execute these hedges, I am required to post margin to an escrow account, in my case which was held at JPMorgan Chase Bank. These 

funds were not an investment in MF Global. 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 I had priced. 

On October 28th I heard news that MF Global may be having 

some problems, and I immediately called my broker. She told me 

that since my funds were in ‘‘customer segregated accounts,’’ they 

were not a part of MF Global and would not be affected. I was told 

that ‘‘no customer has ever lost a penny in segregated accounts.’’ 

I later read about that statement before—after that, or I ran across 

it before. At this time I was not aware that the company was mailing bad checks to customers. 

That following Monday, October 31st, I read that MF Global had 

filed Chapter 11 background and later learned that customer funds 

were missing. The accounts were immediately frozen, and I was 

unable to adjust my short positions. The hedge account at this time 

contained $253,000. This account was also counted as collateral at 

my bank against my operating loan. It was not long before I received a call from my banker asking about it. 

Later, my positions were transferred to a new broker with only 

15 percent of the required collateral. I was then informed that I 

needed to re-margin the hedges within 24 hours, even though I had 

more than three times the margin already at the MF Global account. As a result of this, I was forced to liquidate my hedges. 

Since that time, prices have dropped significantly, resulting in well 

over an additional $100,000 in losses. 

On the morning of November 9th, I sat through a USDA Crop 

Production and Supply and Demand Report. This was one of the 

biggest crop reports of the year, and being unable to adjust positions created a great deal of stress. I have not used the futures 

market since. 

9 

Producers like myself commonly purchase seed and fertilizer and 

pay cash rents far before the crops are planted. The use of these 

markets is imperative to reduce risk, but we must have the confidence to do so. 

As you know, this impact has been felt far across this country, 

and just in my local area, I ran across a feed company and local 

producers of livestock that are still looking for answers and how to 

get their money back. There are also many other untold stories. 

I hope that in the following panels we can get some of those answers to fill in the blanks. I look forward to finding out those answers because the truth of the matter is that commingling money 

is stealing money, especially when it disappears. 

I want to again thank each of you for your invitation. I am encouraged by your hard work, and I believe in the end that we will 

get the answers we need, and it will make for a more efficient and 

confident marketplace where customer assets are safe. 

Thank you. 

[The prepared statement of Mr. Tofteland can be found on page 

159 in the appendix.] 

Chairwoman STABENOW. Thank you very much. 

Mr. Blew? 

STATEMENT OF CLINTON J. (C.J.) BLEW, FARMER/RANCHER, 

CHAIRMAN OF THE BOARD, MID KANSAS COOPERATIVE ASSOCIATION, AND DIRECTOR, BOARD OF CHS, INC., 

HUTCHISON, KANSAS 

Mr. BLEW. Good morning, Chairwoman Stabenow, Ranking Member Roberts, and members of the Committee. As Madam Chairman 

indicated, my name is C.J. Blew, and I do operate a farm and 

ranch in south central Kansas. And I am chairman of the board at 

MKC, Mid Kansas Co-op, in Moundridge, and I currently serve as 

its chairman. 

MKC is a full-service farm cooperative offering a full line of supplies and services for both farm and urban customers in 11 counties throughout central Kansas. Our current membership is more 

than 4,800 members. MKC’s grain division is operated by Team 

Marketing Alliance, or TMA, a LLC wholly owned by four central 

Kansas cooperatives operating 48 country elevators that total 38 

million bushels of elevator space. 

I also serve on the board of directors of CHS Inc., the Nation’s 

leading cooperative. CHS is an energy, grains, and foods company 

owned by approximately 55,000 individual farmers and ranchers 

and about 1,000 local cooperatives. 

Thank you for the opportunity today to provide not only my personal perspective, but also the perspective of MKC on the MF Global bankruptcy and the effect it has had on agribusiness and production agriculture. 

I consider myself fortunate because, unlike other fellow farmers 

and ranchers, I do not personally have assets tied up in the MF 

Global bankruptcy. However, I am impacted as an individual farmer because I rely upon my local cooperative to manage my risk by 

forward pricing my grain. 

This bankruptcy has sent a shockwave throughout the industry. 

We have long believed that risk to segregated customer funds held 

10 

by members of the clearinghouse was non-existent. We now realize 

that was not true. The attorney for the trustee in the bankruptcy 

case, just last week during the House Ag Committee Hearing on 

MF Global, also confirmed this in his reference that 100 percent of 

these funds need to be returned as promptly as permitted by governing regulations. 

Immediately following MF Global’s bankruptcy filing, MKC and 

its respective grain marketing arm, Team Marketing Alliance, 

struggled with lack of access to futures positions and had no access 

to the funds in our accounts. Additionally, our accounts were transferred to a new futures commission merchant, and we have spent 

countless hours trying to understand how and why various adjustments to account balances took place. 

My cooperative continues to deal with the aftermath of this situation. At the time of the MF Global bankruptcy filing, my co-op 

had a significant amount of assets in segregated accounts tied up 

with MF Global. While we now have access to positions in our 

hedge accounts, only 36 percent of the initial margin funds needed 

for the transferred positions have been transferred to the new accounts. We applaud the SIPA trustee’s proposal for an additional 

distribution of funds and property that would bring the value of 

our distributions to about two-thirds of the original account values. 

However, for MKC, there is still a significant amount, or about 

64 percent, of the margin funds and excess cash not yet received. 

This needs to be priority number one for the trustee and bankruptcy court. Segregated funds should not be part of the bankruptcy. 

I am here today to ask the Committee, regulators, exchanges, 

and trustee to make the return of customer funds and property a 

top priority. Customer funds were to be segregated and not used 

for other purposes. The confidence in the system has been compromised, and it is imperative that we restore the integrity of the 

system. 

The ability for thousands of businesses like MKC and CHS to 

hedge risk on an exchange offers producers a wide range of cash 

forward contracts that help optimize farm income. MKC’s business 

model has been one that helps producers manage their risks. This 

includes grain marketing. Hedging and forward contracting is an 

integral part of that. 

A key to providing any type of hedging and forward contracting 

is the ability to finance it. We are fortunate to have a strong relationship with our lender. Although we have that strong relationship, the MF Global bankruptcy has impacted our ability to borrow 

funds. It has impacted our borrowing base since the missing funds 

cannot be used as collateral. 

Looking ahead, it will be very important to re-establish confidence in the futures markets and the safety of segregated customer funds and property. As part of the process, we must ensure 

the sanctity of customer segregated funds. This should include the 

treatment of missing funds in the bankruptcy, and those funds 

should have exclusive rights above the bankruptcy. This process 

must be a priority and expedited to make all segregated account 

holders whole. 

11 

In conclusion, I would ask that this situation be resolved as 

quickly as possible and that MKC’s assets and those of other segregated account holders affected by MF Global’s bankruptcy be returned immediately. I would also ask that you ensure this situation 

never happens again. 

Thank you again for the opportunity to share my views today. 

This concludes my prepared remarks, and I would be happy to respond to any questions. 

[The prepared statement of Mr. Blew can be found on page 99 

in the appendix.] 

Chairwoman STABENOW. Thank you very much, and I appreciate, 

again, all of you being here. We are deeply concerned about the situation you find yourselves in, and through no fault of your own. 

Let me first start by asking each of you, if you were in our shoes 

and could say anything to the executives of MF Global or the regulators or the trustee, what would you want to say to them? Mr. 

Hupfer? 

Mr. HUPFER. Well, I think like the other comments that were 

made by the other panelists, I think the money needs to be returned in a fashion—I mean, segregated accounts need to be held 

above the bankruptcy, in my opinion. I think there needs to be a 

full investigation, and we need to have some safeguards in place 

where this cannot happen again. 

Production agriculture cannot operate and function without the 

use of exchange-based futures and being able to transfer risk and 

lock in pricing. That is integral. It is just impossible for the industry to operate without that ability. 

So I think this is crucial. This affects not just commercial grain 

companies, but I think it affects farmers, dairymen. There are a lot 

of people that are greatly affected by this. 

Chairwoman STABENOW. Thank you. 

Mr. Hainline, what would you want to ask of those we are going 

to hear from yet today? 

Mr. HAINLINE. Well, obviously my point was having the segregate funds a priority, but the thing that I wonder is, in light of 

all the financial problems that we have had over the last several 

years, how were these speculative investments allowed to be part 

of segregated funds? 

Chairwoman STABENOW. Thank you. 

Mr. Tofteland? 

Mr. TOFTELAND. I guess the real question is: What happened to 

the money? This money was real money in real banks. It was not 

under somebody’s mattress. And now it is missing. And when you 

have a—I know in your personal bank account, the bank knows if 

you are overdrawn one penny. The bank knows if you are 1 day 

late with your payment. The bank knows where the money is at. 

Somebody at the company knows where the money is at. We have 

to ask—if there is a debit, there has got to be a credit. Where is 

the credit? 

And, secondly, since there were bad checks mail, there has already been crimes committed. And if the rules are broken in the 

case of segregated money, the segregated funds were commingled, 

that is also a crime. So I guess if there were crimes committed and 

12 

the money is missing, we have got to find the money and then deal 

with the consequences of that. 

Chairwoman STABENOW. Thank you. 

Mr. Blew, what would you want to ask? 

Mr. BLEW. I would agree with Mr. Tofteland. Where is the 

money? You know, this has a rippling effect, I think, throughout 

the industry. Not only does it—you have got farmers double-margining. You have got people that have stress on their lending situations already. So it is imperative we get to the bottom of it. 

Chairwoman STABENOW. Thank you. 

Secondly, for any of you that would want to answer this, do you 

think commodities firms like MF Global should be allowed to invest 

customers segregated money and profit from the investments? Mr. 

Hupfer? 

Mr. HUPFER. I think segregated funds should be segregated 

funds and need to be treated that way. I guess that is how I feel 

about it. It is our money. 

Chairwoman STABENOW. Mr. Hainline? 

Mr. HAINLINE. I think that controls are an imperative if that investment is allowed. I am not sure that our current regimen has 

enough oversight to know where those monies are, and as I said 

previously, I think the classes of those investments have been way 

too far afield for protection of the customers. 

Chairwoman STABENOW. Yes, Mr. Tofteland? 

Mr. TOFTELAND. The issue with—I guess I have no comment 

about that. What was the question exactly? 

Chairwoman STABENOW. Well, do you think that companies, I 

guess, commodities firms, should be able to invest customer segregated dollars under any circumstances? 

Mr. TOFTELAND. No, I do not believe—I understand that there 

are some stress on the profits. Interest rates are low. It is hard for 

these companies to make money on their idle cash. But in this 

case, there were rules that were pushed. There was influence, I 

think, undue influence put on the CFTC and the SEC, and maybe 

some conflicts of interest that transpired, and the rules should not 

be pushed like that. So, no, there should not be any investment of 

these funds. 

Chairwoman STABENOW. Mr. Blew? 

Mr. BLEW. Segregated funds are segregated funds for a reason. 

We must ensure the sanctity of segregated funds. 

Chairwoman STABENOW. Thank you. 

Mr. Tofteland, you testified that you have not used futures markets since MF Global’s bankruptcy. Could you talk a little bit more 

about how that affects your business not having the confidence to 

use that market? 

Mr. TOFTELAND. Well, first of all, we are still out of a lot of capital, so to be involved here, you have to have collateral for the exchange. Unfortunately, I was forced to liquidate my hedges, and, 

you know, we have been unable to hedge since that time, and I am 

going ahead and looking at my input expenses for next year, and 

it is hard to—when you do your break-even analysis, you need to 

look at the prices offered for next year, and I just do not have the 

confidence right now until we get 100 percent of our cash back to 

have 100 percent confidence until that point. 

13 

Chairwoman STABENOW. On that point, if any of you would like 

to answer, my last question is: Given the bankruptcy, I assume this 

has caused you to take a closer look at any new futures commission 

merchant and its financial position. I wonder if anyone might just 

speak to that, going forward what this has meant to you as you are 

attempting to do business, assuming that you are. Mr. Hupfer? 

Mr. HUPFER. Well, we work with Mr. Hainline’s firm, Advanced 

Trading, and they got all our positions transferred in a really good 

fashion, very orderly. So we are in the process of—we are with a 

new clearing firm, and we are going to open an account through 

them with another clearing firm in the near future to spread our 

risk. 

Chairwoman STABENOW. Mr. Hainline, from your perspective, 

how are you evaluating things differently? Or are you? 

Mr. HAINLINE. It is very unfortunate, but I think you have to. 

Numerous clients are asking about having more than one FCM so 

that at a moment’s notice we can transfer accounts if somebody 

throws up a red flag. The inefficiencies of that kind of activity that 

it needs to be required is rather significant, but, again, for people 

to protect their risks, those are some of the conversations that are, 

unfortunately, going on because of the system. 

Chairwoman STABENOW. Thank you. I am going to stop at this 

point. I have run over my time. As I am sure my colleagues have 

noticed, we are doing 7 minutes of questions given the topic this 

morning. We will ask colleagues to watch closely for the 7 minutes. 

I will turn now to Senator Roberts. 

Senator ROBERTS. Well, thank you, Madam Chairman. Gentlemen, thank you for coming. You have certainly put a personal face 

on this travesty. You have accurately described the breach of trust 

for yourselves personally and for everybody else involved. Really, 

this is a violation of the most sacred rule of the futures industry, 

you do not break the glass in regards to segregated funds. It has 

not happened before until this incident. Thank you for your personal testimony. That took some guts. 

I want to certainly thank you for clarifying for everybody present 

the severity of this issue and the personal experience that you have 

gone through, which I think is very helpful. We obviously need answers, and we are dedicated to that. 

Mr. Blew, it sounds like—well, welcome to Washington, I am 

sorry under the circumstances, but at any rate, it sounds like Mid 

Kansas Co-op is well on its way to getting up to 72 percent of its 

money back, according to the trustee. You and I have visited about 

that. Have you received any official indication from the trustee on 

this? You indicated that you are at 36 percent. We need to get you 

up to that 72 percent. 

Mr. BLEW. We have not received anything officially to get us to 

the 72 percent. We know we are at the 36 percent, but have not 

received anything officially on the 72 percent, no. 

Senator ROBERTS. I hope we can get that taken care of. Seventytwo percent is better than where you stood a week ago, but you are 

not made whole. Walk me through the conversation that Mid Kansas Co-op is having—that is 5,000 farmers. That is my count. You 

said 4,800. But walk me through the conversations that you have 

been having with your bankers in the aftermath of the MF Global 

14 

bankruptcy. Are your bankers requiring you to come up with more 

collateral against your margin account? 

Mr. BLEW. Well, it is pretty simple, really. We have working capital requirements that are 7 times our borrowing base, and so you 

take the number times 7, and that is the number that we cannot 

borrow. 

Senator ROBERTS. For the entire panel, in your testimony this 

morning all of you have referenced a loss of confidence in the futures market in the aftermath of the MF Global bankruptcy. That 

in and of itself is of tremendous importance. 

What changes are you going to make or recommend to how you 

or how your companies manage risk as a result of this bankruptcy? 

We will start with Mr. Hupfer and just go right down the line. 

Mr. HUPFER. Well, first and foremost, getting our accounts transferred—— 

Senator ROBERTS. I cannot hear you. 

Mr. HUPFER. I am sorry. I said first of all, having our positions 

transferred and opening another account with another—— 

Senator ROBERTS. Can you turn the microphone on? I am sorry. 

Maybe it is me. It turns red. 

Mr. HUPFER. Sorry about that. Is that better? 

Senator ROBERTS. Speak right into the microphone. Yes, thank 

you. 

Mr. HUPFER. Okay. Having our accounts transferred to another 

clearing firm and opening a secondary account I think goes a long 

way toward spreading our risk. I think everybody—talking with 

the other commercial operators that I visited with, they are all 

more—I do not want to say cognizant of what they are doing with 

their excess funds. You know, they are withdrawing. You know, 

they are drawing—if they have margin excess, they are bringing it 

back to their checking accounts. They are not leaving it there. I 

think people are doing things a little bit differently as more of a 

precautionary measure. 

Senator ROBERTS. I appreciate that. 

Mr. Hainline? 

Mr. HAINLINE. Well, unfortunately, the biggest problem is that 

because of this uncertainty, many are choosing not to utilize the futures market at this point, and so that means your alternative is 

to sell it to—if you are a producer, to sell it to a grain company 

and have no further flexibility in managing your risk. And then 

that also introduces you to a different counterparty risk. 

So these are very dire circumstances, as Mr. Tofteland said, from 

November—or from October 28th, the last day he could have placed 

a trade with MF Global, until Wednesday of this last week—I am 

not sure the size of his farm, but if he had 2,000 acres of corn with 

an average yield of 170 bushels an acre, he had the price go down 

a quarter of a million dollars on his farm. And that is just catastrophic in the results of his risk management for his operation. 

Senator ROBERTS. Mr. Hupfer, I apologize to you. Something is 

wrong with our sound system, but I think it has been fixed, and 

you came through loud and clear, Mr. Hainline. 

Mr. Tofteland, thank you for personal statement. I know this has 

been pretty rough on you. Would you like to respond? 

15 

Mr. TOFTELAND. Well, I just wanted to say that this is not about 

myself. There are thousands and thousands of other farmers and 

end users and individuals, traders, people I know, somebody out 

there with their live savings that was taken there. And they are 

probably looking at their next meal and how they are going to 

make their payments next week. 

I think the bigger issue is not just confidence in this market. 

This market is the basic market of—it goes back over a hundred 

years. The basic trading began with the cash trading on the Board 

of Treasury and the Minneapolis Grain Exchange, where they used 

to trade cash at the exchanges or trade rail cars, and then it moved 

to the futures. The historical basis of this is the foundation of all 

of our exchanges going—all of our transactions. So the confidence 

here really relates to the confidence in a lot of other markets, and 

that is why it is so important to get it right here. 

Senator ROBERTS. Mr. Blew. 

Mr. BLEW. I really do not have anything further. I think the 

panel has covered it well. 

Senator ROBERTS. Okay. For the entire panel, have any of you 

had any conversations with your bankers about changing the operation of your risk management accounts as a result of this bankruptcy? You have told the Committee what you plan to do. Any 

whispering in your ear by your banker? 

Mr. HUPFER. I can respond. Now it is working. Our banker called 

us right after the bankruptcy became public, and he wanted to 

know what the situation was, and we explained to him what was 

happening, what was going on, that we were transferring—getting 

our trades transferred. And since then he said just keep him 

abreast of what is happening, and they have confidence in us that 

we know what we are doing and that we can make good decisions. 

Senator ROBERTS. Mr. Hainline. 

Mr. HAINLINE. I have not heard specifically, but if I put my 

banker’s hat and I was loaning money to Roberts Elevator, I do not 

think I would loan him as much money as I did before because I 

do not know your money is safe there. 

Chairwoman STABENOW. And I would ask the other two folks to 

answer quickly, please. 

Mr. TOFTELAND. Okay. Just briefly, I know with my bank—and 

he has talked to me about it. For every dollar that we have, we can 

borrow about 40 cents. If my bank was borrowing me 30 times 

over, I suppose he would be a little more concerned. At this time 

he has got confidence that we will get things figured out. 

Mr. BLEW. Well, obviously the confidence in the system has been 

compromised, and so they are going to be unwilling to loan as 

much as they would have. I think the challenge in the future for 

me, especially for my cooperative to be able to finance my grain 

when I want to forward price it, is going to be imperative, and I 

know that has been put at risk. 

Senator ROBERTS. Well, I would just say who at the end of the 

day ends up footing the bill for these additional costs, and I think 

we all know that. Thank you, Madam Chairman. 

Chairwoman STABENOW. Thank you. 

Senator Klobuchar? 

16 

Senator KLOBUCHAR. Thank you very much, Madam Chair. 

Thank you to all of the witnesses. I thought your testimony was 

really helpful in making people understand what this really meant 

to the individual farmer or elevator owner, and I especially wanted 

to thank you, Mr. Tofteland, for your direct testimony and honesty, 

so thank you for that. 

I think a lot of people have a hard time understanding how all 

of this works. It gets so complicated. But I think from your perspective, one of the things that you focused on was that for you this 

was not just an investment where you were trying to make a profit. 

You were actually not speculating. You wanted to be able to secure 

yourself against risk. Could you just talk a little bit about some of 

the risks you faced with the cost of feed, weather, prices, and why 

you would get involved in doing this to begin with? 

Mr. TOFTELAND. Thank you. A lot of farmers, what we will is we 

will lock in—like any of us, you lock in your cost of seed and chemical fertilizer many months ahead. So when you do that, you have 

price risk. But then during the grain season you also have production risk. So it is not unlike an end user that purchases flour. They 

need to buy wheat, and to lock in the prices, they will go to the 

exchange and lock in prices and pass the locked-in production on 

to their customers. 

So basically we are not unlike an end user in that fashion where 

we just lock in the prices and use it for reducing the risk. 

Senator KLOBUCHAR. You also mentioned that you were forced to 

liquidate your open positions after they were transferred, and I 

think it is important to note that even if 100 percent of the customer funds are found and returned, you will still take a loss. Can 

you explain how that works for people who are not familiar with 

your situation? 

Mr. TOFTELAND. In the case that we would take a loss? 

Senator KLOBUCHAR. Yes. I think the issue is that even if it is 

returned, you still will have a loss because of what you explained 

earlier. 

Mr. TOFTELAND. I see. Absolutely. When you are not able to lock 

in your price risk, you have risk to the market. Markets move and 

in my cases and in many farmers’ cases, if they have locked in 

their seed and chemical fertilizer and their inputs, if they cannot 

hedge that or sell to lock in that profit, they are at risk for the 

market going down. In my case, the market worked adversely 

against us. 

Senator KLOBUCHAR. You know, you talked about how other people have been affected by this, and I know you are from Luverne. 

Not everyone in this room is probably familiar with Luverne. It 

was actually one of the four towns featured in the Ken Burns 

movie about World War II because so many people were lost from 

this small town of 4,000 people. Could you talk about other people 

that may have been affected by this that you know in this small 

town and the surrounding areas? 

Mr. TOFTELAND. I do know, I just ran across Mike and Brad 

Mouw, a three-generation feed and grain operation that I used to 

buy my feed for my pigs from, and they are affected by this. There 

is also a former banker that I used to work with that finances and 

works with hog producers. I know a lot of livestock producers perVerDate Nov 24 2008 08:54 Sep 14, 2012 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 C:\DOCS\75117.TXT MICHA
17 

sonally that have been affected. They are hooked both ways because they hedge their hogs and also they hedge their feed. So 

there is kind of a double-barrel effect there. 

Senator KLOBUCHAR. For 25 years you have been farming, Mr. 

Tofteland, and you said that now you cannot use the futures market right now, you have not been able to use it since your accounts 

have been frozen. But, personally, what will it take to restore your 

confidence in the market and the safety of segregated customs 

funds so that you would use this market again. 

Mr. TOFTELAND. I believe we are going to need 100 percent confidence that these funds are safe, and going forward, I think we are 

going to have to see some—we are going to have to see some results on—if there was some wrongdoing, we have to see that we— 

I will put it a simple way. If the cows are out, instead of building 

a bigger fence, we have got to make sure the fence holes are fixed 

and that the—you know, maybe we have got to put a little charge 

in the fence so next time the cow sticks its head through the fence, 

he will remember the shock and will not do it again. 

Senator KLOBUCHAR. I will not go there with the electric fence 

and the commodities market, but what you are saying is that you 

think we have to have some rules fixed so this does not happen, 

as well as getting your money back. Is that right? 

Mr. TOFTELAND. That is right. 

Senator KLOBUCHAR. Mr. Blew, Minnesota has more farm co-ops 

than any State in the country, and Senator Thune and I co-chair 

the Congressional Farmer Cooperative Caucus, and I know from 

farmers all the time the central role that co-ops play in managing 

risk, and I would really ask you the same question that I asked of 

Mr. Tofteland. What do you think is necessary to restore confidence 

in this market? 

Mr. BLEW. Well, I just think that we need to ensure the rules 

that are in place are enforced. We have got rules there. Let us just 

make sure that we enforce them. 

Senator KLOBUCHAR. Okay. Very good. Does anyone want to add 

anything to that from the panel? 

[No response.] 

Senator KLOBUCHAR. All right. Very good. Thank you very much, 

Madam Chair. 

Chairwoman STABENOW. Thank you very much. 

Senator Lugar? 

Senator LUGAR. Well, thank you very much, Madam Chairman. 

I would like to ask you, Mr. Tofteland, you mentioned that there 

has to be 100 percent confidence that your funds are safe, and I 

am just curious as to how in this business we are talking about 

today or in any business you can have 100 percent confidence that 

your funds will be safe. Specifically, if you have to rely upon some 

other firm, why would you or those you are associated with have 

come together with MF Global? 

Mr. TOFTELAND. I think what you are relating to is, you know, 

MF Global, did I have any idea that this was going to occur or anything, you mean? The 100 percent confidence relates to—I mean, 

when we came to MF Global, we actually were transferred there 

from a different firm. I think a couple different firms had—a lot of 

companies change and they purchase each other, and we came in 

18 

a transaction from, I think, ING before. But I think the bottom line 

is what you are saying is a lot of companies will fail, and it happens all the time on Main Street. The difference is in this case 

there was customer money that was affected and that was taken. 

So it is really about the money. It is not about—a lot of bankruptcies happen, but the way this bankruptcy has been going forward, it does not make sense because customer money should be 

the first disbursed, and then we would not have this issue with 

customers being affected. 

Senator LUGAR. Yes, well, I would agree with that, and I think 

everyone here does. But the fact is that in business of any sort 

there are risks taken when you are transferring some responsibility 

for a service, in this case the futures market, to somebody. Perhaps 

you may feel this is too complex to understand who you are dealing 

with and who they may be dealing with, but then the panel would 

come back to us and say, but, by golly, there has got to be 100 percent certainty. And I do not think there is such a thing in this 

world. 

What I am curious about is, is anybody on the panel aware that 

you were dealing with MF Global at all and have any idea about 

the nature of that firm and the sort of operations that they were 

involved in? 

Mr. HUPFER. No. I do not think we had any idea at all that they 

were of the scope—that they were involved in some of the investments, some of the things that they were doing. We just cleared 

our trades through there, working with Mr. Hainline’s firm, and we 

had no clue as to any of that. 

Senator LUGAR. Mr. Hainline, since Mr. Hupfer had some confidence in your firm and, therefore, you may have more of a front 

line with this situation, why were you dealing with MF Global? 

Mr. HAINLINE. We trusted the system, Senator. The Board of 

Trade goes to lengths to explain how nobody has ever lost money 

in this situation. You know, it is their standard line that they give, 

and it is a line you could have been proud of up until the last 6 

weeks. 

Your point about 100 percent is right on. There is nothing that 

is 100 percent. So how can you have confidence in our system? If 

we knew that the lenders that finance FCMs got no dollar one until 

segregated funds were all covered, then you could be confident that 

the lenders, if they were doing their due diligence, would, in effect, 

be looking out for the segregated funds. I think that is really the 

key issue that I would like to leave you with. If we had the lenders 

in between the segregated funds and the customers, I think we 

could have much more confidence that you have got due diligence 

that a farmer, a local cooperative cannot perform. The lenders have 

covenants they can put on the FCMs that borrow money from 

them, and that could help lead to a lot more confidence. Maybe not 

100 percent, but a lot more than what we have today, and maybe 

more than we can get from regulators. 

Senator LUGAR. Well, these covenants that you would place on 

the FCMs, as you say, does not, once again, offer 100 percent confidence. But the thing that disturbs me is I had conversations in 

New York a week ago Monday with investment bankers in various 

ways. I was surprised but pleased in a sense that they had been 

19 

conducting what they called ‘‘war games,’’ and essentially this was 

with regard to the European markets and the financial problems 

there. What would happen if various systems failed in Europe or 

the whole system failed or the euro failed or what have you? What 

are the implications back and forth with regard to their institutions? 

Well, obviously, they are very severe. This is the world in which 

we are living. And you would have no way to know that in this 

case FC Global was engaging in buying bonds in some European 

country that is not turning out very well, or maybe you would 

have. I do not know how close the ties are here. But I would just 

say at this particular time, whether it is in the future market for 

agriculture or for anything, this is a very precarious period. 

So I think, you know, we are all of a mind to want to know how 

the CFTC or the U.S. Government in any way can provide greater 

security for farmers and ranchers and so forth. But one of the purposes of this panel this morning, I would think, is these are folks 

like yourselves engaged right on the front lines who have some 

idea of what is going on in the rest of the world, although you may 

not want to know that much about it. And in this particular case, 

the ramifications have come home. 

Thank you, Madam Chair. 

Chairwoman STABENOW. Thank you very much. 

Senator BENNET. Thank you, Madam Chair, and I would like to 

thank you and the Ranking Member for holding this hearing. 

Mr. Hainline, in your testimony you said that—to paraphrase 

what you said, you said if we cannot have confidence in the futures 

market, it is going to mean lower prices for farmers and higher 

prices for consumers. I wonder, since most Americans do not know 

how the futures market works, if you could describe for the Committee in the simplest terms possible how it works and why the result that you describe is the outcome of a lack of confidence in the 

futures market. 

Mr. HAINLINE. I think I will go back to Mr. Tofteland’s example. 

He buys his seed and fertilizer many months ahead of when he is 

going to harvest his grain. He probably should have been buying 

it already for the crop he is going to harvest in October of 2012. 

He then has risk of falling prices because he has locked in his 

input. If he does not use the futures market or an options on a futures market, he either stays long his price risk or he sells it to 

a third party—a local grain company, an international grain company—and at that point he has now entered a counterparty risk 

with whoever that entity is, and he also has no further upside potential if markets would rally. And if his crop is hurt because of 

weather, adverse weather, how does he protect himself if he has 

made a forward cash sale? He cannot. 

And so he becomes much less efficient in his ability to adjust his 

operation to the changing nature in our global environment. Mother Nature just does not give him a phone call and say when it is 

going to be good or bad. He has to make these plans far in advance. 

So as he is unable to be flexible in that, that loss of flexibility 

means less revenue to him as a farmer. 

On the other hand, whoever is selling his product to the flour 

mill or the ethanol plant or the export company or the chicken 

20 

feeder, whoever is selling that is uncertain when they are going to 

buy it from Mr. Tofteland, because he cannot make a decision either. And so all of us that buy food or gasoline are going to have 

a larger price to pay because of the uncertainty on when he can 

sell his product. 

So it makes us inefficient. The seller has no idea what his real 

price can be because he cannot manage his risk, and the buyer has 

the same on the opposite side. So it totally breaks down what is 

the most efficient part, I believe, what really makes agriculture 

such a wonderful system in the United States. It just goes to the 

heart of what those efficiencies are. 

Senator BENNET. And just to be clear for everybody who is 

watching, this market is not a recent creation, this futures market. 

This has been part of American agriculture from the beginning. 

Mr. HAINLINE. Yes. You know, what is it? Since the Civil War 

we have traded futures contracts in Chicago, and it is a system 

that has evolved, and it is just miraculous now. We do not flash 

fingers as much as we did before. It is electronic trading. That 

brings it a lot closer to our farmers. Again, another efficiency that 

I think has been good for most people. But you have got to have 

trust, and this whole situation has shot that. 

Senator BENNET. Well, that brings me to my second question, 

and I would be happy to have the rest of the panel answer this as 

well. You have described well the economics of this for our farmers, 

the consequence of it, but it also has a profound psychological effect. And I wonder if the panelists would mind talking a little it 

about what the scale of this has meant to all of you, to your communities. How large an impact has this been on your work? 

Mr. HUPFER. Well, personally in our situation, we do not have a 

tremendous amount of capital at risk, but it has just shaken the 

confidence for commercial grain firms in the system. The system 

has worked for a long time. It has been very efficient. 

I think, you know, trust goes a long way. Without the ability to 

lock in prices, I think—how do we go out and, like Mr. Tofteland 

was mentioning, lock in his inputs? How do we offer him a price 

for 2012 and beyond where he can deliver—he can lock in a price 

and deliver his grain at a future time. As we buy grain in the commercial companies, commercial sectors, we cannot find a cash 

buyer immediately. We have to hedge. We have to pool our inventories. It is very efficient in how the system works. 

So I guess locally, talking to some of the other firms, it has just 

really shaken the confidence, and everybody is just kind of wondering what is going to come out of this. 

Senator BENNET. Mr. Blew, do you have a view? 

Mr. BLEW. Yes, my comment was just going to be that farming 

is a risky business today, and it is a margin business. We have to 

be able to manage it, and we have to have the confidence in the 

system that we have the capability to manage it. 

Senator BENNET. Mr. Tofteland, if you have got anything else. 

You have been the star witness. 

Mr. TOFTELAND. Just real briefly, because I think a lot of this is 

transparent back on the farm. What happens, it has just been assumed you can transfer your risk or you could call your elevator 

and make a verbal sale to the elevator, and the elevator will turn 

21 

around and hedge their position immediately, and then later they 

will follow up with the paperwork. But they will actually make a 

verbal committed sale by picking your phone up and saying, yes, 

I will sell 10,000 bushels of corn, and he writes it down and makes 

a transaction based on our word. It is just a handshake agreement 

until you follow it up with paperwork. 

We have been sitting back, and I think we take it for granted because there is the SEC and the FTIC and FERA and even the CME 

is all involved in regulating the industry and watching all this for 

us. That is what we have these people for. They are experts in 

what they do. And I think we need to learn to—well, we need to 

fix what is going on here, but going forward, we do have a lot of 

people that are in the ball field working on this. So that will be 

a part of the confidence to get those structures right. 

Senator BENNET. Well, Madam Chair, in my State and many 

States, the farm country is actually leading this recovery as commodity prices have come back, and this could not, I think, have 

happened at a worse time, and at least for my part, I cannot imagine anything that would help restore that confidence than getting 

the money back to the people that wonder where it went. So thank 

you for holding this hearing. 

Chairwoman STABENOW. Thank you very much. I could not agree 

more. 

Senator Grassley? 

Senator GRASSLEY. Madam Chairman, I am going to pass up asking questions of this panel because I want to get to the other panel, 

but I would say that the same concerns that have been expressed 

by all the other people, hearing their problems in their respective 

States, is also true of Iowa as well. So I thank our panel for coming 

here and giving testimony for farmers and their protectors throughout the country. 

Thank you. 

Chairwoman STABENOW. Thank you very much. 

Senator Thune? 

Senator THUNE. Thank you, Madam Chairwoman and Senator 

Roberts, for holding this hearing. As Mr. Blew has said, farming 

is a risky business, and hedging is designed to help farmers and 

producers manage that risk. I cannot help but think in light of 

these recent developments surrounding MF Global that all of us 

have been made aware that a very critical and important tool used 

by production agriculture, and that is, futures markets and hedging, is not as safe as we once thought. 

I have, I guess, three specific questions that I hope get answered 

here, probably perhaps better answered by the folks from MF Global, the regulators, or the exchange. But, one, how was MF Global 

able to continue its risky operations to the point that it had no alternative but to declare bankruptcy? Secondly, how could the MF 

Global bankruptcy result in the loss of hundreds of millions of dollars in segregated accounts without any corrective action being 

taken prior to this happening? And then, finally, how can we be assured that this is not going to happen again? 

And, Madam Chairwoman, I would suggest that I believe we 

have got two very distinct responsibilities. One is to make sure 

that we make every conceivable effort that those who have lost 

22 

money due to the failure of MF Global are made whole; and, secondly, that we do everything within our jurisdictional power to ensure that futures markets are safe for those who use them. And so 

I look forward to the testimony that we are going to receive later 

as well as I appreciate very much what we have heard from our 

panelists already this morning. 

But I do want to come back to some of the ways in which production agriculture uses the markets, and I want to ask the producers 

out there, Mr. Tofteland and Mr. Blew, about when did you start 

using futures contracts to hedge your crops? 

Mr. TOFTELAND. I remember back in college I would come home, 

and I had a course at the university about hedging, and this was 

back in 1998, during the drought, and I asked my dad about a call 

option to reduce the risk of the crops he had already forward contracted and, you know, with the dry weather and not getting the 

crop, and literally from back in those days, came back from school 

and started applying the principles of hedging from very early in 

my career. 

Senator THUNE. Mr. Blew? 

Mr. BLEW. Well, as I have stated, I did not personally use the 

futures markets, but I do indirectly through my cooperative. They 

help me manage my risk very well by helping me to lock in the 

margin. They are doing the input side, and they are also doing the 

grain side. But they have to be able to lay that risk off, and so I 

know that indirectly I am affected because they have to have that 

ability to do that. 

Senator THUNE. And how would you say that hedging has affected your profitability? 

Mr. BLEW. Well, if they do not have the confidence in the system 

to be able to offer me the service that they have by locking in that 

margin, then if I am unable to lock in that margin, I am at risk 

for a potential loss because I cannot lock in my profitability. 

Senator THUNE. Let me ask you both this question: What will 

have the most impact on your profitability in the future—the passage of the next farm bill or the continued safe use of futures contracts? 

Mr. BLEW. I can answer that one pretty quick. The continued 

safe use of futures contracts. 

Senator THUNE. Do you share that view, Mr. Tofteland? 

Mr. TOFTELAND. Yes, I do share that view. I think a risk management package in both cases would be effective. 

Senator THUNE. Let me ask you something about how this problem is impacting just kind of land prices and rents across agriculture. Do you believe that this is a problem that has been widespread enough now in your areas that cash rent land prices are 

going to be affected in 2013 and future years? 

Mr. TOFTELAND. I believe when you look forward, with the futures market we are able to pick a window, look through a window 

to see what the futures prices are a year or 2 years out. And so 

with a lot of cases, a couple years ago, you could not even market 

your crop through a local elevator more than maybe 3 months out 

because of the uncertainty in the markets and the potential risk 

and exposure. It is very possible that could potentially affect rents 

23 

and land if you are not able to look through that window and see 

what the future is offering. 

Senator THUNE. And that is the question. If this collapse results 

in a diminished use of futures to help hedge inputs and commodities in the future, does that impact cash rents? Mr. Blew, do you 

care to comment on that? 

Mr. BLEW. That would be speculation on my part. I certainly can 

make the argument that it would have an effect at some point, yes. 

Senator THUNE. I guess this is more of coming back to the impacts on your operation in the future, and some of you have talked 

about the importance, as you go in dealing with your lenders, too. 

What needs to be done, in your view, moving forward—and this 

question has been asked, I guess, in some different forms throughout the course of the day—so that you will have full faith in the 

morning that when you wake up, your account is not going to be 

frozen and money missing from that account? What would make 

you feel more comfortable and more confident in dealing with your 

banker with regard to what has happened and what needs to be 

done as we move forward. 

Mr. TOFTELAND. As we move forward—I guess I am not sure. 

Senator THUNE. You need a safe system. 

Mr. TOFTELAND. Yes, a safe system, basically. That is correct, 

and confidence. 

Senator THUNE. Clearly what has happened here has demonstrated that whatever—there are things that clearly can fall 

through the cracks. I guess we have learned that lesson. 

Anything, Mr. Blew, you can add to that? 

Mr. BLEW. Well, with all due respect to members of the Committee and everybody in Washington, that is what we are here to 

figure out. 

Senator THUNE. Okay. We appreciate your testimony and your 

willingness to share your personal examples of how this impacts 

you. It certainly has, I think, shined a spotlight on the importance 

of us getting this right so that something like this does not happen 

in the future. 

I think the story here, Madam Chairwoman, is to figure out what 

went wrong and to figure out how we fix it so it does not happen 

again. You have been very helpful in that regard. Thank you. 

Chairwoman STABENOW. Thank you very much. 

Senator Harkin? 

Senator HARKIN. Thank you, Madam Chair. Nobody, I believe, is 

saying that MF Global or any other futures firm owes customers 

a guarantee against all losses. I have heard that. But I want to get 

a sense of whether customers who are trading futures realize that 

under the rules in place when this happened, a futures commission 

merchant could invest segregated customer funds not only in treasury securities and cash but in municipal bonds, securities of Government-sponsored enterprises, commercial paper, corporate notes, 

sovereign debt, money market funds, and even further, could use 

customer funds to trade in-house using what are called repurchase 

and reverse repurchase agreements. Moreover, any profits on these 

investments of customer funds accrue to the firm and not to the 

customer. 

24 

Now, I was looking here at a timeline chart. Pre-2000, a futures 

commodity merchant could invest your customer’s funds in treasuries, municipals, or obligations fully guaranteed by the U.S. Government. That is it. 

Now, look at the timeline from then to now. Now we got into corporate notes and sovereign debt and money market mutual funds. 

And then we got into in-house transactions and on and on and on. 

Welcome to the world of deregulation, folks. That is what you 

get. That is deregulation. And now we hear people say we have got 

to have even more deregulation. I wonder. My question to all of you 

is: Would a farmer, an elevator manager, or any other typical customer of futures commission merchant, such as MF Global, ordinarily know that customer funds were commonly invested in such 

a variety of instruments and securities, profits of which do not accrue to the customer but only to the house? Would a farmer or elevator manager know that? Would you know that, Mr. Tofteland? 

Mr. TOFTELAND. I had no idea. 

Senator HARKIN. Did you know, Mr. Blew? 

Mr. BLEW. No. 

Senator HARKIN. Now, Mr. Hainline probably knew because you 

have a futures commission. 

Mr. HAINLINE. It is possible to know, but it is very difficult to 

find out what the specifics are, Senator. 

Senator HARKIN. Well, do you believe it would affect the decisions of customers, Mr. Tofteland and Mr. Blew, if you knew how 

and with whom they do business if the futures customers knew 

that the merchants were able to invest and move around these customer funds? Would that maybe affect with whom you dealt? 

Mr. TOFTELAND. It certainly would if I knew that—— 

Senator HARKIN. Would transparency help? 

Mr. TOFTELAND. It would. If I had any idea that what was going 

on there—— 

Senator HARKIN. Well, let me ask one last question— maybe not 

quite the last. I see a little more time left. Do you believe it would 

be better if customer funds could only be invested in treasury securities or cash, as I understand is required by the Securities and Exchange Commission as to securities brokers and dealers? I am just 

asking. I am saying, Should we go back to where we were pre2000? 

Mr. TOFTELAND. Well, those investments seem a lot more secure 

than the latter. 

Senator HARKIN. I will read them to you: treasuries, municipals, 

and obligations fully guaranteed by the U.S. Would that give you 

a little bit more—— 

Mr. TOFTELAND. I understand those, 

Senator HARKIN. You understand those, sure. We understand 

those. I am not certain I understand what in-house transactions 

are and purchase and repurchase agreements and how they shuffle 

this money back and forth. And I think that is part of this whole 

deregulation effort, was to put a cloud in there. It is a cloudy kind 

of thing. No one really knows what is going on and how these monies are being used. Quite frankly, these merchant houses are using 

the money to make a profit. I cannot say I blame them. They got 

a bunch of money, and they see some unique investments they can 

25 

make, why not go ahead and do it? Because their argument to us— 

believe me, I have been involved in this since they first came and 

wanted to get rid of the Glass-Steagall Act, which I was one of 

seven members to vote against. Ever since they got rid of GlassSteagall, all we hear about is, well, if they can just use these funds 

and invest it in these things, they make a little profit and, therefore, they become more efficient in handling your money, you see. 

And that is the argument that has been used here for the last 12 

years. And the Congress continually just says, okay, fine, just fine, 

just keep deregulating it. 

Well, I guess I would just ask: Doesn’t the MF Global disaster 

illustrate the unavoidable conclusion that we must have strong, 

transparent regulations for the protections of customers and the 

public? Mr. Blew? Or do you want to just live with this nice big 

deregulation and take your chances, roll the dice? 

Mr. BLEW. No, you know, I cannot speculate. I guess what I 

would—the only response I would have to that is I do believe that 

we have regulations in place, and I am not sure that they were enforced. 

Senator HARKIN. Yes, we have regulations in place. They can invest in all these things. I am asking you, Should they be able to 

invest in all that stuff? 

Mr. BLEW. I am going to let you figure that out, Senator. 

Senator HARKIN. Well, no, I mean, you are at the bottom end of 

this. Mr. Tofteland, should they invest in all these things and not 

even let you know what they are investing in? 

Mr. TOFTELAND. Well, I do not agree that—I personally would 

not have invested in some of that, so if they took the funds that 

I entrusted there and did that, I do not think that should be the 

case. As far as the regulation goes, that would be something for the 

CFTC and your Committee to look at. 

Senator HARKIN. Mr. Hainline, any view? 

Mr. HAINLINE. I tend to agree with you, Senator. If I wanted to 

make those kind of investments, I would either buy them myself 

or invest in the company’s—the stock of a company. If I have got 

segregated funds that I need to have secure, that is not the purpose. 

Senator HARKIN. Very good. I agree with you. 

Mr. Hupfer? 

Mr. HUPFER. Senator, I agree that they should be segregated 

funds and only safe investments, there would be more disclosure. 

We were not aware that our money was being invested in these 

transfers or any of this type of thing was going on. I guess that is 

how I feel. 

Senator HARKIN. Thank you. 

Thank you, Madam Chair. 

Chairwoman STABENOW. Thank you very much. 

Senator Boozman? 

Senator BOOZMAN. Thank you. We appreciate you all being here. 

You all are farmers, and you all are used to taking risks. I think 

you can argue as to what is appropriate or not, but I would like 

to follow up on Senator Harkin in the sense that, again, based on 

the materials that were presented to you as you were sold, you 

know, whether or not to do this, did you—I just want to be clear. 

26 

You felt like you did not understand the risk that you were getting 

into. Is that correct? You did not realize that the funds could be 

segregated, that you could lose your money in this manner? 

Mr. TOFTELAND. That is correct. I was just assuming that would 

be—it is something that has been done and trusted for 100 years. 

Senator BOOZMAN. I have got the CME, Clearing Financial Safeguards, you know, and this is a lot of information. But when you 

read through it, it does appear that things are pretty secure. So 

that is a fair statement, because, again, we can argue as to what 

is appropriate and what we need to do in the future. But at the 

very least, you know, you need to be aware as you get into a deal, 

you know, what is at stake, what the risks are, and it seems very 

apparent that was not the case. 

Again, thank you very much for being here. 

Chairwoman STABENOW. Thank you very much. 

Senator Brown? 

Senator BROWN. Thank you, Madam Chair. Thank you for holding this hearing, and I appreciate especially the comments from all 

of you. I just arrived, but I saw your testimony and appreciate your 

comments about needing to build confidence. And Senator Harkin’s 

comments especially were important. You know, it is not often we 

have an opportunity, I think, to see—to put a face on decisions 

made by people in this town, and that is particularly important in 

this hearing, especially the two gentlemen on the right. It is an important reminder that the actions of Congress and watchdogs like 

SEC, like CFTC, have real-world consequences. 

Like most States, Ohio is home to companies that have fallen victim again to the culture of recklessness and greed. In Upper Sandusky, a town about 40 miles west of where I grew up, a feed and 

pork producer, Kalmbach Feeds, uses a commodity broker who uses 

MF Global. When they heard that MF Global was experiencing difficulties due to risky bets on European debt, they tried to withdraw 

their funds and could not. A metal refinery in southeast Ohio, in 

Appalachia, Ohio Precious Metals, was told their money was safe. 

Now both these companies are stuck in limbo as the CFTC and 

CME search for $1.2 billion. They are the latest of the victims of 

Wall Street fraud and greed and whatever other adjectives we 

want to use. 

Let me, before my question, put a little bit of historical context. 

In 2000, the CFTC relaxed its Rule 1.25 restricting how companies 

can invest client funds, a giant change that helped create the conditions for MF Global’s failure. That same year, Congress passed 

a law preventing regulation of over-the-counter derivatives, which 

then grew to a $464 trillion market in the first half of 2008. Last 

year, the SEC brought charges against Goldman Sachs for selling 

its clients’ mortgage bonds that it knew were doomed to fail, then 

betting against those very bonds, as you have read by now. 

One of these misguided policies hurt investors; another caused a 

catastrophe for our Nation’s economy; the third did both. 

These episodes demonstrate that rules and accountability must 

keep pace with developments in the markets. Last year, DoddFrank included what is the now famous Volcker Rule to ban banks 

from making risky proprietary trades for their own accounts, just 

like those made by MF Global. We passed this provision because 

27 

these bets are dangerous and because they pit banks against their 

own customers. And when that happens, the customer always 

loses. Unfortunately, efforts like the Volcker Rule are met with 

powerful opposition from powerful special interest lobbyists in this 

town. 

Wall Street and its allies in Washington are seeking to prevent 

implementation of the important reforms we passed last year. They 

are seeking to defund not only they wanted to weaken regulations 

further, as Senator Harkin said; they are seeking to defund agencies that watch over financial markets. So as Mr. Blew—as you 

both said, we are not able—you know, that these rules may have 

been on the books. They were not carried out partly because Wall 

Street allies in this town and in this Senate want to defund these 

agencies so that even if the rules are in place, there is not the 

money to enforce them. 

Finally, these same interests blocked the appointment just last 

week of the Director of the new Consumer Financial Protection Bureau, somebody I have known for 20 years from Ohio, Richard 

Cordray, whose sole mission was to protect Main Street against 

these kinds of Wall Street abuses. And unlike ever in Senate history, he was blocked not because he was not qualified but because 

more than 40 Senators here, allied with Wall Street, did something 

they had never done before. They blocked a nominee because they 

did not like the agency, even though the agency had been created 

by an act of Congress with more than 60 votes, a supermajority, 

2 years later. 

Markets require transparency and clear rules of the road for all 

participants and accountability when those rules are broken. 

Watchdog agencies need adequate resources to prevent unscrupulous Wall Street actors from again taking advantage of farmers and 

small manufacturers in my State and across the country. It puts 

companies in States like mine at risk that rely upon these markets 

to deal with business predictability to smooth out the busts and the 

booms. 

So here is my question for each of the four of you, starting with 

Mr. Blew on the right: What would you say to those who, one, want 

to defund the regulators; two, want to weaken the regulations; 

three, fail to confirm somebody that would be a consumer watchdog—pardon my mixed metaphor but would be a cop on the beat 

for consumers? What do you say to those politicians and regulators 

that seem so little interested in protecting Main Street? Mr. Blew? 

Mr. BLEW. Well, I cannot—again, I cannot speculate whether or 

not we need to regulate, deregulate, overregulate, whatever we 

need to do. I just know that we need confidence in the system to 

be able to manage risk, and so however we achieve that, that is 

fine. But whatever rules we do have in place or have in place in 

the future, we need to ensure that they are enforced. 

Senator BROWN. Okay. Mr. Tofteland? 

Mr. TOFTELAND. I do not know if it is an issue so much here 

whether it is left or right. It is really an issue of what is right or 

wrong. And I think we can go ahead and build a bigger fence. But 

if we have—and as long as we have the guy that builds the fences 

or people that build the fences show the cows where the holes are 

28 

at, you could build the biggest fence in the world and it will not 

work. So I think we have maybe a problem with some big cows. 

Senator BROWN. Well put. 

Mr. HAINLINE. I think your point on efficient transparency is 

very important. I think oversight is really key. The reason we are 

here today is this Committee has oversight over this area, and so 

I think oversight in anything the Government gets involved in is 

key. And so with respect to your question, I am not sure what the 

oversight of those other positions are. 

Senator BROWN. Mr. Hupfer? 

Mr. HUPFER. I guess I feel we need to enforce the regulations 

that are in place. I think Mr. Harkin made some good points about 

what can be invested, where the money can be invested, whether 

it is safe investments, and transparency is a huge issue. I think 

this body—like I said, as we move forward, that is why we are 

here, to get some answers and to try to come to some kind of a resolution on this. 

Senator BROWN. Thank you. 

Thank you, Madam Chair. 

Chairwoman STABENOW. Thank you. 

Senator Chambliss? 

Senator CHAMBLISS. Thanks, Madam Chair. 

I understand that, gentlemen, you all have testified that you 

were not aware of the use by MF Global—whether they did so or 

not, but you were not aware of the use by them of your funds to 

carry out proprietary trades. Is that a fair statement from all four 

of you? 

[No response.] 

Senator CHAMBLISS. So my question is: What would you have 

done if you had known that? What do you think your recourse 

rights are? And what would you have done if you had somehow 

been advised that they were using your funds for proprietary 

trades? Mr. Hupfer, let us start with you. 

Mr. HUPFER. Well, I guess Mr. Lugar made the point that it is 

a risky world. I think that any good businessman would spread his 

risk, probably open an account at another clearing firm, maybe 

more than one account, and kind of divide your capital or spread 

your risk in that manner. 

Senator CHAMBLISS. Okay. 

Mr. HAINLINE. If the degree of leverage had been known, as has 

come out subsequent, I am sure we would not have been clearing 

MF Global. 

Mr. TOFTELAND. I just want to say that businesses are going to 

continue to fail, and when a business fails, customer assets have 

to be preserved and have to be—this has happened before in this 

industry. Companies have failed. Customer assets have transferred 

the next day, and we went on his business. In this case something 

else happened, and that is what we ought to look into. 

Mr. BLEW. Well, without a doubt we would have spread the risk 

to other futures commission merchants, 

Senator CHAMBLISS. My point in asking that is that as we move 

forward, I wonder if there ought not to be some measure by which 

a customer like the four of you would be made aware of such a 

transaction. And it is easy to look back and see now what you 

29 

would have done, but I think I hear all of you saying you would 

not have been happy with the fact that there were proprietary 

trades using your money. 

Lastly, and if this has been asked, I apologize, but I come from 

ag country, too. I know how hard it is in these times to get funding 

for your operating loans, and this is that time of year when farmers are negotiating for operating loans. What kind of impact has 

this had in your respective parts of the country with your customers? Again, Mr. Hupfer, let us start with you. 

Mr. HUPFER. Well, at this point in time, in terms of us being a 

commercial agribusiness, in terms of financing for farmers, I do not 

think that is really—I do not think we have the real true answer 

on that yet. I do not think we are far enough along with this. I 

have talked to some of the lending institutions, and I think everybody is just trying to see how this plays out. I guess I would defer 

maybe over to Mr. Blew and Mr. Tofteland on that. 

Mr. TOFTELAND. Well, I have yet to speak with my banker in detail. After this hearing when we get back, we will talk some more. 

He has assured me that he is with us 100 percent and wants to 

work with us in the future. You know, in my case we will have to 

borrow more money. 

Mr. BLEW. Well, I think grain as a lender was always seen as 

a secure bet, and I believe that if we do not restore the confidence 

in the system, that could come into question. It is fairly simple 

math right now. Our lenders puts working capital requirements on 

us of seven times the number, and so you take the number that 

we have lost and take it times seven, and that is what we are out 

as far as what we can borrow. 

Senator CHAMBLISS. Thanks, Madam Chair. 

Chairwoman STABENOW. Thank you very much. 

Senator Gillibrand? 

Senator GILLIBRAND. Thank you, Madam Chairwoman, for holding this hearing. Thank you, Mr. Ranking Member. Thank you all 

for giving us your testimony. 

The questions that I had have been asked, and I appreciate the 

time you have taken to brief this Committee, and I will reserve the 

remainder of my questions for the next panel. 

Thank you very much. 

Chairwoman STABENOW. Thank you very much. 

Senator Hoeven? 

Senator HOEVEN. Thank you, Madam Chairman. 

I know this line of questioning has been asked. I would like to 

go into it for just a minute. But, again, it goes to if the company 

was not dipping into customer accounts, segregated accounts, how 

could the customer account or the segregated account come up 

short, in your opinion? Is there any way those accounts could have 

been short unless that was happening? And I would start with Mr. 

Hupfer and also ask Mr. Hainline to respond to that as well. 

Mr. HUPFER. Could you—I guess your question is how could we 

have known that they were—— 

Senator HOEVEN. No, no. 

Mr. HUPFER. I am sorry. 

Senator HOEVEN. In your opinion, if MF Global was not taking 

dollars out of those custodial accounts or dipping into those custoVerDate Nov 24 2008 08:54 Sep 14, 2012 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 C:\DOCS\75117.TXT MICHA
30 

dial accounts for company purposes, how would customer accounts 

come up short? In your opinion, is there some other way other than 

the company going into those accounts? 

Mr. HUPFER. I guess I do not see how there would be any other 

way. 

Senator HOEVEN. That is my question. 

Mr. HAINLINE. It is either sloppy recordkeeping or it is theft. 

Senator HOEVEN. And was there any indication at any time to 

you that customer accounts were being used for company purposes, 

any indication, any reporting to you at any time? 

Mr. HUPFER. No. 

Mr. HAINLINE. No. 

Senator HOEVEN. Did you try to withdraw dollars at any time 

when you realized MF Global was having trouble? Or at what point 

did you try to withdraw dollars, and what was the reaction? Were 

you stopped, not stopped? What was the communication? 

Mr. HAINLINE. Towards the last of the week that they were trading, lots of smoke in the situation. To transfer positions, normally 

the positions transfer one day and the money transfers the next 

day. If you are an FCM that would be accepting these new positions, your risk is you get these new positions in a transfer and the 

funds are frozen the following day, and that chilled many FCMs 

from accepting transfers at the end of this. So it was another result 

of this problem. 

Senator HOEVEN. So by the time you were made aware of the 

problem or the magnitude of the problem, you really did not have 

an ability to withdraw customer funds? 

Mr. HAINLINE. Well, that is the reason there are so many 

bounced checks out here. 

Senator HOEVEN. Mr. Hupfer, anything? 

Mr. HUPFER. I would say that is correct. We had no knowledge, 

we would not have that ability. There was no opportunity to do 

that. 

Senator HOEVEN. To Mr. Tofteland and Mr. Blew, is your understanding still that you will receive 72 percent of your account, either directly or transferred to another company? 

Mr. TOFTELAND. That is my understanding. 

Senator HOEVEN. And you have not had any communication beyond that? 

Mr. TOFTELAND. Not beyond that. Just that they are looking at— 

or the trustee and the judge have worked to get it to 72 percent. 

Beyond that I am not sure what will happen. I want to make 

sure—I do not want to see that our customer funds are thrown into 

the pool with the creditors because if there is $40 billion at the 

holding company level and they liquidate the FMCI down here or 

MF Global, Inc., you know, there should be funds available. We 

should be made whole immediately. We would not be here if that 

was the case. 

Senator HOEVEN. Absolutely, and I absolutely understand how 

important that is. So at this point the indication to you from the 

trustee is 72 percent of your funds would come back to you. Any 

indication of timeline and any further indication on this issue of 

whether customer funds have a priority versus bond or equity holders? 

31 

Mr. TOFTELAND. I wish there was more transparency in that 

process. I wish that we could look at—I wish the trustee would released where the money is at that he has found already so we could 

at least find out if it is at JPMorgan Chase or if it is—I mean, 

where it is at. It would be nice to see some transparency in that 

process. You know, maybe it just an issue of understanding. I hope 

is not a conflict because it is kind of confusing how this all works, 

but in any bankruptcy, when you have customer funds, in any business, it has got to be kept separate. It is like if I bring my pickup 

to the car dealership to get the oil changed and over the weekend 

they close the doors, the bank comes in, and the next day they put 

my pickup on the lot with the cars that are going to be foreclosed 

on, and, you know, my pickup is my pickup. So it is customers. So 

it really should not be an issue. 

Senator HOEVEN. Well, transparency, understanding how they 

are going to approach this issue, and then also timeline, knowing 

when you are going to have use of your dollars, all these are important. 

Mr. TOFTELAND. Exactly. I have no idea. Maybe 3 weeks, maybe 

4 weeks, but no idea for sure on my particular case. 

Senator HOEVEN. And that is important information for you and 

for other producers. 

Mr. Blew, same questions. 

Mr. BLEW. Well, I would be the same way. We have not heard 

anything officially. We know that is what has been proposed, but 

nothing official as of yet. 

Senator HOEVEN. And how is that communication being provided 

to you? 

Mr. TOFTELAND. In my case, working with the Commodity Customer Coalition, and they represent 8,000-some customers now, 

farmers, ranchers, elevators, and individual people, so that is 

where I get my information recently, and working with them. 

Senator HOEVEN. And, Mr. Hupfer and Mr. Hainline, communication to you and your ability to communicate with your customers, could you just touch on that? 

Mr. HUPFER. Communication-wise and working with Advanced 

Trading, Mr. Hainline’s company, has been great. They have kept 

us abreast of the situation so we have some kind of an idea what 

to tell our customers. Right from the get-go, they were on top of 

this, and I give them high marks for that. 

Mr. HAINLINE. The trustee’s website has a lot of information. The 

CME has done a good job of putting out information. There has 

been a number of media reports. So, you know, those are the areas 

that we are able to get information from. 

Senator HOEVEN. With customer dollars tied up, though, for your 

farmers and ranchers, what are they doing? How are they operating without those dollars? 

Mr. HAINLINE. They are probably having to ration their risk 

management activities. They are performing less risk management 

than they would have otherwise. So they are taking more risk because they do not have the assets there that are tied up. 

Senator HOEVEN. Mr. Hupfer. 

Mr. HUPFER. I would agree with what Mr. Hainline said. 

32 

Senator HOEVEN. Thank you, gentlemen, for coming in. We appreciate it very much. 

Chairwoman STABENOW. Thank you very much. 

Senator Conrad, did you have questions? 

Senator CONRAD. You know, in the interest of time, given the 

lateness of the hour, let me just say what an excellent panel this 

has been. We very much appreciate your willingness to come forward and state publicly what has happened to you. You certainly 

have our sympathy. We are hopeful that before this is over there 

will be 100 percent recovery. Certainly that is what you deserve. 

And I think this Committee will be very focused on trying to make 

certain that you get every dime back that you put in customer accounts that should not have been at risk. 

I thank the Chair. 

Chairwoman STABENOW. Thank you very much. I think everyone 

on this Committee absolutely agrees with that statement. 

I notice that Senator Nelson has just joined us. Senator, I do not 

know if you have questions as we are wrapping up this panel. 

Senator NELSON. No. I think most of the questions have been 

asked. I will wait for the next panel. Thank you, though, Madam 

Chair. 

Chairwoman STABENOW. Thank you very much. 

Thank you again to each of you for traveling here to be a part 

of this, and I want you to know that we are laser-focused on doing 

everything in our powers to make sure you get your money back. 

So thank you very, very much, and we would excuse you and ask 

our next panel to come forward. We will take a moment as we 

change panels. Thank you. 

[Pause.] 

Chairwoman STABENOW. Thank you very much for joining us for 

this very important hearing. Let me introduce our witnesses. 

First, our first witness is Mr. Jon Corzine. Mr. Corzine is the 

former Chairman and CEO of MF Global Holdings. Before becoming CEO of MF Global, Mr. Corzine was the Governor of New Jersey from 2006 to 2010. Prior to serving as Governor, Mr. Corzine 

served as a Senator from New Jersey. From 1975 to 1999, he 

worked for Goldman Sachs as a bond trader, eventually becoming 

chairman and CEO. 

Next we have Mr. Bradley Abelow, president and chief operating 

officer at MF Global. Prior to joining MF Global, Mr. Abelow was 

a founding partner of New World Capital Group. Before co-founding New World, he was chief of staff to Governor Corzine. 

Lastly, we have Mr. Henri Steenkamp, chief financial officer for 

MF Global. Before joining MF Global, Mr. Steenkamp spent 8 years 

with PricewaterhouseCoopers, including four years in the New 

York office as part of its transaction services group where he managed a variety of capital-raising transactions on a global basis for 

multinational companies. Mr. Steenkamp is also a chartered accountant. 

As with our previous panel, we would ask that you rise so I could 

administer an oath and ask that you raise your right hand. Do you 

swear that the testimony you are about to present is the truth, the 

whole truth, and nothing but the truth, so help you God? 

Mr. CORZINE. I do. 

33 

Mr. ABELOW. I do. 

Mr. STEENKAMP. I do. 

Chairwoman STABENOW. Thank you very much. 

At this point we will welcome Mr. Corzine. 

STATEMENT OF HON. JON S. CORZINE, FORMER CHAIRMAN 

AND CHIEF EXECUTIVE OFFICER, MF GLOBAL HOLDINGS 

LTD., NEW YORK, NEW YORK 

Mr. CORZINE. Thank you, Chairwoman Stabenow, Ranking Member Roberts, and distinguished members of the Committee. The 

statements of the previous panel pretty powerfully confirm the 

harsh fact that MF Global’s bankruptcy has devastated people’s 

lives and undermined confidence in markets. I recognize that my 

concerns about their anguish and loss of confidence does not provide solace for those losses or hardships, and that is true whether 

those hurt are customers, employees, or investors. 

As the chief executive officer of MF Global—and I say this with 

all sincerity—I truly apologize to all those affected. 

As you know, I have provided a written statement to the Committee, and I testified before the House Committee on Agriculture 

last week. I am here to answer your questions as well. Before I do, 

I wish to make a few additional points in light of my earlier testimony. 

Several of the questions last week concerned whether I was 

aware of any money that belonged to customers being used improperly. I tried to answer those questions to the best of my ability, but 

I want to be clear. I never gave any instruction to misuse customer 

funds. I never intended anyone at MF Global to misuse customer 

funds. 

I also want to address the missing money. Again, as I said, I was 

stunned to learn that hundreds of millions of dollars of funds were 

unreconciled on Sunday evening, October 30th. And while people 

worked very hard into Monday morning to reconcile the accounts, 

ultimately their efforts were unsuccessful. 

I note that in response to questions about the whereabouts of the 

missing funds, both CFTC Commissioner Sommers and the SIPC 

trustee explained that, to trace missing funds, it will be necessary 

to analyze and reconcile multiple hundreds of pages of daily transactions, multiple bank statements from many countries, and to review account records of more than 38,000 customers. In the ordinary course of business while I was at MF Global, I would not have 

seen those records, and I have no access to them now. 

What I do know is that over the last days at MF Global I was 

focusing on selling the company and liquidating assets so that 

there would be adequate cash and resources to handle what ultimately became a run on the bank. 

For example, on Thursday I directed the sale of approximately 

$1.3 billion in commercial paper in order to meet anticipated customer demands. I also directed the sale of hundreds of millions of 

dollars of MF Global proprietary assets. On Friday I directed sales 

of other assets, including approximately $4.5 billion of Government 

agency bonds and attempted to sell other securities. 

As I sit here today, I do not know whether all of these and many 

other transactions were properly recorded and effectuated, or 

34 

whether banks and other counterparties involved in such transactions properly credited the right accounts for these sales, or are 

holding money that is rightfully due to either MF Global or its customers. Nor do I know whether the back-office professionals at the 

firm or at other institutions made errors or miscalculations under 

the extraordinary stress. 

Questions have also been raised about the compliance and risk 

systems at MF Global and the controls on segregated funds. During 

my tenure we employed, including many new hires, dozens and 

dozens of highly regarded and trained professionals in the areas of 

risk, finance, compliance, legal, internal audit, and back-office operations. We also retained prominent outside auditors, consultants, 

and lawyers to make sure MF Global operated lawfully. Indeed, 

until Sunday night before the bankruptcy, I believed that the people and systems at MF Global were properly protecting client 

funds. 

For example, on the Friday before the bankruptcy, JPMorgan 

Chase contacted me and others at the firm about certain overdrafts 

and whether funds had been transferred in compliance with CFTC 

rules. I had no personal knowledge about the issues, so I asked 

people, senior people in the back-office in Chicago and Legal Department to become directly involved in resolving these issues. So 

even in the midst of the chaotic last days of business, I had confidence in our people and systems. 

So before I respond to your questions, I want to say again, I 

apologize to our customers, the farmers and ranchers, the gentlemen that we saw here today, and the people they represent in the 

real world, our employees and our investors. My pain, and my embarrassment, do not blind me to the fact that they bear the brunt 

of the impact of the firm’s bankruptcy. 

I am willing to respond to the Committee’s questions. 

[The prepared statement of Mr. Corzine can be found on page 

101 in the appendix.] 

Chairwoman STABENOW. Thank you very much. 

Mr. Abelow? 

STATEMENT OF BRADLEY ABELOW, PRESIDENT AND CHIEF 

OPERATING OFFICER, MF GLOBAL HOLDINGS LTD., NEW 

YORK, NEW YORK 

Mr. ABELOW. Madam Chairwoman, Ranking Member Roberts, 

members of the Committee, thank you for having me here today. 

The bankruptcy of MF Global was a tragedy for our customers, 

our employees, and our shareholders. For many of our customers, 

including many of your constituents who have still been unable to 

retrieve funds that are rightfully theirs, it has imposed extreme financial hardship. More than 2,500 employees have either already 

lost or will soon lose their jobs through no fault of their own. 

Shareholders have seen the value of their investments reduced to 

almost nothing overnight. 

As the president and chief operating officer of MF Global, I am 

deeply sorry for the hardship they have all endured. While I know 

that nothing I say can ease their pain, I hope that through my testimony today I can help this Committee understand what hapVerDate Nov 24 2008 08:54 Sep 14, 2012 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 C:\DOCS\75117.TXT MICHA
35 

pened at MF Global and how we are attempting to unwind the 

company in a manner that provides maximum value for all parties. 

I joined MF Global in September 2010 as chief operating officer. 

I was given the additional title of president in March 2011 and 

served in that capacity through the bankruptcy filing this October. 

After the filing, the firm’s board asked me to remain in my position 

to work with the various trustees and administrators to close the 

firm’s operations, which I have attempted to do over the last 6 

weeks. 

From my perspective, based on what I was able to observe at the 

time, there were a number of factors that led to MF Global’s demise. First, it appeared that in mid-October of this year the market 

had become increasingly concerned with the firm’s exposure to European sovereign debt. Second, beginning in late October, the ratings agencies rapidly and repeatedly downgraded the firm’s credit 

rating. Third, the company reported disappointing earnings on October 25. The combination of those three events— increased concern about exposure to European sovereign debt, a series of ratings 

downgrades, and disappointing earnings— created an extremely 

negative perception in the market resulting in a large number of 

the firm’s trading and financing counterparts pulling away from 

MF, dramatically reducing the firm’s liquidity. That reduction in liquidity—a classic run on the bank—led MF Global to attempt to 

sell all or part of the firm in order to provide liquidity and protect 

the interests of our employees, shareholders, creditors, and customers. When those efforts failed, MF Global filed for bankruptcy 

on October 31st. 

I know this Committee is interested in finding out what amount 

of segregated client funds went missing in the final days, how it 

happened, where those funds are, and what might eventually be returned to the firm’s clients. I am deeply troubled by the fact that 

customer funds are missing, and I can assure you that I share your 

interest, and the public’s interest, in finding out exactly what happened. At this time, however, I do not know the answers to those 

questions. They are being investigated by the trustees, who have 

taken over management of MF Global and have control over its 

records and accounts, and a host of regulatory and investigative 

agencies. While I do not know what they have found, I do know 

that all of the parties are working hard to find answers, and I hope 

they are able to get to the bottom of the issue as soon as possible. 

Since the company filed for bankruptcy, I have focused every day 

on minimizing the effect on customers and employees. There is no 

way to turn back time and undo all of the damage caused by the 

collapse of MF Global, but in the last 6 weeks, I have worked day 

and night to reduce costs and maximize the remaining value in the 

business. 

Because MF Global was a global firm, with operations on exchanges in more than 70 countries, there are separate entities with 

separate systems and books around the world, and I have worked 

to foster cooperation and communication among those entities. 

There are a number of different parties now responsible for 

unwinding the firm’s operations, and it has been an enormous effort to coordinate with them to generate the maximum possible recovery of assets. 

36 

While it is only a small measure given the number of people who 

have lost their jobs, I am doing whatever I can to help former employees find new employment. 

I believe it is important to examine the issues that led to MF 

Global’s demise, and the firm has attempted to be as open and 

transparent as possible. I hope I can provide some assistance to the 

committee in its investigation today. 

As I said, there is no way to undo the damage that has been 

done by MF Global’s bankruptcy. But it is my hope that efforts 

such as this one to gather facts and provide a clear picture of what 

occurred will assist policymakers, regulators, and participants in 

the financial services industry in avoiding such tragic events in the 

future. 

I look forward to answering your questions. 

[The prepared statement of Mr. Abelow can be found on page 96 

in the appendix.] 

Chairwoman STABENOW. Thank you very much. 

Mr. Steenkamp? 

STATEMENT OF HENRI J. STEENKAMP, CHIEF FINANCIAL 

OFFICER, MF GLOBAL HOLDINGS LTD., NEW YORK, NEW YORK 

Mr. STEENKAMP. Chairwoman Stabenow, Ranking Member Roberts, and distinguished members of the Committee, thank you for 

this opportunity to make this brief statement. My name is Henri 

Steenkamp, and I am the chief financial officer of MF Global Holdings Limited, a position I have held since April of this year. 

Let me say at the outset that I am deeply saddened, upset, and 

frustrated that money belonging to MF Global Inc.’s customers has 

been frozen or is missing. I know, however, that my reactions cannot be compared to those of the people who are suffering with this 

issue. Along with certain other senior executives of MF Global 

Holdings Limited, I have remained at my post following the bankruptcy filing, and I am working diligently to do what I can to maximize the value of the firm for all interested parties. That said, because of the SIPC trustee’s rules and policies, I unfortunately have 

not been able to participate in the current efforts to find the missing funds. 

While I am deeply distressed by the fact that customer monies 

have not yet been fully accounted for, I unfortunately have limited 

knowledge of the specific movement of funds at the U.S. brokerdealer subsidiary, MF Global Inc., during the last 2 or 3 hectic 

business days prior to the bankruptcy filing. This is in part because 

of my global role and in part because, during those days, I was 

taken up with other serious matters. 

As the global CFO, I had many different functions, but principal 

among them was the effort to, one, ensure that the holding company’s consolidated financial accounts complied with all U.S. accounting and reporting requirements; and, two, to work closely 

with our investors and our rating agencies. 

As its name suggests, MF Global Holdings Limited, my employer, 

is a global holding company with approximately 50 domestic and 

foreign subsidiaries. Each of the regulated subsidiaries generally 

had its own or a regional chief executive officer, chief operating officer, chief financial officer, and others obligated to independently 

37 

discharge the customary duties of those offices according to its 

home jurisdiction’s regulatory requirements. All of these positions 

were filled by highly experienced professionals. Direct involvement 

with operational matters such as bank accounts or fund transfers 

has never been part of my duties. 

It is, of course, important to understand the way in which segregation issues were handled at MF Global Inc., the subsidiary that 

acted as a futures commission merchant in the ordinary course of 

business. To avoid confusion, where it is necessary to specifically 

refer to MF Global Inc., I will call it ‘‘MFGI’’ in my statement. 

MFGI held all U.S. FCM customer funds required by law to be 

segregated, and all segregation calculations were performed by experienced MFGI personnel in Chicago overseen by MFGI finance 

professionals. To my understanding, MFGI’s segregation of client 

funds has been reviewed repeatedly by the firm’s outside auditors 

and regulators over a long period of time. 

As a general matter, I was not involved with the details of the 

segregated funds in the course of my duties as global CFO, nor 

with the complex segregation calculations performed by MFGI in 

Chicago and reported to regulators on a daily basis. 

The week prior to the bankruptcy filing saw, among other things, 

multiple rating agency downgrades in quick succession, extraordinary liquidity stresses, and efforts to sell all or part of the firm. 

It was a time of constant pressure and little or no sleep, with a significant number of critical issues to resolve. 

As the CFO of the holding company, my attention was appropriately focused on crisis management and strategic issues relating 

to the sale of the company. On Monday, October 24th, Moody’s announced it was downgrading MF Global’s credit rating by one 

notch, leaving the firm with the lowest possible investment grade 

rating. This was followed by further downgrades throughout the 

week, the speed and severity of which were unprecedented in my 

experience and placed extraordinary pressure on the firm’s liquidity. 

As the situation deteriorated, the sale of the FCM business and/ 

or the firm was pursued. In between my dialogue with the rating 

agencies, I dedicated my time to the daunting task of facilitating 

the due diligence necessary for an acquisition or asset sale almost 

exclusively in the period commencing on the evening of October 

27th and ending with the decision to file for bankruptcy on the 

morning of October 31st. 

On Sunday night, October 30th, when a deal for the acquisition 

of all or part of the company appeared to be close at hand, I first 

learned of a serious issue with MFGI’s segregated fund calculations. Unfortunately, as the Committee is aware, the efforts to reconcile segregation calculation were not successful, and the deal fell 

through, and I along with others from MF Global promptly notified 

our regulators about the segregation issues. 

I understand that the Committee, MFGI’s customers, and the 

public have many unanswered questions about the customer funds. 

I share many of these questions, and I am personally extremely 

frustrated and distressed that they remain outstanding and that 

client funds are missing. 

38 

I would be pleased to answer the Committee’s questions. Thank 

you. 

[The prepared statement of Mr. Steenkamp can be found on page 

151 in the appendix.] 

Chairwoman STABENOW. Thank you very much. 

First, for the information of the members, we will be breaking, 

understanding there is business that will be done at the caucus 

lunches, so we will break about 1 o’clock and come back at 2:15 to 

continue. We have much to do today, but we will take that opportunity to break. 

First, Mr. Corzine and Mr. Steenkamp, on May 20, 2011, you 

both signed certificates required by Sarbanes-Oxley legislation assuring that MF Global’s internal controls over financial reporting 

were accurate, and I have copies of that. And I am wondering, 

given what you know today and the $1.2 billion potentially in customer funds that are missing, would you sign this document again? 

Mr. Corzine? 

Mr. CORZINE. Senator, given what we know today, you would not 

sign that document because you would not have had the assurances 

of the people, the systems, the procedures verified by all of those 

that were responsible for internal confirmation that the data was 

accurate. And, clearly, as has been repeated, there is certainly 

some amount—$1.2 billion or $600 million, different numbers—of 

dollars that are unreconciled with regard to segregation accounts. 

Chairwoman STABENOW. Mr. Steenkamp, would you sign this 

document again? 

Mr. STEENKAMP. Senator, I think knowing what we know today, 

again, at this point in time, and knowing that there are missing 

customer funds from what we understand, I would not be able to 

sign that. But, you know, prior to this point, there were controls 

that, as far as I was aware, had not operated—that had not operated before this point in time. 

Chairwoman STABENOW. You know, it is very difficult listening 

to the chief financial officer or the CEO or the COO indicating surprise that there were not adequate controls on the management of 

the money. I guess what we heard on the first panel was very simple. Where is the money? I mean, how do you answer that? Where 

is the money from funds that were supposed to be kept separate, 

customer money? 

Mr. Steenkamp, as CFO, where is the money? 

Mr. STEENKAMP. Senator, unfortunately, I do not know where the 

money is. 

Chairwoman STABENOW. Well, who does? 

Mr. STEENKAMP. Well, Senator, part of my job was not to approve 

transfers of client funds. It was not to be involved in the process 

of client funds. Those operational aspects occurred at MF Global 

Inc. as well as at all the other regulated entities around the world, 

and we had experienced senior officers executing those operational 

controls. 

Chairwoman STABENOW. Mr. Corzine, where is the money? 

Mr. CORZINE. Senator, enormous numbers of transactions were 

taking place in those very final days—I tried to put that in my 

statement—about the 38,000 customers, the many countries, and 

those need to be parsed through to arrive at an answer. We need 

39 

the facts on that. It is not only from those of us who do not see 

those records, but even from the people who now have those 

records, it is a very, very difficult task. 

Many of us had reasons to believe when we signed statements 

like you presented that we had the people, the policies, and the 

procedures in place to give assurance. We would not have signed 

those on May 20th or other times while we were there if we did 

not feel those were secure. At the time that occurred on that Sunday evening, October 30th, it is clear that something was amiss, 

and that needs to be discovered what that was based through all 

of those transactions that I tried to outline. 

Chairwoman STABENOW. Okay. And, Mr. Abelow, for you as well, 

where is the money? We are looking at the top three people of the 

company who are responsible for the overall internal controls of 

this company. And so, Mr. Abelow, where is the money? 

Mr. ABELOW. Senator, as I said in my statement, I do not know 

where the money is. As of the filing of bankruptcy on October 31, 

investigations were commenced by a number of investigative authorities under the direction, presumably, of the SIPC trustee who 

has been put in place, and we have not had access to the results 

of that investigation or any information about the status of that investigation. 

I am as anxious as you are to hear the results of that investigation and be able to answer the question. 

Chairwoman STABENOW. Well, let me ask, did any of you authorize, approve, or know of money transfers from customer segregated 

accounts to the firm’s broker-dealer accounts in the final days or 

weeks of MF Global or before then? Mr. Corzine? 

Mr. CORZINE. Senator, as I said in my opening remarks, I never 

directed anyone at MF Global to misuse customer funds. I never 

intended to, and as far as I am concerned, I never gave instructions 

that anybody could misconstrue. 

Chairwoman STABENOW. So you are saying you did not authorize, 

approve, or know of fund transfers? 

Mr. CORZINE. Well, in a general sense, there are all kinds of fund transfers that are taking place. Anytime there is a sales of $1.3 billion worth of commercial paper, there will be fund transfers associated—— 

Chairwoman STABENOW. I am talking about between broker-dealer accounts, though, and when we are looking at leading up—you 

know what I am asking in terms of the final weeks 

Mr. CORZINE. That is why I am trying to be very direct in saying 

there is no direct authorization. I was not aware that the 

unreconciled accounts existed until that Sunday evening that we 

talked about. 

Chairwoman STABENOW. Mr. Abelow, did you authorize, approve, 

or know of money transfers from customer segregated accounts to 

the firm’s broker-dealer accounts in the final days or weeks of MF 

Global? 

Mr. ABELOW. Senator, to the best of my recollection, I do not recall participating in any conversation about the use of customer 

funds, customer segregated funds or assets for any purpose other 

than what they were intended to be used for. 

Chairwoman STABENOW. Mr. Steenkamp? 

40 

Mr. STEENKAMP. Senator, I did not authorize, approve, or know 

of any transfers of customer funds for any house or broker-dealer 

purposes. 

Chairwoman STABENOW. Thank you very much. 

Senator Roberts? 

Senator ROBERTS. Well, thank you, Madam Chairwoman. 

Mr. Abelow, as the COO, the employees responsible for executing 

transfers of money ultimately report to you and you report directly 

to Governor Corzine. Is that correct? 

Mr. ABELOW. Senator, I am not sure if you—when you framed 

your question—if you could repeat it for me, I would appreciate it. 

Senator ROBERTS. Well, let me put it another way. Do treasury 

operations and security operations ultimately report to you? 

Mr. ABELOW. Yes, they did through a chain of authority. 

Senator ROBERTS. All right. Mr. Steenkamp, as the CFO, did MF 

Global instill internal conduct controls for how and where money 

could be moved? 

Mr. STEENKAMP. Yes, there were controls implemented in MF 

Global Inc. and all of our subsidiaries. 

Senator ROBERTS. Is it possible for those conduct controls to be 

overruled? 

Mr. STEENKAMP. To the best of my knowledge, these controls 

were operated and the approvals were resident in the legal entities. 

So I do not believe so, no. 

Senator ROBERTS. You do not believe that. But is it possible? 

Mr. STEENKAMP. I would not want to speculate, Senator. 

Senator ROBERTS. Mr. Abelow and Governor, is it correct that at 

the end of each trading day MF Global, like other FCMs, would receive margin calls? 

Mr. CORZINE. There was twice-a-day settlements of margin calls, 

if I am aware of how the process goes. 

Senator ROBERTS. Mr. Abelow? 

Mr. ABELOW. I believe it was typical that MF did receive margin 

calls. 

Senator ROBERTS. Did MF Global receive margin calls or other 

requests for liquidity on Friday, October 28th? For both of you, Mr. 

Abelow and Mr. Corzine—I am sorry. Governor Corzine. 

Mr. CORZINE. Senator Roberts, I believe there were margin calls, 

as there are on almost every day. 

Senator ROBERTS. Well, you indicated publicly, I think, that $4.5 

billion went out the door. 

Mr. CORZINE. I have repeatedly said that there was $4.5 billion 

worth of U.S. Government agencies sold on that day. That was a 

sale that was designed actually to produce margin coming back to 

the firm as opposed to margin going out the firm. 

Senator ROBERTS. We have heard a lot of 35-cent words being 

tossed around, something called ‘‘rehypothecation.’’ That is a big 

word even here in Washington, not to mention Dodge City. We may 

not understand the ins and outs of it, but two things we do understand are margin calls and chain of command. We know customer 

money was accounted for on Wednesday, the 26th. Friday, the 

28th, the firm’s cash flow situation was dire, and the demands for 

cash kept coming in. 

41 

Mr. Abelow and Governor, is it the case that MF Global did not 

have enough cash on hand to cover the cash needs that came in 

late Friday? 

Mr. CORZINE. Senator, from all reports that I had received, to my 

recollection, on that day we were able to meet our cash demands. 

Senator ROBERTS. Mr. Abelow? 

Mr. ABELOW. I do not recall being made aware of our running out 

of cash on Friday, the 28th, of being unable to meet obligations. 

Senator ROBERTS. As a captain in the Marines—and, Governor, 

you were in the Marines—I knew that if a full-bird colonel told me 

to do something, I would probably do it. Now, if a two-star general 

gave me an order, I sure would not ask any questions. So could it 

be possible that one or more of your operational money movers who 

reported to you, Mr. Abelow, and you, Governor, was told to cover 

the liquidity needs or margin calls overwhelming the firm’s cash 

flow by taking money out of the segregated customer accounts? 

Governor? 

Mr. CORZINE. Senator, I do not believe that anyone would operate that way. We had no experience in the 19 months that I had 

been there that anyone had overridden those systems. And so I 

have no reason to believe that occurred in those last hours. 

Senator ROBERTS. Mr. Abelow? 

Mr. ABELOW. Senator, I cannot speculate about conversations 

that I did not see or participate in. I can only tell you that I do 

not recall participating in any conversation about a use of customer 

funds or customer assets other than for their intended purposes. 

Senator ROBERTS. As I stated in my opening remarks, the CME 

knew on or before Wednesday, November 2, that MF Global was 

attempting to hide something. In fact, didn’t MF Global leadership 

even go so far as to request and receive an actual plan that would 

break the glass and tap into your customer segregated accounts, 

perhaps described as a loan, if such a scenario arose? 

Mr. CORZINE. Senator, there certainly were contingency plans 

that I think fall under the rubric that you were talking about, 

break the glass. To my knowledge and understanding of that report, it was not ever the intent to recommend tapping into segregated customer funds. 

Senator ROBERTS. Mr. Abelow? 

Mr. ABELOW. Senator, I have not reviewed the specific document 

that you are referencing, but my recollection is that the key driver 

of liquidity, source of liquidity under that scenario, was the use of 

a revolving credit facility. 

Senator ROBERTS. You might want to take a look at it. 

By all accounts, on the Friday before bankruptcy, MF Global 

thought it had found a buyer to save you. It seems well within the 

realm of possibility that, as you put it, Mr. Abelow, a classic run 

on the bank overwhelmed your cash flow, and an executive could 

have communicated somehow an order to use your customer segregated funds to cover the firms liquidity crunch, thinking that, of 

course, by Monday morning everything would be fine, the company 

would be bought out, an infusion of money from the new owner 

could replace the missing customer funds. 

Is this plausible? Governor? 

42 

Mr. CORZINE. Senator, as in a number of the questions, I think 

I am being asked to speculate—and I really do not—I do not really 

think I should speculate. I had no reason to believe until the 

evening of October 30th that there was a misuse of customer funds. 

Senator ROBERTS. Mr. Abelow? 

Mr. ABELOW. Senator, I was shocked to be informed on Sunday 

that there was a—— 

Senator ROBERTS. But is this plausible? 

Mr. ABELOW. —potential shortfall in customer funds. I cannot 

speculate beyond that, sir. 

Senator ROBERTS. Well, if this is not what happened, then what 

did happen? What is your speculation on that? 

Mr. CORZINE. Senator, I think speculating is—should be done in 

the context of the facts that are being developed by the investigators. As in my oral statement and also in my written statement, 

I have put forward issues about whether money was returned properly that should be looked at. I put forward transactions that I 

think would be obvious that people should check all the details on. 

But how I would come to conclusion without records, without the 

ability to go through it, is speculative and I think would be inappropriate and could be misleading. 

Senator ROBERTS. Madam Chairman, I am over time, but I would 

like Mr. Abelow to respond. What did happen? 

Chairwoman STABENOW. I would ask you to respond briefly in 

this round. 

Mr. ABELOW. Senator, I do not know what happened, and I am 

awaiting the results of the investigation to inform all of us. 

Senator ROBERTS. Thank you, Madam Chairwoman. I have additional questions. We will ask those on the second round. 

Chairwoman STABENOW. We will absolutely have a second round, 

yes. 

Senator Conrad? 

Senator CONRAD. Thank you, Madam Chairman. 

You know, as this has unfolded, I have had contacts from my 

home State, several customers, several broker-dealers, one missing 

half a million dollars, and absolutely through no fault of their own. 

And as one tries to kind of pierce the veil here and figure out what 

happened, it is incredibly difficult to do. 

I had a chance to read the lengthy article in the New York Times 

which has some interesting tidbits in it. One is that—I have operated under the assumption that these European trades on European debt were losing money. The assertion in this article is that 

they made money. The second paragraph from the end, ‘‘Ultimately, the bets Corzine placed wound up better than the firm 

itself. The European debt trades were profitable, though too late for 

MF Global.’’ 

Is that the case, Governor Corzine? Were they profitable trades? 

Mr. CORZINE. Senator, at the time of the bankruptcy on October 

30th, they were still positive trades, positive positions, but they 

clearly were a part of the ingredients that led to the loss of confidence in the firm. So there are really two different issues. I think 

Mr. Abelow talked about, as I think I did in my written testimony, 

the ingredients that led to that loss of confidence, and the foreign 

sovereign positions are certainly part of that process. 

43 

Senator CONRAD. Well, that really comports with this article. Basically this article says there was a loss of confidence. The Moody’s 

downgrade was devastating because that affected the firm’s liquidity. You have indicated there were margin calls, but that was not 

atypical that you would have margin calls in a firm like this. But 

was the level of margin call unusual at the end of that week? That 

is, were the demands on the company for cash at the end of that 

week extraordinary? 

Mr. CORZINE. Senator, to the best of my recollection, there were 

increasing demands for margin in different places. The process 

slowed up in the clearing and movement of transactions, but specifics, I would really want to rely on being able to look at records 

to be able to answer with precision. 

Senator CONRAD. This article, by the way, suggests that the day 

after the bankruptcy, you, Mr. Corzine, sifted through transactions 

in the hope of locating the missing money. Is that the case? 

Mr. CORZINE. Senator, to the best of my recall, I sat with a group 

of internal folks who might be able to give me the kind of information that I think you would like to get from me today to see if we 

would be able to identify some sources of where these missing 

funds might be. 

Senator CONRAD. Is it possible—— 

Mr. CORZINE. I was stunned, and the first of my knowledge of 

segregated funds being out of reconciliation was that evening, on 

the 30th. 

Senator CONRAD. Because you believed that the funds were 

where they were supposed to be. But they were not. So something 

has happened here. I mean, I have heard speculation from people 

who are deeply knowledgeable in this area that money was transferred that came from client accounts by somebody’s authority with 

the idea that those funds would be made whole the following week 

because the company was owed money that would normally come 

to it in the normal course of business, and, of course, when everything went south, funds did not transfer money to MF Global that 

were really due MF Global. 

Do you think it is possible at the end of the day that there will 

be a finding that, in fact, MF Global is owed money that will cover 

the shortfall here? 

Mr. CORZINE. Senator, I would respond the way I did to Senator 

Roberts. I think it would be speculative on my account to opine 

about that. As I said in my written and oral statements, those are 

possibilities, but without having the ability—probably not even by 

myself, but by experts—to go through some of that, which is exactly what the trustee and other investigators are doing, it would 

be virtually impossible to speculate. 

Senator CONRAD. Well, at the end of the day, what we know is 

customers are out funds that are due them. You have all expressed 

your regret at that and your sympathy for those who have been adversely affected and came across as sincere to me. But somehow 

customer funds were transferred in a way that is inappropriate. 

And in searching your memory now, is there any conversation that 

you were part of that could have been misinterpreted by someone 

to authorize the transfer of customer funds to cover margin calls 

or for any other purpose that was not appropriate? 

44 

Mr. CORZINE. Senator, I specifically put in my opening statement, because I want to be very clear on it, I never authorized the 

misuse of customer funds, I did not intend to authorize the misuse 

of customer funds, and I do not believe that it would be possible 

to construe anything that I said as an authorization. 

Senator CONRAD. So searching your memory, Mr. Abelow, anything that—any conversation you were part of, any conversation 

you know about, any conversation where it could be misconstrued, 

what you said, that would have led somebody to believe they 

should transfer customer funds? 

Mr. ABELOW. Senator, I do not recall participating in any conversation about the use of segregated funds other than for their intended purposes. 

Senator CONRAD. You know, in searching your memory, there 

is—you know, you were in a chaotic crisis situation. You do not remember a conversation where somebody comes and said, ‘‘Hey, we 

could transfer funds from customer accounts and cover these when 

we get the money back on Monday, anyway’’? 

Mr. ABELOW. Senator, I do not recall any conversation about customer funds being used for anything other than their intended purposes. 

Senator CONRAD. All right. 

Chairwoman STABENOW. Thank you very much. 

Senator Lugar? 

Senator LUGAR. Thank you, Madam Chairman. 

We have heard, at least according to my notes, that there were 

as many as 38,000 customers of MF Global, and we discussed with 

the previous panel, who were some of the customers of MF Global, 

or through affiliates were, why they retained this affiliation. I am 

simply curious, because we have heard at least some testimony 

that in April or May there already were hints, perhaps because of 

European bond transactions or other investments of MF Global, of 

anxiety on the part of rating agencies. But, in any event, before 

this crucial weekend in October, an actual declaration, apparently, 

of a downgrade in earnings of the firm. 

Our concentration today obviously has been on the customers. 

Many are our constituents who, for the time being, had the segregated funds and do not have the money. I raised with the previous panel sort of the business judgments which led people to 

want to be affiliated and a customer with your firm. 

Was there no early warning that might have led some of them 

to decide to do business with somebody else? It appears to me that 

throughout this period of time there was a considerable degree of 

anxiety in the financial markets about all of this. 

You have testified, Governor Corzine, that the actual European 

bond transactions at the time of the final bankruptcy were doing 

better than some of the other things that you had there, but that 

surely must not have been true throughout the entirety of the year. 

That was your business to try to determine how you were going to 

make money for MF Global. But I am just curious. Was any of this 

transparent? Would any of the 38,000 customers have some idea 

about your portfolio, your transactions, your movement toward a 

loss of earnings? Was this entirely opaque as far as customers? 

45 

Mr. CORZINE. Well, Senator, I really would not be able to tell you 

what kind of credit work an individual customer would do or any 

particular customer. But most of our introducing brokers—I think 

you heard from one this morning, and there were many—it was not 

unique with Advanced—who represented and introduced clients to 

us, certainly they would have the capacity to read a 10–K or a 10– 

Q, the public filings, certainly they would have the ability to review 

credit rating agency comments. And as you know, probably know, 

most public companies, ourselves included, had quarterly presentations of our earnings—not earinings in our case, I guess our results, and those were open to general distribution and understanding of what we best understood at the point in time existed. 

And those are pieces of information that are in the public forum 

on a regular basis that certainly sophisticated investors and 

counterparties look to. 

Senator LUGAR. Well, many sophisticated investors must have 

come to a conclusion that continuing on with MF Global was not 

a very good idea for themselves or for their customers. But perhaps 

they said even if MF Global goes into bankruptcy, still our segregated accounts will be safe, that is simply the law of the land 

and is almost bound to occur. In other words, I am just trying to 

gauge how we reached the situation in which we still had the 

38,000 customers and we still had the farmers who were hoping to 

hedge and so forth tied up here, because clearly the distress today 

is the overall picture, but specifically with people who felt that 

somehow the law simply would not permit this loss, regardless of 

what happened to you and the management of MF Global. 

Now, you are saying essentially all these records were there, regular quarterly reports and various other reports, so that you were 

not hiding any transparency of the risks that were involved in 

these kinds of investments, if I hear you correctly. Is that your assumption? 

Mr. CORZINE. My assumption, Senator, is that we were complying with the disclosure requirements, and those are reviewed by 

outside auditors, and they were certainly reviewed, I would presume, by the credit rating agencies. 

Senator LUGAR. So if I were a broker that was guiding customers, farmers, and what have you, in MF Global, I must have 

been a company that really thought there was going to be some excitement in terms of the European bond market, and this was 

going to be a money maker, presumably, or certainly not a disaster. 

But I do not know anybody, reading through those markets 

through the last few months, that would have that degree of confidence, and the thought that you were so heavily involved in it 

would have led me to a lot of lack of confidence, the other way 

around. In other words, sort of in the afterthought, I am not certain why you made these investments or why MF Global was so 

managed but, likewise, how the other people were managed who 

were dealing with you and why they continued with you. 

Now, this may be beyond your comprehension likewise, although 

you probably valued having these customers and figured they 

might stick with you because they did not know any better or they 

were speculating along with you, and it turned out the speculation 

was wrong. But at the end of the day, I suppose we are at a point— 

46 

does the Federal Government now have sufficient controls, regulations, and so forth on MF Global and firms like this or anybody 

else so that the regular farmer who is trying to hedge and sell and 

so forth is not out of pocket and at least has some security? Or 

maybe this is unobtainable. I am hopeful our hearings really lead 

to a situation where we think of what kind of legislation or what 

kind of administrative fixes are required really to remedy the situation. 

Thank you, Madam Chairman. 

Chairwoman STABENOW. Thank you very much. 

Just to let the members know, we will turn to Senator Klobuchar 

now, and then Senator Chambliss, and then we will break until 

2:15. Senator Klobuchar? 

Senator KLOBUCHAR. Thank you very much, Chairman Stabenow. Thank you all for being here. 

Thank you to Mr. Tofteland I was not here for the end of your 

testimony—for your work from Luverne, Minnesota. 

Mr. Corzine, it is being widely speculated that in the days before 

MF Global declared bankruptcy, your firm shifted funds from segregated accounts to the broker-dealer side of the business. In his 

testimony before the House last week and in his written testimony 

for today’s hearing, Mr. Terrence Duffy, the executive chairman of 

CME Group, asserts that at about 2:00 a.m. on Monday, October 

31st, MF Global informed the CFTC and CME that customer 

money had, in fact, been transferred out of segregation to the firm’s 

broker-dealer account. Do these details match your recollection of 

what was conveyed to the CFTC and CME early that Monday 

morning? 

Mr. CORZINE. Senator, the general description that Mr. Duffy 

talked about on the issues of October 31st are consistent. 

Senator KLOBUCHAR. Okay. To your knowledge, did MF Global 

shift any funds out of the segregated accounts to the broker-dealer 

side of your business or to pay any outstanding obligations? 

Mr. CORZINE. Senator, as I have said in written testimony and 

here again this morning, until the evening— late evening, actually—of October 30th, I was not aware of this unreconciled amount 

in the segregated accounts. 

Senator KLOBUCHAR. Okay. Mr. Corzine, none of the foreign debt 

securities that MF Global used to engage in the repo-to-maturity 

transactions have defaulted. By your own admission, these positions played a major role in the loss of market confidence that led 

to the failure of the firm. In exploring the role these trades played 

in the collapse of MF Global, many have raised concerns over the 

accounting rules that allowed you to treat RTM positions in foreign 

sovereign debt as sales rather than financings, effectively removing 

them from the balance sheet. 

You said in your testimony that these positions were publicly disclosed but not on your balance sheet. Is that right? 

Mr. CORZINE. That is correct, Senator. 

Senator KLOBUCHAR. And do you believe that we should re-examine the accounting treatment of repo-to-maturity transactions? 

Mr. CORZINE. Well, to the extent that people believe that the disclosures that we made were not adequate, and they believe that 

more disclosure is better, that certainly should be considered. I 

47 

think I am probably not the one to speak to this. The issue of— 

I am certainly not an accounting expert. The issues of off-balancesheet questions are very challenging for those who make rules in 

accounting, the accounting rules. And this is one of those that I 

think should be reviewed as should all—— 

Senator KLOBUCHAR. It just seems that more transparency here 

would have been a good thing, and we are always hearing about, 

no, this will hurt if we do this, if we do that. And in this case, you 

had something that was somewhere off in a footnote where I do not 

think Mr. Tofteland of Luverne could have found it. And so I am 

just trying to figure out how we make this better going forward in 

addition to finding this money. 

Mr. CORZINE. It was in the 10–Ks, the disclosure with regard to 

this. It was discussed with analysts and, if my memory serves me 

correctly, is in some of the credit write ups from the rating agencies. 

Senator KLOBUCHAR. Okay. Mr. Abelow, the role and responsibility of the COO can vary dramatically between businesses, so 

could you discuss for us your role at MF Global and who to your 

knowledge, to get to the specifics, had the authority at MF Global 

to move funds from segregated accounts? 

Mr. ABELOW. Yes, Senator. My role as chief operating officer and 

president were to oversee the daily execution of the firm’s strategy, 

to focus on various elements of the firm’s strategic plan, and I had 

oversight responsibilities for a number of operating areas of the 

firm. 

I am sorry. As to the second part of your question—— 

Senator KLOBUCHAR. Who had the authority at the firm to move 

funds from the segregated accounts? I think it is a theme you are 

hearing here. We are trying to figure out where did the money go. 

Mr. ABELOW. My apologies. 

Senator KLOBUCHAR. No one seems to know. 

Mr. ABELOW. And, again, Senator, I am not aware of any conversations about the movement of segregated funds other than for 

their intended purposes, and a number of people inside the firm— 

in operations, in treasury, in compliance, and other areas—were involved in the daily movement of funds on a regular basis. 

Senator KLOBUCHAR. Well, in the days leading up to Sunday 

when it was discovered that the funds were missing, were you involved in discussions about actions being taken to ensure that your 

FCM business did not become under-segregated? 

Mr. ABELOW. I do not recall specific conversations about actions 

for it to not become under-segregated. I do not recall a specific conversation about that. 

Senator KLOBUCHAR. Okay. Mr. Steenkamp, I am assuming 

when you heard there was a shortfall in the funds, as CFO you immediately went looking for answers. What did you find? 

Mr. STEENKAMP. Senator, the first time I found out about the 

segregation was on the Sunday, and we found out pretty late on 

the Sunday night. I was informed that there is an issue with the 

segregation calculation, that the assets are less than the liabilities. 

And as I mentioned in my statement, following that we informed 

the regulators very shortly thereafter. My initial reaction was absolute shock. As far as I am aware, we had never had issues with 

48 

segregation in the past, and it was something that was completely 

unexpected. 

Senator KLOBUCHAR. And so then what did you do? You went to 

try to find the money? 

Mr. STEENKAMP. Well, it was late Sunday evening, and so at that 

point we were about to execute the deal for an acquisition of part 

of the firm. My first response was once we had taken a short while 

to see if we could try and reconcile it before our deadline late Sunday night, once we knew that we would not find an answer this 

evening, we notified the regulators. 

Senator KLOBUCHAR. Very good. And did you see the testimony 

of Mr. Duffy with CME and what he was saying about the timing? 

I can read it to you again if you would like, where he said at about 

2:00 a.m. on Monday, October 31st, MF Global informed the CFTC 

and CME that customer money had, in fact, been transferred out 

of segregation to the firm’s broker-dealer account. And so is that 

your recollection of the timing of this? 

Mr. STEENKAMP. Yes, from my recollection, it was very, very 

early Monday morning when we were on the phone with the regulators. That sounds consistent. 

Senator KLOBUCHAR. All right. Thank you very much. 

Chairwoman STABENOW. Thank you. 

Senator Chambliss? 

Senator CHAMBLISS. Thanks very much, Madam Chair. 

I have listened to your answers very carefully, and I want to 

make sure that I get a direct answer to this. 

Governor Corzine, did you understand that MF Global was using 

customer funds to carry out proprietary transactions on behalf of 

MF Global? 

Mr. CORZINE. Senator, I was not aware of the misuse of customer 

funds, and I have said that, certainly did not authorize it, did not 

intend to have it happen, and until that Sunday evening, was not 

aware of it. 

Senator CHAMBLISS. I understand that is what you said earlier, 

but my question is—well, let me frame it a little differently. Would 

the use of your customers’ funds to engage in proprietary trades on 

behalf of MF Global have been illegal, as far as you are concerned? 

Mr. CORZINE. Well, first of all, it is actually more complicated. It 

gets into this Rule 1.25 and the repurchase agreements between 

entities. As long as the securities that were a part of that repurchase agreement between the entities, that would be appropriate. 

It would not be a misuse of customer funds. 

For instance, if you had treasury bills and you did a repo to the 

FCM from the broker-dealer, that would be appropriate. If you did 

it for euro sovereigns, that would not be. 

Senator CHAMBLISS. Okay. And that is a generally accepted practice in the industry, is it not, to—— 

Mr. CORZINE. The Rule 1.25, which I think I heard Senator Harkin actually read from, is very specific about what can be invested 

with segregated funds, and any of the repurchase agreements that 

could occur between the entities have to be in 1.25-eligible securities. They cannot be in things that did not already meet that criteria. 

49 

Senator CHAMBLISS. Okay. But you knew customer funds were 

being used for that type of activity. 

Mr. CORZINE. For Rule 1.25-eligible—— 

Senator CHAMBLISS. Right, yes. You know customer funds were 

being used for—— 

Mr. CORZINE. That—yes. 

Senator CHAMBLISS. —what you thought was a correct use—— 

Mr. CORZINE. Correct use. 

Senator CHAMBLISS. —of investing customer funds. 

So were you aware that margin calls were being made on a regular basis just prior to—or towards the middle or the end of October on the sovereign debt investments? 

Mr. CORZINE. The sovereign debt investments are in the brokerdealer and were not a part of the FCM. And the answer to your 

question is yes. 

Senator CHAMBLISS. So where did you think the money came 

from? 

Mr. CORZINE. We run liquidity positions, and as I think I heard 

Mr. Abelow say, we also had access to draws against our liquidity 

lines with the banks. 

Senator CHAMBLISS. Okay. Mr. Steenkamp, you as the CFO, I assume, review the financial condition of the company on a regular 

and daily basis? 

Mr. STEENKAMP. As CFO of the Global Holding Company, I 

would review the consolidated financial statements and financial 

condition. And I think as I mentioned in my statement, we have 

various regulated subsidiaries around the world that have various 

rules and regulations under the specific jurisdictions that they operate in. And with regards to the financial condition and operations 

of those entities, I would receive exception reporting and escalation 

notification as issues arose from the finance and other offices in 

those entities. 

Senator CHAMBLISS. So were you aware within the, let us say, 2 

weeks leading up to October 31 that regular margin calls were 

being made against one of the subsidiaries for the foreign debt investments? 

Mr. STEENKAMP. Senator, I was aware on occasions that there 

were margin calls made as variation margin, and at times initial 

margin changes occurred related to those positions. 

Senator CHAMBLISS. Okay. And as the chief financial officer of 

the company, where did you think the money was coming from to 

meet those margin calls? 

Mr. STEENKAMP. Well, Senator, as a global firm, we had some 

house money that we had raised over time that we could use for 

liquidity, and in addition, we also drew down, as Mr. Abelow and 

Mr. Corzine mentioned, on the revolving credit facility, which was 

a liquidity facility available to us to meet liquidity needs as they 

arose. 

Senator CHAMBLISS. And did you not check to see where the significant dollar amount of margin calls was actually coming from, 

what account? 

Mr. STEENKAMP. Senator, I would not have checked the exact account that it would be coming from, but with regards to clients, you 

know, whether it would be coming from the client side, there were 

50 

controls, for example, back-end controls being individual segregation calculations, that had never indicated any issues. So there was 

no indication for me that it would be coming from client accounts. 

Senator CHAMBLISS. Okay. Governor Corzine, if I understand it 

correctly, in order to reach into a customer’s account and to meet 

the margin calls on the sovereign debt investments, you would 

have to actually go out of one company into another company? 

Mr. CORZINE. Well, Senator, you would not meet margin calls for 

our broker-dealer by reaching into the FCM customer funds. 

Senator CHAMBLISS. Well, then, my question is: How did that 

happen? How did somebody reach into the segregated accounts and 

transfer money out of those to do something with it that they 

should not have done? 

Mr. CORZINE. Senator, I do not want to repeat, and I know that 

it is frustrating but it would be speculative on my part to say that. 

I did lay out some flows of transactions and kinds of occurrences 

that need to be established by the facts of looking through all of 

these records, and that is what I think the trustee and the other 

investigators are now doing. 

Senator CHAMBLISS. So is that kind of the guts of where we are 

with MF Global right now, is trying to figure out who transferred 

the money and who authorized the transfer of that money out of 

the segregated accounts? 

Mr. CORZINE. I think it is now in the fact discovery stage of 

where the flows of money took place, and when those then are established, then you can follow that back to, I presume, how it was 

authorized. 

Senator CHAMBLISS. Madam Chair, I know I am over my time, 

but since I am last, can I ask one more question that I think will 

generate a quick answer. 

Chairwoman STABENOW. Please proceed. 

Senator CHAMBLISS. So am I to understand—and I would like all 

three of you to answer this—did any of you know that this money 

was being transferred out of the segregated accounts? 

Mr. CORZINE. Senator, as I said in all of my testimony, until that 

Sunday evening I was not aware that there was a misuse of customer funds. 

Senator CHAMBLISS. Mr. Abelow? 

Mr. ABELOW. Senator, I as well was shocked to learn on Sunday 

that we had the potential deficit in our segregated funds. 

Senator CHAMBLISS. Mr. Steenkamp? 

Mr. STEENKAMP. Senator, I had no knowledge that customer 

funds were transferred into the broker-dealer until that Sunday 

evening when we were notified. 

Senator CHAMBLISS. Thank you. 

Chairwoman STABENOW. Thank you very much. We will reconvene at 1:15. I will indicate that we are going to do the third panel. 

We know this is a long day, but this is a very, very important subject, and we appreciate all of you remaining with us. 

With that, the Committee stands in recess until 2:15. 

[Whereupon, at 1:00 p.m., the Committee recessed, to reconvene 

at 2:15 p.m., this same day.] 

AFTERNOON SESSION [2:24 p.m.] 

51 

Chairwoman STABENOW. The Committee will come to order. We 

thank you very much for continuing with us here in this very, very 

important time and hearing, and we will now turn to Senator Bennet for his questioning. 

Senator BENNET. Thank you, Madam Chair. Thank you for this 

holding, and thank you to the witnesses for being here today. 

At the risk of eliciting an answer we have had already, which is 

not going to help anybody here, I wanted to try to ask it this way: 

The testimony, Governor and gentlemen, has been that the controls 

were set up to segregate the funds and that you certified to such— 

I am sorry for putting words in your mouth, but in the interest of 

time—that nobody ever—none of the people on this panel ever authorized any misuse of that money or that it should not be segregated. Yet between $600 million and $1.2 billion is somewhere 

missing. 

Is the impression that we should take that if somebody had 

checked 10 days before this happened that there would not have 

been commingling and that something happened during the weekend of all of that stress that may have resulted in this? Is that an 

impression we are supposed to have here? 

Mr. CORZINE. Senator, I will take a first run at it. I think each 

of us have different perspectives. 

If that had been the case 10 days before, under the policies and 

procedures it would have been raised certainly to, I think, each of 

our offices, unless it was a minor—and $600 million is not minor, 

$100 million would not be minor—element with regard to segregated funds. And that was not the case, and we have to report 

every day, I think both to the CFTC and the CME. So that would, 

I think, deal with the first part of your question. 

The second, I think you are going to hear speculation again on 

the multiplicity of transactions in accounts, at least that is what 

you will hear from me because I would not know what those transactions were, would have expected at the end of the day, if there 

was unreconciled segregated accounts, that it would get raised up 

again. 

Senator BENNET. Do either of you have anything you would like 

to add? 

Governor, just on that point, your testimony at the beginning of 

the hearing, as I understood it, was that some of the final trades 

that were made, the firm or your still have not seen the settlement, 

that we do not know at what price or how they were recorded? Or 

did I misunderstand what you were saying? 

Mr. CORZINE. Senator, the prices were set. I do not recall those 

prices. I do not have records of them. But the particular transactions that I cited in my oral testimony—I think there are actually some more cited in my written—were the $1.3 billion commercial paper, which was a transaction that was done for immediate 

settlement, cash settlement on Thursday, and then there were $4.5 

billion worth of Federal Government agencies that were transacted 

for cash or immediate settlement on Friday. The prices of those are 

in the books and records, and while I do not know the ultimate disposition of those, they certainly are places one might want to 

check. 

52 

Senator BENNET. Right. So I guess the point is that we do not 

ultimately—we do not yet know what the proceeds of some of those 

transactions were. Is that—— 

Mr. CORZINE. We had anticipations of what those proceeds would 

be based on the prices the securities were transacted at. 

Senator BENNET. Thank you. I wanted to shift gears a little bit 

and ask a question that was raised in both the New York Times 

and the Wall Street Journal, who reported that MF Global’s former 

chief risk officer, Michael Roseman, sought to warn the company 

and its board about the firm’s growing exposure to European sovereign debt, and the suggestion in the articles is that in January 

of this year, the firm let Mr. Roseman know that he was being replaced as the chief risk officer. 

Could you discuss from your point of view how the firm’s audit 

committee process addressed concerns that its chief risk officer 

raised? And looking back on this, how would you have improved, 

if you feel it needed improvement, internal processes when you received these types of warnings from somebody like your chief risk 

officer? 

Mr. CORZINE. Senator, the context and open discussion that Mr. 

Roseman had with the board—and I presume the audit committee, 

although I do not have my calendars to confirm that; we encouraged people to be able to speak their minds— was in the context 

of asking for increased limits roughly this time a year ago, maybe 

in December. Again, without records, I cannot be precise with regard to those recollections. And there were full discussions with the 

board about the point of view that he would have expressed, and 

that was in the context of not just sovereigns but exposures that 

we had to those countries with clients that were involved in the 

limit structure, as well as investments that we might have in other 

parts of the global operations. 

Senator BENNET. A judgment is a judgment, but that is not what 

I am trying to litigate here. I just wonder whether, for the benefit 

of our oversight, there were other processes that could have been 

put in place or—just with the benefit of hindsight. 

Mr. CORZINE. Well, clearly with the benefit of hindsight, there 

would not have been as much long-term reflection on the firm that 

came to pass in October if there were no euro sovereign positions. 

I am not trying to deny reality. On the other hand, first of all, the 

situation was entirely different from the perspective of the world 

certainly a year ago than it was at the end of October. And we encouraged the kind of discussion and debate at the board level, and 

it was my view that I should advocate for what I thought, based 

on the best analysis that I could make of what was the right direction for the firm to take on these issues that were different than 

Mr. Roseman’s views. 

Senator BENNET. Thank you. I am out of time, but I appreciate 

your responding to the questions, and, Madam Chair, thanks again 

for holding this hearing. 

Chairwoman STABENOW. Thank you very much. 

Senator Johanns? 

Senator JOHANNS. Madam Chair, let me also say thanks for holding the hearing. It has been very informative. 

53 

Mr. Steenkamp, let me start with you. You have been sitting 

through the testimony not called upon very much. You have heard 

the other two gentlemen testify. Is there anything in their testimony that you consider not accurate, first of all? 

Mr. STEENKAMP. Senator, it is tough to recollect and comment on 

every single comment made here, but I would say in general it is 

accurate with my recollections of events as described, albeit, as I 

mentioned, I only became CFO in April of this year and so some 

of the events, you know, did precede that. 

Senator JOHANNS. Is there anything about their testimony that 

you feel is not a full disclosure and you feel a need to tell the Committee more fully what happened? 

Mr. STEENKAMP. Nothing I guess specific to the best of my ability 

jumps out at the moment. 

Senator JOHANNS. Mr. Steenkamp, I was reviewing your bio in 

preparation for this hearing: post-graduate honors in finance, bachelor’s degree. Were you top of your class? 

Mr. STEENKAMP. I believe I was in the top three of my class. 

Senator JOHANNS. Suffice it to say you are a very bright guy. You 

started your career in audit practice. You assisted clients in the 

SEC registration process, listing on exchanges in the United 

States. We would all stipulate that is enormously complex work, 

work that most people could not perform. You were vice president 

of external reporting and accounting policy. You were senior vice 

president, chief accounting officer, global controller—a remarkable 

resume. Wouldn’t you agree with me? 

Mr. STEENKAMP. Well, I guess that is not for me to judge. 

Senator JOHANNS. What was your compensation package when 

you joined MF Global? 

Mr. STEENKAMP. Off the top of my head—and I do not have that 

information with me—I believe my starting salary was somewhere 

in the region of 200 or 250. 

Senator JOHANNS. And I am assuming there were options or bonuses that plussed that up. Would that be correct? 

Mr. STEENKAMP. No. When I joined the firm, it was not yet a 

public company. 

Senator JOHANNS. Okay. Last year, what was your compensation? 

Mr. STEENKAMP. Again, off the top of my head, I believe my salary as of April when I became CFO was set at $500,000, and it is 

all public record. 

Senator JOHANNS. Now, during the time that you were there, did 

you keep a diary or take notes during these meetings or e-mail? 

Mr. STEENKAMP. Generally in meetings I do not take copious 

notes although I do at times have notes that are on presentations 

or various materials if we are in a meeting and we are going 

through something specific with an agenda. But I would not say I 

have a standard way of doing it. 

Senator JOHANNS. Have you turned those notes or documents 

over to the Committee? 

Mr. STEENKAMP. I am not sure what from a legal perspective has 

been turned over or not. I know that we have, you know, followed— 

the firm has ownership of all my work materials. 

54 

Senator JOHANNS. Now, my understanding is that there would be 

separate accounts or a separate account maintained for consumer 

funds, segregated accounts. Is that correct? 

Mr. STEENKAMP. It obviously differs depending upon which jurisdiction you are in, so, you know, each regulated entity, as I mentioned earlier in my statement, had very unique rules and regulations that governed how every facet of the business is run. 

With regards to MF Global Inc., there are segregated bank accounts, I believe, that are held. As I mentioned earlier, though, 

similar to all of the entities, this is managed by those senior officers in those entities from an operational perspective. 

Senator JOHANNS. Right. So you have got those separate accounts, all the poor people that were here that have been beat up 

by MF Global, thought they had their money in segregated accounts. How would that money—who had authority to say take 

money out of this account and put it at risk for whatever investment? Who in the organization by name would sign off on that? 

Would you sign off on that? 

Mr. STEENKAMP. No, I would not sign off on client transfers. 

Senator JOHANNS. When did you first learn of that? 

Mr. STEENKAMP. The first time I learned of it was on the Sunday, and as I mentioned, you know, as far as I am aware, we had 

never had any issues with segregation—any segregation issues of 

client balances. And so it came as an absolute shock to us that 

there would actually be an issue. These are also—this is also a 

process and controls that have been reviewed and assessed over 

many years by our regulators and our auditors, and at not point 

that I am aware of had there ever been any issues with regards 

to it. 

Senator JOHANNS. Now, having been the head of a very large organization myself, when I would have learned of something like 

that, I would have asked a question like: ‘‘Who was the fool who 

did that?’’ Did you ask that kind of question? 

Mr. STEENKAMP. So, Senator, as you know, during those couple 

of days and the weekend, we were working around the clock on numerous different things. When we found out about it and were notified that there is an issue with the segregated monies, it was late 

on Sunday evening. At that point we—you know, it is such a shock 

that there might be an issue with it. The original thought was it 

has just got to be a reconciliation issue. And so we had a group immediately try and just reconcile the segregation calculation. The 

calculation is not actually, you know, bank accounts in that it is 

an actual calculation which is very complex in nature and involves 

a lot of people which then determines whether assets exceed liabilities. We immediately had a team, a SWAT team, spend time on 

the calculation and try and see where the reconciliation was. That 

went on for a couple hours. And then it was, you know, at that 

point in time, not being able to resolve the segregation issue, we 

had to let the buyers as part of the acquisition know and inform 

the regulators immediately. 

Senator JOHANNS. Madam Chair, I have run out of time, but I 

will stick around for the second round. 

Chairwoman STABENOW. Thank you very much. 

Senator Nelson? 

55 

Senator NELSON. Thank you, Madam Chair, for holding this 

hearing. I am going to read just a couple of lines from letters that 

I have gotten from Nebraskans. 

‘‘I operate a grain business in Nebraska, and part of my business 

is buying and selling grains from farmers that I hedge in the futures markets, principally at CME. Recently, a major FCM whom 

we use, MF Global, filed for bankruptcy.’’ It goes on to say, ‘‘How 

am I going to get my money back?’’ 

Another one: ‘‘Dear Senator Nelson: I am an attorney in Nebraska. I represent a number of people and entities who have commodity trading accounts associated with MF Global.’’ It goes on to 

talk about the money not being available. ‘‘When will it come 

back?’’ 

Another one who says, ‘‘My farm hedging account has been going 

through MF Global. When I heard that they were downgraded to 

junk, I asked for my $75,000 from my excess margin accounts. I received a check, deposited it, and then it was returned. In the meantime, they declared bankruptcy. Now I have a worthless check, and 

my account balance is short by $75,000.’’ 

I am sure that you have all heard similar sad stories of this kind. 

You are aware of what the consequences are for people if they are 

short on their accounts that they thought were secure, not expecting to have them have any— those accounts have any risk other 

than what market risk they were taking, but they did not expect 

to have a disappearance risk. 

So when your team took over, the company was largely a brokerage firm, did not regulate trade in sovereign debt for its own profit, 

and at least not in the manner that ultimately you did. 

I guess my first question is: Why did you feel the need to enter 

into large trading positions that the company had previously never 

taken? And do you think that trading the firm’s capital in this 

manner was appropriate and expected by shareholders? We are not 

talking about account holders. We are talking about shareholders 

in the first case. 

Mr. CORZINE. Senator, just for a matter of clarification, we run 

a very—we ran a very global organization with one of our largest 

centers of operations in London which was an active participant in 

the euro sovereign markets before—maybe not before Mr. 

Steenkamp, but before I joined, and my colleague. In fact, I think 

in my written testimony I talked about there were positions larger 

than actually we ended up having. Now, they were not in the repoto-maturity category, which we had actually had longstanding positions in our U.S. subsidiary with regard to U.S. treasuries, U.S. 

agencies, and U.S. corporate securities. 

The genesis of this transaction was our examining as a firm 

ideas that we thought were applicable, appropriate, prudent, and 

I became convinced and became the primary advocate of these positions. I do not want to dislodge any responsibility on that, but it 

was consistent with kinds of transactions we had taken on at other 

periods of time. 

I will repeat, though, these were in our broker-dealer operations, 

not in our FCM. 

Senator NELSON. Right. Now, Mr. Steenkamp, you have some 

knowledge, as you have indicated, of what the internal controls 

56 

were. Were the internal controls adequate to deal with the transactions that were undertaken previously and most currently? 

Mr. STEENKAMP. Well, Senator, the controls are obviously across 

various functions. As global—— 

Senator NELSON. Excuse me. For each function, do you think the 

controls were adequate to deal with each different kind of transaction? 

Mr. STEENKAMP. Senator, that is very broad in the sense that 

you would always in any organization have controls that there are 

deficiencies or items that come up from internal audit’s reviews 

and other auditors, et cetera, that you then work on and you improve. 

I think, you know, with regards to the controls specific to the 

customer money—that is, within MF Global Inc., as I had mentioned—those controls had never in the past indicated any issue 

with regards to that, despite going through numerous reviews from 

the external and internal—— 

Senator NELSON. Well, wouldn’t you think—excuse me. Wouldn’t 

you think that controls like that would be adequate to at least set 

off an alarm if somebody was now taking money out of those accounts? Not out of the company’s accounts but out of those account 

holders’ accounts? 

Mr. STEENKAMP. Well, sort of the control that we had relied on 

as a back-end control was the segregation calculation. 

Senator NELSON. Yes. 

Mr. STEENKAMP. Which normally was prepared on a Monday 

with regards to the Friday and provided to the regulators. That 

was a calculation which, you know, was escalated to me as we discussed with the other Senator on Sunday evening. 

Senator NELSON. Well, if the money is missing, it is not automatic that there was a violation of any law or that somebody is engaged in any criminal activity. On the other hand, the money is 

missing, and when it is missing, one does not know whether there 

is absconding with some money. But wouldn’t the controls be such 

that you would be able to know whether it is just money missing 

or whether somebody has accessed the money? 

Mr. STEENKAMP. Senator, it is difficult for me to answer that because, unfortunately, at the moment I do not yet as we sit here 

know what went wrong, so it is hard for me to be able to—I do not 

know which control went wrong. I do not know, you know, where, 

I guess, the apparent breakdown occurred to be able to answer. 

Senator NELSON. But it would have to be some of a breakdown 

if the controls are set in place so that this should not happen. 

Nothing is perfect, I understand, but if it breaks down, it is either 

because somebody intended to break it down or because it was inadequate. Is that accurate? 

Mr. STEENKAMP. Senator, not knowing what happened, it—I 

apologize. It is hard for me to answer, you know, whether it was 

a breakdown, whether it was a willful action. It is hard for me to 

answer. 

Senator NELSON. In your opinion, will the investigation be able 

to determine ultimately which is the case? 

Mr. STEENKAMP. I truly, truly hope so. 

Senator NELSON. Okay. Thank you, Madam Chairman. 

57 

Chairwoman STABENOW. Thank you. 

Senator Hoeven? 

Senator HOEVEN. Thank you, Madam Chairman. 

Mr. Corzine, how could the customer accounts be short if there 

were not transfers to the company accounts for the use of the company? How else could they be short? 

Mr. CORZINE. Well, again, I want to stay away from as much 

speculation as I can, but we have customers also withdrawing 

funds from the firm. There are all kinds of transactions associated 

with that at this moment in time. There are possibilities in this repurchase agreement, the proper use of Rule 1.25 investments of repurchase agreements between the FCM and the broker-dealer that 

could have broken down. 

I think I indicated in my written testimony and again this morn- ing the commercial paper. The $1.3 billion commercial paper that 

was sold on Thursday was Rule 1.25-eligible securities, properly 

available for offsetting segregated account monies. And when those 

are sold, then there is always the possibility of other failures to deliver, funds not crossing appropriately. 

Senator HOEVEN. Aren’t you required to have controls in place 

that prevent the use of customer funds by the firm for benefit of 

the firm and that properly account for these transactions you just 

described? Aren’t you required to have a system and controls to 

cover those issues? 

Mr. CORZINE. Senator, the short answer is yes, but I want to 

make clear that there are investments that can be made of customer segregated funds in the Rule 1.25-eligible securities. And 

when you transact in those, there is always a chance of operational 

breakdown. And I could not speculate whether that happened or 

did not happen unless I looked at the records. 

Senator HOEVEN. But you are responsible to have controls in 

place to properly account for that, track that, and report that. As 

the CEO aren’t you required to certify that you have those types 

of systems? 

Mr. CORZINE. Senator, in all cases—I think Senator Stabenow 

brought forth our signatures on the verification with regard to Sarbanes-Oxley on the end of quarter of March—our fiscal fourth 

quarter in March 31, 2011, and those controls have to be verified 

both by internal auditors and on an annual report have to be certified by external auditors, so the answer is yes. 

Senator HOEVEN. All right. And if those systems are in place and 

they are not adequate to do what they are designed to do, then 

when you are investing firm money in foreign bond currency transactions or bonds denominated in foreign currency, aren’t you in essence speculating with customer dollars if those controls are not accurate and you do not make sure that those controls are accurate? 

Mr. CORZINE. Senator, I do not have access to the records, so I 

cannot be absolutely certain, but none of us, I would think, would 

argue that we were using FCM, futures commission merchant, 

money for the purposes of investing in the foreign sovereigns. It 

was not an eligible security for client segregated funds. These positions had been in place many, many months through periods of 

time when we had gone through the process that you asked me to 

verify existed. And so I think there is reason to draw the concluVerDate Nov 24 2008 08:54 Sep 14, 2012 Jkt 000000 PO 00000 Frm 00061 Fmt 6633 Sfmt 6633 C:\DOCS\75117.TXT MICHA
58 

sion that the foreign sovereigns that are talked about involved in 

the RTM situation were not in any identifiable way mixed up with 

FCM customer money. 

Senator HOEVEN. You had a responsibility to maintain those systems so that customer dollars were not used in firm investments 

where you took a leveraged and, in fact, speculative position. You 

also had a responsibility to make sure that customer dollars were 

not transferred to or for use of the firm. But, clearly, one of those 

two happened, or the customer accounts would not be short. 

Mr. CORZINE. I just want to say again what I said to Senator 

Chambliss before the break, that—and I think we can verify this 

from others. Rule 1.25-eligible investments of customer money is 

appropriate with regard to those segregated funds. And—— 

Senator HOEVEN. If they directed funds—— 

Mr. CORZINE. —euro sovereigns do not fit—— 

Senator HOEVEN. —be used in that way and—if they directed 

that the funds be used in that way, and if they did so, those are 

not the dollars they are short. The dollars they are short were either moved out of their account for benefit of the firm, or you have 

got an accounting error, and you have a responsibility to make sure 

you have an accounting system that properly segregates those dollars. 

Mr. CORZINE. As I said in my oral statement, as I said in my 

written statement, there could have been breakdowns in those systems. We believed we had the people, the procedures, the policies 

in place to protect client segregated funds. 

Senator HOEVEN. What is your responsibility to recover those 

lost customer funds? 

Mr. CORZINE. My responsibility is to allow for the facts to be developed that find where that money has gone, just as it would be 

for any of us. I actually have no authority with regard to MF Global or the trustee today, but I believe that the trustee and the other 

investigations that are ongoing will be able to discover where that 

money went. 

Senator HOEVEN. Is it your belief that we will recover the balance of those customer funds? 

Mr. CORZINE. I am hopeful, Senator. I note the Friday activities 

that were in the bankruptcy court that, according to the representations I know about, get to 72-percent recovery for clients. I think 

I read that there are additional hundreds of millions of dollars held 

back and that there is identified customer money in London. So I 

am hopeful. I am not involved in that process. I think it was all 

of our expectations that we were not out of balance until we were 

all informed that Sunday evening that we were. And so I will repeat: I am hopeful that there will be full recovery very quickly. 

Senator HOEVEN. And you would acknowledge you have a responsibility to cover those funds? 

Chairwoman STABENOW. We need to make this quick at this 

point. We will have another round, and so if you would like to 

quickly answer that. 

Mr. CORZINE. Senator, I can only be hopeful, since I am not in— 

I now have no operating authority with regard to that. I am trying 

to cooperate, as I sit here today, as I have with other hearings. 

Chairwoman STABENOW. Thank you very much. 

59 

Senator Grassley? 

Senator GRASSLEY. Thank you. I have a short statement, and 

then I have a couple questions for Mr. Corzine. 

Now, you have all been asked repeatedly today about where the 

money went and whether you authorized the transfer of funds out 

of the segregated customer accounts. I share my colleagues’ interest 

in finding answers to these questions. 

I am baffled that the top three executives of the company cannot 

answer basic questions about what happened to the customers’ 

money. Your supposed lack of knowledge as to what happened inside the walls of MF Global is alarming. I want answers and Iowa 

farmers want answers on where the customers’ money went. 

I am not going to belabor the point by asking where the money 

went. It is apparent that none of you are able or willing to offer 

an explanation today. I guess we will just have to see what we 

learn through the ongoing investigation and any subsequent proceedings. 

Now, Mr. Corzine, I have some questions regarding some of the 

interactions with regulators at the time of MF Global. It has been 

reported that you were not required to retake your Series 7 or Series 24 exams before assuming your role at MF Global. FINRA requires investment professionals to retake these tests if they have 

been out of the industry for 2 years. Despite the fact that you had 

been out of the financial services industry for 11 years, FINRA 

gave you a waiver, and you did not take these tests. 

Did you seek a waiver from FINRA so that you would not have 

to retake your Series 7 and Series 24 tests? 

Mr. CORZINE. To my recollection, Senator, my legal counsel made 

that request. 

Senator GRASSLEY. So through your—— 

Mr. CORZINE. General counsel. 

Senator GRASSLEY. So through your legal counsel you were 

granted the waiver? 

Mr. CORZINE. Yes, Senator. 

Senator GRASSLEY. On this request to FINRA. 

Mr. CORZINE. That is my understanding. 

Senator GRASSLEY. Okay. Now, another question. Trying to figure out how much involvement Chairman Gensler had in the early 

stages of the MF Global problems, I have this question. Prior to October 31st, did you have any discussion with Gensler about the 

state of affairs at MF Global and whether MF Global was in trouble? And if you did have conversations, when were those conversations and what exactly did you discuss with Chairman Gensler? 

Mr. CORZINE. Senator, Chairman Gensler may or may not have 

been on some of the joint regulatory calls where I gave updates to 

a broad set of regulators on the progress, or lack thereof, with regard to the sale of the firm, a posting on what our actions were in 

reducing the size of our balance sheet and generating liquidity. To 

the best of my knowledge, he was only on that 31st general call, 

but other than those postings to regulators, I am not aware of any 

conversations with him. 

Senator GRASSLEY. Okay. So then at least, you are telling me for 

sure that you did not have a one-on-one conversation with Mr. 

Gensler at any time? 

60 

Mr. CORZINE. To my recollection, I have not with regard to the 

activities in the last 10 days. I have written in my written statement everything that I can recollect about any specific interactions—what was it? A July teleconference call, courtesy calls 

when I first took over at MF Global, and then—— 

Senator GRASSLEY. But not during this period of time—— 

Mr. CORZINE. Not in that period of time. 

Senator GRASSLEY. —of the last few days before bankruptcy that 

you had any one-on-one telephone conversation with Gensler. 

Mr. CORZINE. Correct. 

Senator GRASSLEY. Okay. Now, a last question for you, and then 

I have a question for Mr. Steenkamp. If none of you know what 

happened to the customers’ money, could each of you give me or 

the Committee the name of some MF Global employee who can 

come and tell this Committee what happened to the segregated 

customer accounts? There has got to be somebody there that can 

tell this story. Just give us a name. Joe Blow? Mary Smith? 

Mr. CORZINE. Senator, my view would—I would go to our treasury department and or treasury ops, as we talked about earlier, 

and the people who headed that were probably closest to the scene 

of the action. 

Senator GRASSLEY. But that does not give us one name for sure 

that could answer our questions. You are saying somebody in that 

office, but you do not really know who it is. 

Mr. CORZINE. The outline of the structure, I think Mr. 

Steenkamp presented, starts with certain people at the very top of 

it. I happen to know that the individual was on vacation that week, 

Christine Serwinski, and the CFO of the North American operations, that team of people—and it is quite large—would be one of 

those places that you might look. 

Senator GRASSLEY. Okay. Then I would have this question for 

Mr. Steenkamp. Who specifically told you that Sunday that customer money was missing? 

Mr. STEENKAMP. If I recall correctly, I was in a room with a large 

group of people as we were working on the acquisition, and one of 

our folks from finance had been notified that there was an issue 

and had just pulled me aside in the room and notified me. 

Senator GRASSLEY. Okay. What is his name or her name? 

Mr. STEENKAMP. It was our global product comptroller, Mike 

Bolan. 

Senator GRASSLEY. Okay. Thank you, Madam Chairman. 

Chairwoman STABENOW. Thank you. 

Senator Thune? 

Senator THUNE. Thank you, Madam Chairwoman. 

If I could just ask any of you to think of any way or provide an 

example of how $1.2 billion of customer funds could be transferred 

and disappear without any laws or regulations being violated, I 

mean, just—in other words, give us a hypothetical scenario of how 

that could happen without breaking any laws or existing regulations? Does anybody want to take a stab at that? 

Mr. CORZINE. Senator, I think anything that any of us would do 

on that would potentially be misleading. It would certainly be speculative. In my oral and written remarks, I laid out some places 

61 

where I thought there were possibilities of where the clearance and 

settlement system could break down. 

Senator THUNE. Senator Corzine, there are reports I have seen 

that indicate that you were in contact with Chairman Gensler and 

the CFTC regarding a proposed rule restricting brokers from trading with client money or customer funds in sovereign debt. The 

rule, which is now being called the ‘‘MF Global rule,’’ was apparently delayed because of your opposition. The CFTC only approved 

it after MF Global had gone bankrupt. 

Why did you lobby against proposed changes to CFTC regulations that would have restricted futures commission merchants 

from investing customer funds in obligations of foreign governments? 

Mr. CORZINE. Senator, to my recollection, I did not speak with 

Chairman Gensler about the foreign securities aspect, particularly 

on that conference call on July 20th. To the best of my recollection, 

I was speaking about the internal repurchase arrangements between a subsidiary and the FCM, as I have stated to the Senator 

from North Dakota and others, and whether that would continue 

to be available to FCMs at large or global organizations at large, 

but not with respect—to my recollection, foreign securities never 

came up in that discussion, and the only time that foreign securities were available to be invested in FCMs is if you took deposits 

from a client in foreign currencies. 

Senator THUNE. You had said, Senator Corzine, during the 

House hearing that you did not intend to break any regulations. 

What did you mean by that? 

Mr. CORZINE. I tried to clarify that in my opening statement here 

this morning. I never gave any instructions to misuse customer 

funds. I never intended to give any instructions or authority to 

use—misuse customer funds. And as I have said at least once here, 

I find it very hard to understand how anyone could misconstrue 

anything I said would authorize the misuse of customer funds. 

Senator THUNE. From what you know now, can you assure this 

Committee that no regulations protecting consumer funds were violated in the days prior to the bankruptcy? 

Mr. CORZINE. Senator, with whatever the range of estimates 

about the segregated funds not reconciling, I do not think I can 

give that assurance. 

Senator THUNE. There is a New York Times story that indicated 

that some customer money may have been improperly transferred 

as early as October 21. Can you confirm that date? 

Mr. CORZINE. Senator, I would be completely out on a limb speculating, no idea, and I would have to go back—I literally would 

have to go back through thousands of pages. 

Senator THUNE. Okay. And if you cannot confirm the date, I assume then that you would not be able to give us an idea about 

when MF Global began transferring funds out of the customer account. 

Mr. CORZINE. It would be speculative. I do not have the facts. I 

do think that the CME has testified that they did an 85-or 90-percent check against the Wednesday—is that the 26th? And I think 

you can—and they suggested at least in that testimony with reaVerDate Nov 24 2008 08:54 Sep 14, 2012 Jkt 000000 PO 00000 Frm 00065 Fmt 6633 Sfmt 6633 C:\DOCS\75117.TXT MICHA
62 

sonable testing of bank accounts and flows that we were in excess. 

But I really think that is a question that the CME should answer. 

Senator THUNE. All three of you have testified that, to the best 

of your recollection, none of you gave any instructions to anyone at 

MF Global to transfer funds from segregated accounts, yet it happened. Prior to October of this year, whether to cover margin calls 

or for any other reason, have there been any other incidents of improper or unauthorized funds transfers at MF Global? Or is this 

the first time any of you are aware of anything like this happening? 

Mr. CORZINE. Senator, from my standpoint, if there had ever 

been anything like we found out on the evening of October 30th or 

if there had been—it would not have had to rise to the level, the 

dimension on that evening—I think any of us would have been notified if we had not then—the Senator from North Dakota would 

have been absolutely right. We clearly would not have had policies, 

procedures, and people in place. I am not aware of that, and we 

have had many audits by external regulators and external auditors. 

Senator THUNE. Madam Chair, my time is up. Thank you. 

Chairwoman STABENOW. Thank you. 

Senator Boozman? 

Senator BOOZMAN. Thank you, Madam Chair. 

Senator Corzine, can you help me understand? There has been, 

it seems like, a lot of ambiguity about Rule 1.25. Can you help me 

understand who would be—what the eligible investments would be 

that could take place under that? 

Mr. CORZINE. Senator, I do not know whether you were here 

when Senator Harkin gave an introduction to his question to the 

first panel. I think he listed—and I do not want to be remiss in 

leaving something off that list, but I have a general idea. 

Senator BOOZMAN. You had a trading strategy. Was there a specific time—Mr. Abelow, I think you said you are responsible for day 

to day. You know, we have had this— evidently there was perhaps 

a change, you know, using Rule 1.25, using that ability. Was there 

a specific time when the firm changed their line of investing? We 

know that, you know, there are a number of different ways of doing 

it based on Rule 1.25, as the Senator explained. 

Mr. ABELOW. Senator, I apologize. In my comments about overseeing day-to-day implementation of the strategy, my responsibilities did not include oversight of trading and position taking. 

Senator BOOZMAN. Who was the person that was in charge of 

that particular—— 

Mr. ABELOW. I am not certain who—— 

Senator BOOZMAN. Who would you guess? 

Mr. ABELOW. Senator, I think there are two separate questions. 

The 1.25 securities I believe were in a portfolio that was overseen 

by the treasury department, and then other types of trading activity had different oversight. 

Senator BOOZMAN. In your firm, though, who was responsible for 

determining, you know, what—they had the latitude of the Rule 

1.25. Who made the decisions as to what they were doing? 

Mr. CORZINE. Senator, the treasury operations, treasury functions, along with our internal audits would work to assure that the 

63 

investments that were held using the customer funds conformed to 

Rule 1.25, and as I think has been stated, at least until that 

evening on the 30th, there had not been any indication that had 

ever been not followed. 

Senator BOOZMAN. Right. But we have got a problem. At some 

point something happened, and I guess—you know, treasury is involved in that process. I guess my question is: Who directly in the 

firm interfaces with treasury and makes those decisions? 

Mr. CORZINE. The decisions about whether you move money is 

separate from what would be the investment decisions that you 

might take. The investment decisions that you would take 

against—I should not say ‘‘against.’’ The investment decisions that 

you would take had to conform to Rule 1.25, and nobody ever disputed that, nor am I aware of any time that those investments did 

not conform to that rule. 

Senator BOOZMAN. But I am curious. Who—again, I understand 

what you are saying, but knowing that you have got, you know, 

this smorgasbord of kind of doing things in a certain way, who 

made the decisions as far as, you know, your strategy in the investments? 

Mr. CORZINE. The strategy at the highest level was reviewed at 

the board, certainly reviewed by myself. But the actual implementation was done by our treasury personnel. 

Senator BOOZMAN. So who is that? 

Mr. CORZINE. There are a whole series of people that were involved in treasury, and at time different persons in the firm 

would—— 

Senator BOOZMAN. I guess—and I do not mean to interrupt. I 

guess my frustration—I think Senator Grassley expressed it, too. 

I mean, we have got this major problem, and you guys, you know, 

were pretty high in the organization, and yet, you know, when we 

try and dig and find out kind of what occurred and who did what, 

nobody can really remember or does not really know. And so it is 

a problem. 

So I guess what we would like for you to do—what I would like 

for you to do is help us, you know, understand who was involved 

specifically, and I think that, you know, certainly you should have 

been in a position to know that. 

I yield back the rest of my time. Thank you. 

Chairwoman STABENOW. Thank you very much. 

I believe we have completed our first round of questioning, so let 

me continue with our second round, and thank you all again for 

being here. 

Let me talk a little bit more about treasury operations because, 

Mr. Abelow, it is my understanding—first of all, our Committee 

staff has been having a number of conversations with people at the 

operations level to learn more and gather information and so on. 

And it is my understanding that the treasury operations actually 

report to you, that you oversee that department. Is that correct? 

Mr. ABELOW. It is correct that I oversee operations, and the global head of operations reports directly to me, and treasury operations reports up through several chains to him. 

Chairwoman STABENOW. And so what is your responsibility in 

overseeing the operations of treasury? 

64 

Mr. ABELOW. Senator, my responsibilities I think with all of the 

areas that I oversee, including treasury, are to, first and foremost, 

ensure that we have appropriate professional personnel in place to 

oversee those functions and to ensure ongoing functioning of them. 

Chairwoman STABENOW. And do you think they were functioning 

appropriately? 

Mr. ABELOW. Other than the normal course of occasional incidents that are reported through operational risk or through audit 

findings, prior to the period in question, there was no evidence of 

there being any problem. As I said earlier, the first that we learned 

about there being an issue with segregated funds was Sunday, October 30th. 

Chairwoman STABENOW. And I would like to clarify a little bit 

more. You have talked a lot, Mr. Abelow, about intended purposes, 

and this really goes to Rule 1.25, and so I just want to be clear. 

Do you consider the investments permitted under that rule to be 

the intended purposes for customer segregated funds? Because that 

is not what we heard on our first panel in terms of what the farmers’ understanding was. Of course, as colleagues have asked about 

Rule 1.25, internal repo transactions and rehypothecation and loaning and borrowing customer collateral, could any of these transactions have led to the shortfall of customer funds? 

Mr. ABELOW. Senator, my understanding, when I made reference 

to ‘‘intended purposes,’’ you are correct, that is that I never heard 

a conversation where anyone spoke about using customer funds or 

assets for any purpose other than investment in Rule 1.25-eligible 

securities. 

Chairwoman STABENOW. Are there any other kinds or any other 

uses of customer funds by MF Global that could have resulted in 

them being lost? And I am not talking about misuse or unintended 

purposes at this point, but was MF Global doing anything with customer funds that could have led to a shortfall? 

Mr. ABELOW. Senator, I am not aware of any, and so it would be 

speculation on my part. 

Chairwoman STABENOW. Okay. Let follow up and ask all of our 

panelists a little bit more about rehypothecation, in effect, using 

customer assets as collateral to support financing for MF Global. 

This practice puts customers’ assets at risk if MF Global were to 

default on its loans. How common was it for MF Global to be rehypothecate customer collateral? And, again, could this be where 

the missing funds went? Mr. Corzine? 

Mr. CORZINE. Senator, I will start with I really do not have any 

knowledge about the term ‘‘rehypothecation’’ in this context, and so 

anything that I said here would be speculative. It is not a term 

that we used at the firm. I am not aware of that being something 

that took place. 

Chairwoman STABENOW. Okay. Mr. Abelow? 

Mr. ABELOW. I am not aware either. I did not directly engage in 

financing activity on the part of the firm. 

Chairwoman STABENOW. Mr. Steenkamp? 

Mr. STEENKAMP. Financing activity was not something that fell 

within finance, and, you know, in the context that I know 

rehypothecation, it is in a standard repo/reverse repo type financing context in the broker-dealer. 

65 

Chairwoman STABENOW. I know I have a lot more questions 

about this particular practice that I want to make sure we get into, 

but I wonder if any of you would respond to why we should permit 

trades that potentially encourage excessive leverage and create 

risk. And are these trades, in effect, a legal way to violate a fundamental principle, which is to protect customer money? Mr. Corzine? 

Mr. CORZINE. Senator, if the Rule 1.25 investments of segregated 

funds was followed, then those securities, based on the judgment 

of those who set that rule, should be available in a period when 

customers want their money back, and that is the intent of establishing that security positions can be taken far more conservative 

than what would occur in the broker-dealer or for house investments. And those investments should be just exactly inside those 

kinds of constraints. And if that were the case, then those monies 

should be available for clients, protection of client funds. 

Chairwoman STABENOW. Which is why we are here, because they 

are not, right? I mean, the concern is that funds were not kept segregated. At least at this point we are not going to be able to identify 100 percent of the funds that were customer funds, which is 

one of the reasons why we are here. 

Finally, Mr. Steenkamp, you spent a lot of years in accounting 

and financial reporting, obviously very accomplished. I guess I 

would say—and I think this is a fundamental question. How is it 

that large sums of money could be moved from customer accounts 

without being elevated to senior levels of management? As the 

chief financial officer, how could this happen within MF Global? 

Mr. STEENKAMP. I mean, Senator, not knowing, and not being 

able to investigate myself, I am asking the exact same question. 

Chairwoman STABENOW. But as a general practice. As a general 

practice, did large sums of money move without senior management being involved or being aware? 

Mr. STEENKAMP. As a general practice, something like that 

should be elevated, escalated, any movement of client funds for a 

broker-dealer activity should be elevated and escalated as general 

practice. And as I mentioned, the first time we found out about it 

was on the Sunday, Sunday evening. 

Chairwoman STABENOW. Thank you. 

Senator Roberts? 

Senator ROBERTS. Thank you, Madam Chairwoman. I think I am 

going to paraphrase from you and just simply say what we are trying to get straight here is your firm that the three of you were in 

charge of, amid the eighth largest bankruptcy in the history of the 

United States, has somehow lost $1.2 billion of your customers’ 

money, and none of you know where it went. And that is what is 

causing a lot of questions around here. 

I want to go back to Mr. Abelow. Earlier today you confirmed 

that the treasury operations—and apparently we need the treasury 

operations person here. Her name is Christy Vavra, by the way. 

She was the head of treasury ops. She could sit down there in that 

empty chair, I am sure. She was under your area of responsibility. 

Then you went on to say—but if somebody gave an order to move 

the money, would Christy know it? That would be my question to 

you. But then you went on to say, well, she would report to the person in charge of global operations. Now, who is that? 

66 

Mr. ABELOW. Senator, I do not know 

Senator ROBERTS. You do not know. 

Mr. ABELOW. No, no. I apologize. I—— 

Senator ROBERTS. So you do not know who is in charge of global 

operations, which comes under your area of responsibility. I just 

told you the name, which I doubt you knew, of the treasury ops 

person. Maybe you did not—or did. If someone gave an order to 

move the money around, which Christy Vavra know it? 

Mr. ABELOW. Senator, I apologize. What I was intended to say 

was I did not know if she reported directly to the head of operations or whether she reported to someone who reported to the 

head of operations. I do know the name of the head of operations. 

Senator ROBERTS. How many heads of operations—how many 

heads do we have to have around here before we finally drill down 

and find somebody’s name that knows what the heck is going on? 

Mr. ABELOW. Senator, I understand your frustration and the 

frustration of everyone in the room, and as I expressed in my testimony at the beginning, I, too, would like to know exactly what happened to the customer funds. 

Senator ROBERTS. Why don’t you together a PowerPoint or a TO 

chart or something so we could put everybody’s name and finally 

we would probably get down to the custodian. 

Earlier you said the Break the Glass plan that was presented to 

the firm’s leadership was dependent upon the use of your revolving 

credit line. Now, the credit line was already there. It does not 

sound like a contingency. What was the Break the Glass plan if 

you exhausted the credit line? 

Mr. ABELOW. Senator, I have not looked at the so-called Break 

the Glass scenario in more than 6 weeks, and so I do not recall exactly what was in it. It was a scenario that was designed to simulate—— 

Senator ROBERTS. So it is not a contingency. Now it is a scenario, 

right? 

Mr. ABELOW. It was designed to simulate what might occur if 

there were a loss of liquidity at the firm. 

Senator ROBERTS. So was it a plan? Was it a contingency? It was 

just—what? 

Mr. ABELOW. It was a—I believe that initially it was done literally as that, to simulate what would happen and what would the 

liquidity impact on the firm be under—— 

Senator ROBERTS. Well, it sounds like—— 

Mr. ABELOW. —a certain stress scenario. 

Senator ROBERTS. It sounds like somebody made a decision, either top or somewhere in your heads of operation here, that it became operational. 

Mr. ABELOW. The intention was that the next step in that plan 

would have been to develop an operational plan. I do not believe 

one was ever developed from that. 

Senator ROBERTS. Okay. Let me return to a point made earlier. 

You state in your testimony that the final days at MF Global were 

a classic run on the bank, yet Governor Corzine told us today that 

you all had enough cash to cover demand on Friday, the 28th? Was 

there a run on the bank, or did you have enough cash? It is either 

one or the other. 

67 

Mr. ABELOW. Senator, I believe that at the end of every day that 

week that we believed that, to the best of my recollection, we were 

advised that we did have liquidity on hand. But it was a run on 

the bank in the sense that liquidity sources were evaporating. 

Senator ROBERTS. Well, the classic question is: If you had enough 

cash to cover the run, why did you fall into bankruptcy? 

Mr. ABELOW. Senator, I believe that after we had failed to engage in a transaction to sell the firm, after we had discovered that 

there was an apparent gap in our segregated funds, we no longer 

thought we were in a position to continue operating. 

Senator ROBERTS. Okay. Governor, in your testimony, you state 

that during the week of October 24 you reduced the MF Global 

match book by $10 billion. You further state that you took extraordinary steps to ensure that you were able to honor customer requests to withdraw funds or collateral. Is this correct? 

Mr. CORZINE. It is, sir. 

Senator ROBERTS. Okay. Thank you. You said you drew down your line of credit from JPMorgan. That was about $1.2 billion, I 

think. On October 27, you stated, you sold $1.3 billion in commercial paper, over $300 million in corporate securities. Friday you 

sold $4.5 billion in U.S. treasuries. Is that about correct? 

Mr. CORZINE. I think that is what my written statement—— 

Senator ROBERTS. In addition, you said that during the week you 

unwound hundreds of millions worth of RTM and sold the underlying debt instruments. How much was that? I think I understand 

it is about $900 million. 

Mr. CORZINE. I think that is the number, sir. 

Senator ROBERTS. So we have $1.2 billion from JPMorgan, $1.3 billion in commercial paper, $0.3 billion in corporate securities, 

$4.5 billion in treasuries, and $0.9 billion in RTMs for a grand total 

of $8.2 billion. By my math, $10 billion minus $8.2 billion is $1.8 

billion. Where did this unaccounted for $1.8 billion come from? And 

could it be ‘‘loans’’ from your customer segregated accounts according to the Breaking the Glass plan? I am speculating. 

Mr. CORZINE. Senator, I would have—my math may be poor, but my addition to that would be $10 billion of reduction in assets by 

reducing the match book. It would be reducing $4.5 billion on the 

asset side by the sale of the agencies, $1.3 billion on the commercial paper. As you know, the RTMs were derecognized, so that 

would not have been a reduction of the balance sheet and whatever 

the corporate securities were. 

There would be liabilities that are reduced at the same time, 

both on—on every one of those assets. And the purpose of that 

whole process, except for the $1.3 billion in commercial paper, was 

to produce less in margin calls from—or less margin postings that 

would actually be returned to the firm in each of those transactions. The commercial paper was Rule 1.25-eligible, and that was 

sold for purposes of having cash, so when the kind of people who 

were here on the first panel were asking for their money, we would 

have the cash immediately for that purpose. 

Senator ROBERTS. Madam Chairwoman, I am out of time, and I 

will await the third round. Thank you so much. 

Chairman STABENOW. Thank you. 

Senator Conrad? 

68 

Senator CONRAD. Thank you, Mr. Chairman. You know, what flummoxes us is how there can be $1 billion or 

thereabouts missing and nobody seems to know where it has gone. 

I think you would agree it is a curious thing. I think somebody 

watching on television from home would say, ‘‘Wait a minute. 

These are the guys running the company and a billion dollars goes 

missing. How is it that they do not have any idea?’’ 

You know, I have heard speculation—I referenced it in my first 

round—that in those chaotic days when Moody’s had downgraded 

and all of a sudden the stock price plunges and you then have to 

contemplate bankruptcy, and, therefore, firms probably are not 

sending you money that owe you money, so you are in a liquidity 

crunch even if those trades on European debt were actually profitable trades, which everything I see now—all the reading I have 

done suggests, boy, these guys made a bunch of risky trades and 

lost money on them and, therefore, there is the problem. Everything I read is those trades are actually profitable trades, profitable 

positions, at least until the roof starting coming in. But then you 

are downgraded, so there is a liquidity crunch. 

Do any of you know of an attempt in those final hours to get London to send you back $170 million that was loaned to them? 

Mr. CORZINE. Senator, I have no input on that. 

Senator CONRAD. You have not heard that there was a call that 

went from MF Global, your headquarters in either Chicago or New 

York, to London saying, hey, that $170 million we sent you in a 

loan, we need that back? 

Mr. CORZINE. Senator, the only thing that I know about with regard to this is that there were overdrafts in London, which I talked 

about in my oral statement. 

Senator CONRAD. Overdrafts on their accounts by them? 

Mr. CORZINE. Overdrafts to JPMorgan in London accounts. 

Senator CONRAD. In London accounts. And to your knowledge, 

was $170 million sent to London as a loan? 

Mr. CORZINE. Senator, I do not know the amounts, transactions. 

Those are the kind of things that you would want to see from 

records. 

Senator CONRAD. Would it surprise you that there was money 

sent to them and then an attempt to get the money brought back 

to headquarters? 

Mr. CORZINE. In the normal course of any day’s transactions— 

and now I am speculating—only that—and I am not speculating 

about the close. But on any business day, lots of transactions back 

and forth between London and New York. 

Senator CONRAD. Mr. Abelow, were you advised that there had 

been a loan extended to London of $170 million and then a subsequent attempt to get that money repaid? 

Mr. ABELOW. Senator, I do not recall any specific conversation 

about a loan to London. What I do recall—and, forgive me, my 

memory is—this was a hectic time. Monday morning, October 31, 

and so this is post-discovering that there is an apparent gap in client segregated funds, I recall a series of conversations of asking 

people to identify all cash and assets that may be outside of the 

control of the FCM and returning them to the FCM. That was in 

response to this surprise to us on Sunday night that there is now 

69 

a problem. But I do not recall a specific loan or any specific amount 

or account being a part of that conversation. 

Senator CONRAD. Let me ask you, were the three of you talking 

during this period? I assume you were. 

Mr. CORZINE. Of course, although we were all focused on different activities of emphasis, as I have said in my remarks, I focused on selling assets, bringing the balance sheet down, had little 

less impact on selling of the firm, although I was active in those 

dialogues with investment bankers and also working our trading 

floors around the globe to make sure that people were reducing positions, preparing myself for postings with regulatory agencies, trying to gather information. I think other people were working on 

other functions. That did not mean we did not check in with each 

other, but it was not that we were standing next to each on an 

hour-or minute-to-minute basis. 

Senator CONRAD. Well, let me ask you this, if I can, because, you 

know, we have an obligation to try to learn what happened here. 

We have got constituents that have been adversely affected. When 

you learned—or when you were told that there was this—I think 

it was at the time a $950 million shortage, what did you say to 

each other? Was there a theory? I mean, I would think, if it were 

me and I heard there was this shortage, the first thing that would 

come to my mind is, ‘‘How in the hell did this happen?’’ 

Mr. Abelow and Mr. Corzine, did the two of you talk and say, 

‘‘What in God’s name happened here?’’ And did you have a theory? 

Mr. CORZINE. Senator, that is probably a polite way for a response. 

Senator CONRAD. I am Scandinavian, so we try to be polite. 

Mr. CORZINE. The reaction is marshal all the resources—I think 

you heard Mr. Steenkamp talk about it—and find out where this 

money is and why we are out of reconciliation, and then step back 

and let the people who know how to read those records, those thousands of pages of records, get on with the business. Concerned 

about our clients, concerned about the available ability to deal with 

a rising sun and an opening of markets. 

Senator CONRAD. Okay. 

Chairwoman STABENOW. Thank you very much 

Senator Chambliss? 

Senator CHAMBLISS. I will pass this round. 

Chairwoman STABENOW. All right. Thank you. 

Next, Senator—I think Senator Boozman has left. Senator 

Johanns? 

Senator JOHANNS. Mr. Abelow, you and Mr. Corzine have been 

close through the years, haven’t you? 

Mr. ABELOW. We have worked together for a number of years, 

sir. 

Senator JOHANNS. You were his chief of staff. 

Mr. ABELOW. I was his chief of staff when he was Governor of 

New Jersey. 

Senator JOHANNS. Mr. Steenkamp, I have been watching your 

body language during this hearing, and you just seem like the odd 

man out. You seem very uncomfortable about what is going on, and 

mostly you have been quiet. How long did you stay at this company 

after you knew that client money was missing? 

70 

Mr. STEENKAMP. Senator, I am still at MF Global Holdings—— 

Senator JOHANNS. You are still there today—— 

Mr. STEENKAMP. —as I mentioned in my statement, and I am 

still trying to do any efforts that I can to help the trustee of the 

holdings company to maximize value. 

Senator JOHANNS. Okay. So you have access to the records. 

Mr. STEENKAMP. No. I have access to MF Global Holdings information, the holding company, but I do not have access to either the 

personnel or the records of MF Global Holdings, Inc., for the most 

part because, as I mentioned, you know, on October 31st when the 

SIPC trustee was appointed, there were very clear boundaries put 

up. 

Senator JOHANNS. What day did the clients’ missing first start 

missing? 

Mr. STEENKAMP. Well, on the Sunday when we found out, it was 

reported to me that there is a segregation issue on both the Thursday calculation as well as the Friday calculation. And my understanding was that the Thursday calculation had originally not 

shown a deficit, but that subsequently there was a reconciliation 

issue which proved that to be wrong. 

Senator JOHANNS. Now, $1.2 billion, I think by everybody’s definition, especially somebody else’s money, is a massive amount of 

money. As I understand it, never in the history—never in the history—has client money ever gone missing. Wouldn’t there be some 

process or some person who had sufficient integrity in this organization to say, ‘‘Oh, my Lord, clients’ money is disappearing. I need 

to talk to the boss’’? And are you aware of anybody in the organization in that Thursday, Friday, Saturday who said, ‘‘Something 

very, very serious is happening,’’ or something like that and drew 

it to somebody’s attention? And who is that person, and whose attention was it drawn to? 

Mr. STEENKAMP. Senator, I am not aware of anyone until I was 

notified of it on the Sunday. 

Senator JOHANNS. So it did not come to your desk before you 

were notified on Sunday. 

Mr. STEENKAMP. Correct. 

Senator JOHANNS. So in this entire organization, although there 

must have been many, many people who knew that money was 

being drained out of client accounts, being transferred, did not step 

up and say to top management or at least to you, ‘‘There is a problem here’’? 

Mr. STEENKAMP. Senator, apologies for repeating myself, but 

there had been no one—I mean, there had been no idea of this 

until that Sunday. I mean, it was utter shock, I think as we have 

said, when we found out about it for the first time, which was Sunday. 

Senator JOHANNS. Mr. Steenkamp, do you realize how incredible 

your testimony, and the other two gentlemen, how incredible that 

sounds to this Committee that $1.2 billion, the first time in history 

this had ever happened, could get drained away from customers 

and it does not come to your attention or somebody does not seek 

your authorization or at least say, ‘‘Geez, by the way, what is going 

on here?’’ Doesn’t that strike you as incredible? 

71 

Mr. STEENKAMP. Senator, I wish I could—you know, I mean, we 

found out about it on Sunday, and there were no issues that we 

were—that I was aware of with regards to client assets being used 

in the broker-dealer up to that point, at any point as far back as 

I can remember. And our procedures, as I mentioned, were reviewed in detail by external and internal parties. 

Senator JOHANNS. How would you get money out of a client account in this organization? Did somebody have to authorize it? I 

mean, somebody in this organization had to have the ability to say 

light screen, take the money? 

Mr. STEENKAMP. Senator, so, again, as global CFO, you know, 

we—you know, my involvement was not in approval of client balance movements or involvement in client balance movements. 

Senator JOHANNS. Who would have that authority? 

Mr. STEENKAMP. We delegate those responsibilities to the senior 

finance professionals, the experts that do this on a day-to-day basis 

in finance, treasury, and treasury operations. 

Senator JOHANNS. And who were they? 

Mr. STEENKAMP. Every entity would obviously be different depending upon the rules and regulations that existed in the entity 

and in the country and the jurisdiction it operated in. 

Senator JOHANNS. I am just interested in the United States. 

Who—— 

Mr. STEENKAMP. In MF Global Inc., my understanding is that 

there were numerous controls in place that covered treasury and 

treasury operations. 

Senator JOHANNS. You have said that. I want names. Who would 

authorize, who would have the oversight, who would have the ability to say take money out of client accounts? 

Mr. STEENKAMP. Senator, I do not think anyone would have the 

authorization to take money out of client accounts to use for firm 

purposes. 

Senator JOHANNS. Well, who has oversight—you know, you are 

dancing around with me. Who would have the oversight of those 

accounts where that money has gone? And I want a name. 

Mr. STEENKAMP. Senator, I honestly am not trying to dance 

around the issue. I am just not—I am not 100 percent sure who 

the exact person—I think there are numerous people, as I mentioned. I think some of the names have already been mentioned 

around the treasury and the treasury operations people. I am not 

sure who had—— 

Senator JOHANNS. I am out of time, and I want to be respectful 

of the other Senators, but as part of your testimony, I am requesting that those names be provided to the Committee, because I 

would like those people sitting where you are sitting so we can ask 

them: How did it come to be that $1.2 billion, the first time in history, was taken out of customer accounts? Will you do that? 

Mr. STEENKAMP. I will try my best, Senator. 

Senator JOHANNS. Thank you, Madam Chair. 

Chairwoman STABENOW. Thank you very much, and let me just 

say also to your last question, Senator Johanns, our Committee 

staff are interviewing numerous people, are having conversations 

at various levels of MF Global, and we are asking for an accounting 

72 

of the checks and balances and who was in charge so that we, in 

fact, can answer those questions. So thank you very much and—— 

Senator ROBERTS. Madam Chairman, would you yield just for a 

comment? 

Chairwoman STABENOW. Yes, Senator Roberts. 

Senator ROBERTS. In regards to Mr. Steenkamp’s observation, I 

think I know where he is coming from, but I do not care what business you are in; you do not delegate responsibility. You may delegate authority, but you do not delegate responsibility. And every 

time you say that you are responsible for X, Y, Z, you are responsible for that. And that is why Senator Johanns I think is so keen 

on this. I said give us a PowerPoint, give us names, give us something. The only one we have come up with is Christy Vavra. I do 

not know if Christy would say, ‘‘Well, I delegated responsibility, so 

I do not know.’’ And we have to go down one layer. After a while 

this gets to be ridiculous. It is you three sitting here. 

I am sorry to take more time. 

Chairwoman STABENOW. Thank you. I very much appreciate the 

comments, and it is important that we get as specific information 

as we can. So we thank all of you for coming forward and speaking 

with us, and we look forward to continuing to ask these questions 

and get the answers as to where the money is and who, in fact, was 

responsible for the transactions. Thank you very much. 

We will ask our next panel to come forward, and we thank them 

for their patience. 

[Pause.] 

Chairman STABENOW. We will ask our third panel to come forward. We appreciate your patience. It has been a long day, but it 

is very important that we hear from all of you because the third 

panel is—all of you are extremely important in all this process, and 

so we want to make sure to lay out all the parameters today even 

though we know that it is a long hearing today. But we thank all 

of you for being here. 

Let me introduce our three panelists, and then we will ask, as 

you know, for an opening statement. Of course, we want whatever 

written information you would like to give us, and then we would 

ask for 5 minutes of verbal testimony, and then we will have our 

questioning. 

So our first panelist is the Honorable Jill Sommers. Jill Sommers 

is a Commissioner for the Commodity Futures Trading Commission. In 2005, she was the policy director and head of governmental 

affairs for the International Swaps and Derivatives Association. 

Prior to that, Ms. Sommers worked in the Governmental Affairs 

Office of the Chicago Mercantile Exchange where she was instrumental in overseeing regulatory and legislative affairs for the exchange. Welcome. 

Next we have Mr. James W. Giddens. Mr. Giddens is a trustee 

for the Securities Investor Protection Act liquidation of MF Global. 

He is also the co-chair of the Bankruptcy and Corporate Reorganization Group at Hughes Hubbard & Reed LLP. Welcome to you 

as well. 

Finally, we have Mr. Terrence Duffy. Mr. Duffy is the executive 

chairman for the CME Group based out of Chicago, Illinois. He has 

been a member of the board since 1995, was president of TDA 

73 

Trading from 1981 until 2002, and has been a member of CME 

since 1981. 

So welcome to all of you, and before giving your testimony, I 

would ask you to rise and to raise your right hand. Do you swear 

that the testimony you are about to present is the truth, the whole 

truth, and nothing but the truth, so help you God? 

Ms. SOMMERS. I do. 

Mr. GIDDENS. I do. 

Mr. DUFFY. I do. 

Chairman STABENOW. Thank you. 

Commissioner Sommers, we would ask you to start with your 

testimony. 

STATEMENT OF HON. JILL E. SOMMERS, COMMISSIONER, 

COMMODITY FUTURES TRADING COMMISSION, WASHINGTON, DC 

Ms. SOMMERS. Good afternoon, Chairwoman Stabenow, Ranking 

Member Roberts, and members of the Committee. Thank you for 

inviting me here today to discuss the MF Global bankruptcy. I understand the severe hardship this bankruptcy has caused for customers of MF Global. These customers correctly understood the 

risks associated with trading futures and options, but never anticipated that their segregated accounts were at risk of suffering losses 

not associated with trading. Many customers have reached out to 

me and my staff directly, and we are doing everything we can to 

get as much of their money back to them as quickly as possible. 

I have made this my number one priority. 

The Commission has dozens of staff members in New York, Chicago, and Washington working on these issues. I am unable to discuss matters that might compromise the ongoing enforcement investigation or parallel investigations by any other Government 

agency, so I will focus my comments on the bankruptcy cases pending in New York and on the legal requirements surrounding the 

segregation of customer funds held at futures commission merchants. 

As I understand the Securities Investor Protection Act of 1970, 

the SEC has the authority to refer an entity registered as a brokerdealer to the Securities Investor Protection Corporation if there is 

reason to believe that the entity is in or is approaching financial 

difficulty. SIPC may initiate a liquidation proceeding to protect customers of an insolvent broker-dealer when statutory criteria are 

met. 

When a broker-dealer is also a registered FCM, as MF Global 

was, there is one dually registered entity and the entire entity gets 

placed into liquidation. Because there is one entity it is not possible 

to initiate a SIPA liquidation of the broker-dealer and a separate 

bankruptcy proceeding for the FCM. It is important to note that 

when a dually registered BD/FCM is placed into a SIPA liquidation, the relevant provisions and protections of the Bankruptcy 

Code, the Commodity Exchange Act, and the Commission’s regulations apply to customer commodity accounts just as they would if 

the entity were solely an FCM and in a non-SIPA bankruptcy. 

The Commission is no stranger to FCM bankruptcies. Lehman 

Brothers and Refco are two of the most recent. While the Lehman 

74 

Brothers bankruptcy was monumental in scale and the Refco bankruptcy involved serious fraud at the parent company, commodity 

customers did not lose their money at either firm. In both instances, commodity customer accounts were wholly intact; that is, 

they contained all the open positions and supporting collateral for 

those positions. That being the case, customer accounts were 

promptly transferred to healthy FCMs, with the commodity customers having no further involvement in the bankruptcy proceeding. Unfortunately, that is not what happened at MF Global 

because the customer accounts were not intact. 

In FCM bankruptcies, commodity customers have an exclusive 

right to customer property. This includes, without limitation, segregated property, property that was illegally removed from segregation and is still within the debtor’s estate, and property that was 

illegally removed from segregation and is no longer within in the 

debtor’s estate, but is clawed back into the debtor’s estate by the 

Trustee. Commission regulations also allow other property of the 

debtor’s estate to be classified as customer property to make up 

any shortfall. 

Within the first weeks of the MF Global bankruptcy, the trustee, 

with the encouragement and assistance of the CFTC, transferred 

nearly all positions of customers trading on U.S. commodity futures 

markets and transferred approximately $2 billion of customer property. 

On December 9th, the bankruptcy court granted a motion to transfer an additional $2.1 billion back to customers. When this additional transfer goes forward, commodity customers should have 

received approximately 72 percent of their account values as reflected by the books and records of MF Global. These demonstrate 

that commodity customers are receiving the highest priority in 

claims to the bankruptcy estate. We understand that more must be 

done. 

An FCM is authorized to invest funds that are in customer segregated accounts. This authorization is found in Section 4d of the 

CEA and in Commission Regulation 1.25. The Commission finalized changes to Regulation 1.25 just last week. Those changes just 

reinforced the long-held view of the Commission that customer segregated funds must be invested in a manner that minimizes their 

exposure to credit, liquidity, and market risks to preserve their 

availability to customers and DCOs. 

All Regulation 1.25 investments are subject to a general prudential standard which requires that all permitted investments be consistent with the objectives of preserving principal and maintaining 

liquidity. 

While our current focus is on returning as much money as possible to customers, we are expending an enormous amount of effort 

to locate the missing customer funds and pursuing the enforcement 

investigation. All of the information we learn during these aspects 

of our work will be relevant to the Commission as we consider ‘‘lessons learned’’ and any policy responses or regulatory changes. 

Obviously, the Commission has a great deal of work to get customer funds back where they need to be, to determine what went 

wrong with segregated funds at MF Global, to determine whether 

to prosecute any violations of the Act, and to determine what needs 

75 

to be done to prevent a similar circumstance in the future. Commission staff is coordinating on these issues with other regulators, 

both international and domestic. We are also working closely with 

the trustee to provide whatever support he needs to resolve issues 

with commodity customer accounts. I greatly appreciate the continued support of this Committee as we move forward with this important work. 

Thank you. 

[The prepared statement of Ms. Sommers can be found on page 

139 in the appendix.] 

Chairman STABENOW. Thank you very much. 

Mr. Giddens? 

STATEMENT OF JAMES W. GIDDENS, TRUSTEE, SECURITIES 

INVESTOR PROTECTION ACT LIQUIDATION OF MF GLOBAL 

INC., NEW YORK, NEW YORK 

Mr. GIDDENS. Chairwoman Stabenow, Ranking Member Roberts, 

and members of the Committee, thank you for inviting me to testify today about efforts to identify, preserve, and return assets to 

the former customers of MF Global Inc. I am the court-appointed 

trustee for the Securities Investor Protection Act liquidation of the 

failed broker-dealer, MF Global Inc. I appreciate the interest of this 

Committee and other Members of Congress, including the direct 

encouragement of Chairwoman Stabenow and Senator Roberts to 

expedite the returns to customers as quickly as we can. 

Along with my staff, I have been working closely and continuously with the Securities Investor Protection Corporation, Commissioner Jill Sommers, and the Commodity Futures Trading Commission, the Securities and Exchange Commission, and the Chicago 

Mercantile Exchange. By statute, the trustee is the customers’ advocate. My staff includes legal experts, consultants, and forensic accountants. We take very seriously our obligation to protect customers of the failed brokerage. Our primary mission is to look our 

for the customer and credit interest. We are focused on returning 

assets to customers as quickly as possible in a manner that is fair 

and consistent with the applicable provisions of the Securities Investor Protection Act, the Bankruptcy Code, and the CFTC regulations. 

Every distribution we make must be approved by the bankruptcy 

court on notice to all customers and parties in interest. We are distributing as much as we can as soon as we can within the law. And 

while we work around the clock on identifying, preserving and distributing customer assets, my office has made every effort to keep 

customers informed. We have a website which had, I think, more 

than 10,000 inquiries. Information on the status of the proceeding 

is posted to the website daily. In addition, my staff is answering 

calls and e-mails and holding meetings with customer groups and 

their counsel. A call center and a website, as we indicated, are in 

operation. We also will be mailing to all 36,000 remaining customers statements of their last positions and reflecting as best we 

can the first two transfers to assist them in understanding where 

we are in the process and in completing claim forms. 

I am very pleased to report the distributions to nearly all 36,000 

former retail customers, whether farmers, day traders, or instituVerDate Nov 24 2008 08:54 Sep 14, 2012 Jkt 000000 PO 00000 Frm 00079 Fmt 6633 Sfmt 6633 C:\DOCS\75117.TXT MICHA
76 

tional investors, have been made within weeks of the bankruptcy 

filing. We are now in the process of implementing a third bulk distribution that will bring the total amount of customer distributions 

to more than $4 billion. The order approving that was entered by 

the bankruptcy court yesterday. The team worked over the weekend to put in place the mechanisms with the cooperation of the 

CFTC and the CME, and the first distributions are expected to 

begin to be made tomorrow and to be completed within 2 to 4 

weeks. All of this requires transfers to new accepting FCMs and is 

a complicated process. This will mean that retail commodities customers with U.S. positions will receive approximately 72 percent of 

their property. 

The customer claims process is also up and running. Claim forms 

have been sent by mail, and forms are available on our website. 

Claims are being filed, reviewed, and as we meet here today, some 

claims have already been approved and allowed. 

As part of my statutorily mandated duty, I am also investigating 

the extent of and reasons for the apparent shortfall in customer 

funds. The investigation is ongoing. It is led by the Department of 

Justice, also with the CFTC, the SEC, and we are cooperating fully 

in their investigation. 

It is too early to make or draw definitive conclusions on many 

of the matters. At this time we do not know with certainty the extent of the potential segregation and compliance shortfalls, but I 

estimate the figure is not less than $1.2 billion. 

For U.S. futures, foreign futures, and for securities customers, 

there are three categories of segregated assets at MF Global Inc. 

for the customers. First, for those with U.S. futures positions, 

which is primarily under the jurisdiction of the CME, but there are 

also U.S. clients with substantial foreign futures positions. There 

are also securities customers who had segregated funds. The full 

amount of the shortfall will not be known with certainty until the 

claims process is completed. 

I feel obligated to share these preliminary numbers and highlight 

the uncertainty that surrounds them. It is my hope that the shortfall number will come down. 

We have collected the available assets from depositories that appear to be on the books of the debtor. This is not simply a mathematical calculation, but is the actual control of dollars. We also 

have estimated the potential claims, and that is how we calculate 

the shortfall figure. 

No matter the final amount of the shortfall, it is an appalling situation. Its probable size is going to be significant, and this will 

substantially affect our ability to make a 100-percent distribution 

to former MF Global customers in the immediate term. 

Exhaustive efforts to collect funds from U.S. depositories continue. Assets located in foreign depositories for customers who 

traded in foreign futures are a more complicated matter. They are 

now under the control of foreign bankruptcy trustees or administrators. We will pursue these assets vigorously, but recovery may 

be more uncertain and may take more time. 

Thank you, Chairwoman Stabenow, Ranking Member Roberts, 

and other members of the Committee, for the opportunity to testify 

here today. You can be assured that amidst the unprecedented cirVerDate Nov 24 2008 08:54 Sep 14, 2012 Jkt 000000 PO 00000 Frm 00080 Fmt 6633 Sfmt 6633 C:\DOCS\75117.TXT MICHA
77 

cumstances surrounding the failure of MF Global Inc., we are moving with speed and diligence to return customer property as quickly 

as possible in a fair and equitable manner that complies with the 

law. 

Thank you. 

[The prepared statement of Mr. Giddens can be found on page 

128 in the appendix.] 

Chairman STABENOW. Thank you very much. 

Mr. Duffy, welcome. 

STATEMENT OF TERRENCE A. DUFFY, EXECUTIVE CHAIRMAN, 

CME GROUP INC., CHICAGO, ILLINOIS 

Mr. DUFFY. Thank you, Chairwoman Stabenow, Ranking Member Roberts, and members of the Committee. I am Terry Duffy, executive chairman of CME Group. 

Let me start by saying the actions of Mr. Corzine’s firm, MF 

Global, put a lot of market users in a tragic position. At CME 

Group, our efforts with respect to the unprecedented loss of customer segregated funds caused by MF Global have been to assist 

these customers in minimizing market disruptions. My testimony 

summarizes efforts from our staff, who were on site at MF Global, 

along with the CFTC, in the days immediately preceding its bankruptcy. My written testimony expands on this introductory statement and includes substantial background material. 

By the middle of the week of October 24th, MF Global had announced poor earnings and was downgraded by several credit rating firms, sparking rumors that it would sell its brokerage business. CME was the designated self-regulatory organization for MF 

Global with responsibility for auditing its futures business. On 

Thursday, October 27th, two of our auditors went to MF Global’s 

Chicago offices to review MF Global’s daily segregation report for 

the close of business on Wednesday, October 26th. 

Wednesday’s segregation report, which is not available until 

Thursday, showed full compliance. Our auditors asked for the material necessary to check the numbers on the report against the 

general ledger and third-party sources and began the process of 

tying out the numbers for Wednesday’s report. 

That substantial review process of the Wednesday segregation 

report continued on Thursday and Friday. MF Global’s segregation 

report for Thursday, October 27th, which was delivered to CME on 

Friday, the 28th, also stated that MF Global remained in full compliance with segregation requirements. In fact, it showed that the 

firm held $200 million in excess segregated funds. 

On Sunday, the CFTC informed us that they were aware of a 

draft segregation report for the close of business for Friday, October 28th, which showed more than a $900 million shortfall in required segregation. CFTC and CME staff and auditors returned to 

the firm on Sunday, October 30th, and were informed by MF Global employees that this discrepancy was caused by ‘‘an accounting 

error.’’ Our auditors, working with the CFTC, devoted the rest of 

the day and night Sunday to find the so-called accounting error. No 

such error was ever found. Instead, at about 2:00 a.m. Monday 

morning, October 31st, MF Global informed both the CFTC and 

CME at approximately the same time that the shortfall was real 

78 

and that customer segregated funds had been transferred out of 

segregation to the firm’s broker-dealer accounts. 

After receiving this information, CME remained at MF Global 

while MF Global attempted to identify funds that could be transferred into segregation to reduce or eliminate the discrepancy. 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 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. 

On Monday, October 31st, the day the SIPC trustee took over, 

MF Global revised its segregation report for Thursday, October 

27th, indicating that the alleged $200 million in excess segregated 

funds should have been reported as a deficiency of $200 million. 

This shortfall in segregation on Thursday, October 27th, was hidden by the inaccurate report, a telling sign to keep regulators in 

the dark. It remains to be seen whether this failure to disclose permitted additional segregated funds to be improperly transferred. 

Throughout this time, the firm and its employees were under the 

direction and control of MF Global management. Transfers of customer funds effectuated by MF Global management for the benefit 

of MF Global constitute very serious violations of our rules and of 

CFTC regulations. We met our obligations to all other clearing 

firms and their customers. 

Also, at all times we held $1 billion in excess of the required 

amount of customer segregated funds on behalf of MF Global’s customers. All of CME Group’s efforts have been directed toward 

speeding customer access to their trading accounts, transferring 

their positions, and providing the trustee with a $550 million guarantee from CME Group to encourage him to quickly release customer funds that were securely held at CME Clearing. 

The federally mandated customer segregation program has been 

in place since 1936. In the time prior to the MF Global failure, no 

customer has ever lost its segregated funds because of the failure 

of a clearing member of the CME. Moving forward, we intend to 

work with the Congress, regulators, and industry leaders to 

strengthen customer safeguards at the firm level. 

I thank you very much for your time and attention, and I look 

forward to your questions. 

[The prepared statement of Mr. Duffy can be found on page 123 

in the appendix.] 

Chairwoman STABENOW. Thank you very much. 

Let me start, Mr. Duffy, with your comments that you just indicated. You raised a serious allegation in your oral statement today 

regarding what Mr. Corzine may have known about customer accounts. You did not mention that in your written testimony, and 

you did not mention it in your testimony last week before the 

House Agriculture Committee. 

This leaves us wondering why you are sharing it now, what you 

think it means, and I trust that CME has, in fact, shared this information in a timely way with appropriate Federal officials. And 

I would urge again everyone to cooperate fully with the investigations that are going on because, of course, anyone who is engaged 

79 

in wrongdoing must be held accountable. But would you want to 

respond further to that? 

Mr. DUFFY. I would be happy to. Madam Chairwoman, I did not 

become—this information was not made available to me prior to 

my testimony last Thursday in the House. I received this information this past Saturday from an e-mail and a phone call from our 

lawyers, and they informed me of what they had found out in their 

investigations but did not share with me prior to the Thursday testimony. 

Chairwoman STABENOW. And do you have the names of the specific people involved in terms of—you were speaking of hearing— 

people referring to things that they heard, but do you have the specific names that you have given to the authorities? 

Mr. DUFFY. The names of? 

Chairwoman STABENOW. Of those who were on the call and were 

involved in the conversation. 

Mr. DUFFY. One of our folks from CME who is the one that reported this back to us was on a call, and you have to forgive me, 

I do not know this woman’s name. If you do not mind, I will check 

with Legal. 

Chairwoman STABENOW. I just want to make sure that you are 

reporting specific names of people in the discussions. 

Mr. DUFFY. Yes. There is a specific name, yes, ma’am. 

Chairwoman STABENOW. Okay. Mr. Duffy, in March of this year 

you testified before the Committee, pushing back on CFTC’s effort 

to require more of exchanges and clearinghouses like CME when 

it comes to compliance and oversight. In fact, in March you said, 

‘‘There is no evidence that this will be beneficial to the public or 

the functioning of the markets.’’ 

I wonder if you still believe that is true. 

Mr. DUFFY. I do not know what you are referring to, what issue 

it was, ma’am. There were many issues—— 

Chairwoman STABENOW. Well, we were moving forward— CFTC 

was moving—you pushed back on the CFTC moving away from 

principles-based regulation, and I wonder if you still hold that view 

today. 

Mr. DUFFY. Principles-based regulation has worked flawlessly, 

ma’am, and we do believe, even in this instance, that segregation 

funds still worked. What happened here was somebody went in, 

violated the rules of the CME and violated the rules of the Government, and transferred out customer monies into the broker-dealer 

account. That has nothing to do with the principles-based regulation, I believe, of the firm or the segregation of the firm. Someone 

violated the rules, in my opinion. 

Chairwoman STABENOW. And so do you believe that CME has 

any responsibility as the front-line regulator—— 

Mr. DUFFY. If I did not think—what CME has done—and I was 

very much in favor of doing this—was to put up the guarantee of 

$550 million so that the trustee could then issue money much more 

quickly back to the ranchers and farmers. And if you would like, 

I would be happy to give you the notes of why I did that. I asked 

that specifically for the farmers and ranchers, not for Wall Street, 

not for hedge funds, or any other of our clients. I said the most important constituency here needs to be made—to get the money back 

80 

quickly to them, are the farmers and ranchers. That is why the 

board of the CME Group put forth the $550 million to guarantee 

Mr. Giddens so he can allocate his revenues. 

Chairwoman STABENOW. As we go forward and looking to the future, this kind of thing—we all want to make sure that this kind 

of thing does not happen again in the future. Do you think the 

right kinds of questions are being asked of the futures commission 

merchants? Are we getting enough information to keep markets 

safe in order to be able to trade? And are you planning on reviewing your oversight systems in light of the MF Global bankruptcy? 

Mr. DUFFY. Obviously, anytime something of this magnitude 

happens, which has never happened before—and I think Senator 

Roberts has pointed that out many times throughout the day—you 

want to look at different things. We are obviously open, as I said 

in my oral statement, to working with Congress and industry participants to see if there are any changes that need to be made for 

this not to happen. But I do think it is important that—you know, 

there is $158 billion of customer segregated funds in the United 

States of America. This potential violation has never happened 

since this has been put into place since 1936. So I do not think that 

the system is broke. I think someone violated the rules, ma’am. 

Chairwoman STABENOW. Thank you. And now for a moment let 

me talk about customer money, which brings us all here and is our 

concern. I want to thank you, Mr. Giddens, for your efforts and 

your team’s efforts and encourage you to continue to move as 

quickly as possible to make people whole. 

I am concerned that we are hearing that there may be a shortfall 

in customer money. Even with this latest distribution, we know 

that people will not be yet getting 100 percent of their funds. And 

with that in mind, I think it is important to talk about what happens next. And so I would like each of you to answer a couple of 

questions. 

Do you agree that any value left in MF Global should first go to 

customers until they are made whole? And to put it another way, 

creditors and investors should not get a single penny until MF 

Global’s customers have been paid in full. And I am wondering if 

each of you would agree with that. Commissioner Sommers? 

Ms. SOMMERS. Thank you, Chairman Stabenow. I think that it 

becomes a little complicated when you are talking about the bankruptcy of MF Global Holdings, the parent company. If we have evidence to show that there is customer money at the holding company level, then absolutely we will do everything we can to make 

sure that money comes back to customers and to the estate. We 

will be working closely with the trustee to make sure that happens. 

Chairwoman STABENOW. Okay. Mr. Giddens, would you respond 

to that? 

Mr. GIDDENS. Yes, I agree that both the Commodities Exchange 

Act and the Securities Investor Protection Act give a priority to 

customers, securities customers and commodities customers, respectively, and if there is a shortfall, there are provisions in both 

statutes which say that other assets ought to be reached to cover 

those shortfalls. That may be deemed by some to be something of 

a conflict, and the positions of the CFTC and the SEC may disagree. But both statutes, if there are shortfalls in customer propVerDate Nov 24 2008 08:54 Sep 14, 2012 Jkt 000000 PO 00000 Frm 00084 Fmt 6633 Sfmt 6633 C:\DOCS\75117.TXT MICHA
81 

erty in either category, commodities or securities, give a preference 

and have a mechanism for a trustee to seek to recover for an estate 

assets which should have been in segregated funds. 

Chairwoman STABENOW. Mr. Duffy? 

Mr. DUFFY. I am not a trustee nor a regulator, but I believe that 

there is SIPC insurance on the broker-dealer side. There is what 

we call ‘‘segregated funds’’ on the FCM side. I do believe that the 

FCM clients should be first in line in front of all other participants, 

including bond holders and everybody else. 

Chairwoman STABENOW. Thank you. Thank you very much. 

Senator Roberts? 

Senator ROBERTS. Well, thank you Madam Chairwoman. 

Mr. Duffy, we have spent a lot of time here today. We probably 

should have had you on first. You have sort of tossed a bomb here 

right in the middle of who we are trying to find out who is responsible, who has the responsibility, who has the authority. So senior 

MF Global employees told one of your auditors—you were about 

ready to give us the name of that auditor. Why don’t you just supply that to the Committee, if you might? I think you were going 

to turn to one of your attorneys, and we will leave it at that, unless 

that jeopardizes any ongoing investigation. We will let you decide 

that with law enforcement. 

October 31st, Governor Corzine was well aware of loans that MF 

Global had made to other MF Global affiliates. Is that correct? 

Mr. DUFFY. Sir, I am reporting back to you everything that I 

know that was told to me. I was not there, sir, but in our interviews with our employees, our employee told us that they were on 

a phone conversation with this particular person at MF Global that 

Mr. Corzine was aware of the loans that were being made. 

Senator ROBERTS. Did that employee indicate with MF Global affiliates the MF Global customer segregated account funds were 

transferred to? 

Mr. DUFFY. Not to my knowledge; I do not know that. I believe 

what they were trying—if I recall the e-mail, it was something of 

a $175 million loan that was made to a European affiliate of MF 

Global, if I am understanding it correctly, if I remember correctly. 

Senator ROBERTS. Did they indicate when those loans were 

made? 

Mr. DUFFY. I do not recall when they were made. I believe it was 

in the last couple days prior to bankruptcy. 

Senator ROBERTS. Did this individual indicate when Governor 

Corzine became aware of those loans, or did he order them to 

occur? 

Mr. DUFFY. All I was told was that Mr. Corzine was aware of the 

loans that were made. 

Senator ROBERTS. Did you provide this information to the appropriate authorities? The answer, of course, to that is yes. 

Mr. DUFFY. Yes, sir. 

Senator ROBERTS. Is there anything else about this conversation 

you believe important for this Committee to know? 

Mr. DUFFY. No, sir. I was just asked to raise my right hand and 

tell the whole truth, so I am telling you what I know. 

Senator ROBERTS. I appreciate that. 

82 

Commissioner Sommers, it is my understanding that CFTC can 

create advisory boards composed of industry officials. Is that correct? 

Ms. SOMMERS. Yes, Senator. 

Senator ROBERTS. Has the CFTC considered setting up an advisory committee like this to focus on what happened with MF Global 

and to help make recommendations to ensure it does not happen 

again? 

Ms. SOMMERS. We have had a number of different conversations 

of what an appropriate forum would be moving forward so that we 

can hear from industry participants and get their feedback on lessons learned. 

Senator ROBERTS. Has anybody stopped you or recommended 

otherwise? 

Ms. SOMMERS. No. I do not think we have had discussions that 

have taken it to the Chairman’s level. It has just been internally 

with my office and industry participants. 

Senator ROBERTS. Well, he is not participating. Is that not correct? 

Ms. SOMMERS. That is correct. 

Senator ROBERTS. Well, I would strongly encourage you to set 

that up, and I encourage you to make that recommendation to the 

Commission and to pursue it. And since Chairman Gensler is not 

participating and has stated before the Committee last week he 

does not know exactly what happened with MF Global, those recommendations should be given to you as the lead investigator and 

that you and the other Commissioners should make a determination on whether or not those recommendations should be pursued. 

Let me say that—let me get organized here. Mr. Duffy, again, beginning on Monday, October 24, the day of the Moody’s downgrade, 

you have said that CME began heightened scrutiny of MF Global. 

What does this entail, very briefly? 

Mr. DUFFY. Well, we were in there—— 

Senator ROBERTS. Mic. 

Mr. DUFFY. Sorry, sir. We were in there to make certain that the 

segregated reports were accurate. As I said in my oral testimony, 

we were—they were on daily segregated reporting I believe since 

they were—since Refco, since Refco went away and MF Global took 

them over. So we were in there just making certain that the monies were tying out, as I said, and we had got about 85 or 90 percent 

done through Friday through the week on tying out the customer 

segregated funds. 

Senator ROBERTS. Commissioner Sommers, did the CFTC participate or assist in this more intensive review? 

Ms. SOMMERS. The CFTC staff went into MF Global mid-week— 

I think the 26th was a Wednesday—under the same sort of review 

to make sure that the daily segregated reports were accurate. 

Senator ROBERTS. Under the heading of what you were looking 

for, wasn’t the primary purpose of your intensive review to make 

sure that the segregated customer accounts were not dissipated or 

otherwise misused? 

Ms. SOMMERS. That is correct. We—— 

Senator ROBERTS. Mr. Duffy? 

Mr. DUFFY. Yes, sir. 

83 

Ms. SOMMERS. We received daily segregated reports from MF 

Global, but in the normal course of business do not tie those back 

to bank records. So that is what we were in the process of doing. 

Senator ROBERTS. Did you suspect that the customer funds might 

go missing? 

Ms. SOMMERS. No, sir. 

Senator ROBERTS. I understand that you were not in charge of 

MF Global’s investigation at this time, but you have since learned 

whether or not the CFTC participated in this review or otherwise 

confirmed the CME’s conclusion that all the customer money was 

safe at the close of business on Wednesday, October 26th. Is that 

correct? 

Ms. SOMMERS. That is correct. 

Senator ROBERTS. It is my understanding Chairman Gensler 

would have been the lead at that time on all MF Global-related 

issues because he did not become non-participating until 8 days 

later. Is this correct, as to your understanding? 

Ms. SOMMERS. That is correct. I took over on November 9th. 

Senator ROBERTS. I see. I think I am down to 37 seconds, and 

we have the Senator to my right who is waiting patiently. So I may 

ask a couple more questions, Madam Chairwoman, but I think I 

will yield back at this time. 

Chairwoman STABENOW. Thank you very much. 

Let me talk for a little bit more about customer funds and ask 

each of you another issue that I think, as we look at going forward, 

we are going to be asking a lot of questions about additional authority from Congress in terms of putting customer funds first in 

processes. 

It is possible during the days, perhaps even the weeks and 

months, that led up to the firm’s collapse that there were third parties who saw it coming, and perhaps they were well within their 

legal rights to do so. But if third parties held back money or assets 

to keep them out of a lengthy and uncertain bankruptcy proceeding, should the court be able to reclaim that money for MF 

Global customers? Commissioner Sommers? 

Ms. SOMMERS. I guess my understanding of the way that would 

work is if that money belonged to customers or belonged in the 4d 

account, then absolutely that would be able to come back to the 

debtor’s estate. I am not aware of money with third parties or 

aware of whether or not that was money that belonged in the 4d 

account. 

Chairwoman STABENOW. Mr. Giddens? 

Mr. GIDDENS. We are looking at all the transfers for several 

months out of the firm, and if there is a legal basis for recovering 

that, we will make a demand, and we will also engage in litigation 

if we have a sound basis for that. 

We are in the process of collecting from counterparties of MF 

Global Inc. who principally closed out all open transactions after 

the bankruptcy for an accounting of whether they lost money or 

made money; and if they owe money to the estate, we will pursue 

that. 

There is nothing to indicate, unfortunately, the amounts, based 

on our analysis of the books and record, are going to be astronomical or anywhere nearly sufficient to make up the shortfall. But 

84 

part of my duty as a trustee is to pursue causes of action to recover 

assets for customers, and we intend to do that. 

Chairwoman STABENOW. Thank you. 

Mr. Duffy? 

Mr. DUFFY. I would have nothing more to add than what Commissioner Sommers already said. 

Chairwoman STABENOW. Okay. Thank you. 

Mr. Duffy, some have suggested that CME should make whole 

the customers of MF Global right now and take over the claims. 

Would you consider that kind of an idea? 

Mr. DUFFY. As I said, we have put up money to encourage the 

trustee to pay back. I also said there was $158 billion of customer 

segregated funds in the United States. Nobody can guarantee $158 

billion. You know, that is why there are rules on the books, and 

that is why we have disclaimers to make certain of what FCM you 

are going to do business with because there is a risk. So, again, 

Madam Chairwoman, that would be something that would be an 

extreme moral hazard for the CME to try to make up $158 billion 

of customer segregated monies. 

Chairwoman STABENOW. You mentioned earlier on the securities 

side that there is SIPC, there is an insurance system. And it is a 

little early, I think, probably to spend too much time—we are not 

sure where all the recommendations are going to go, but one question that we have been asked a number of times is: Should there 

be an insurance system like that is on the commodity side for commodities customers? Do you have any thoughts on that? 

Mr. DUFFY. I think you are talking about trying to have an insurance system that would be in the hundreds of trillions of dollars 

of notional value to insure. The premiums would be so astronomical 

it would never meet the payout of what it could be. So I do not 

know that is something that would be beneficial. There may be 

something you want to look at and, again, preliminary at best, 

smaller farmers, ranchers, pure hedgers of the product, they may 

want to look at different types of accounts for them that could be 

managed differently. I do not know. 

Chairwoman STABENOW. Okay. Thank you. 

Commissioner Sommers, Chairman Gensler testified at our last 

hearing that the CFTC did not examine a single futures commission merchant, referencing the duty of the front-line regulators like 

the CME. Can you confirm that information? And should the Commission audit or examine every futures commission merchant? If 

we are to go down that path, does the CFTC have enough resources 

to do that? I think I probably know the answer to that one, but is 

that a path that the CFTC is looking at or would look at? 

Ms. SOMMERS. So currently the way it works, we have authority 

over the DSROs. The FCMs are registered with us, but the DSROs 

are the front-line auditors. We do periodic reviews of the DSROs 

and look at the reviews or the audits that the DSROs do of FCMs. 

So we may go in and do spot audit checks of FCMs that a DSRO 

has already reviewed to see what our own results would be of that 

type of audit to make sure that the DSRO is doing their job. If we 

find any inadequacy in the job that the DSRO has done, we make 

recommendations to them to improve their systems. 

85 

Chairwoman STABENOW. After this investigation is done, are you 

open to recommending new authorities or tightening up current 

protections to prevent a similar situation from occurring again? 

Ms. SOMMERS. Absolutely. I think there is no doubt that after the 

investigation is concluded and we look back to know exactly what 

happened, there will be a number of lessons learned and a number 

of different recommendations that we can bring to you for your consideration. 

Chairwoman STABENOW. Is it true that if a firm invests customer 

money right now and the investments decrease in value, the firm 

is responsible for the loss, not the customer? 

Ms. SOMMERS. That is right. If the firm is investing under Regulation 1.25 and there is a loss in value of those instruments, the 

FCM has to make up the loss of customer money. 

Chairwoman STABENOW. Thank you very much. 

Senator Roberts? 

Senator ROBERTS. I beg the indulgence of my colleagues. CME 

has said in the last few days, Mr. Duffy, of MF Global it saw several transactions that ‘‘did not follow a straight path.’’ What did 

you mean by that? 

Mr. DUFFY. I am not aware of that exact quote, ‘‘did not follow 

a straight path.’’ It may be in my written testimony, but I am assuming—no, it is not in my written testimony. I did not think it 

was. I do not recall hearing anything about following a straight 

path. 

Senator ROBERTS. I wonder where that came from. 

Mr. DUFFY. The only thing I can say, sir, is I did say that they 

gave us a segregated report that showed $200 million to the good, 

and then they gave us the same segregated report 4 days later, 

dated from the week before, that showed a $200 million deficiency. 

So maybe that is where that language came from. 

Senator ROBERTS. Well, then you saw several transactions that 

followed a very rocky path. 

Mr. DUFFY. Fair enough. 

Senator ROBERTS. On November 2 in a press release, you said, 

‘‘It now appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designated to avoid detection insofar as MF Global did not disclose or 

report such transfers to the CFTC or CME until early morning on 

Monday, October 31.’’ How was this information disclosed to you by 

MF Global? 

Mr. DUFFY. I will go back to what I said a moment ago, Senator. 

That press statement that we put out, a lot of it was based on the 

false segregated reports that we received and now we are aware of. 

Senator ROBERTS. What exactly did MF Global tell you? 

Mr. DUFFY. I was not there, sir. Obviously, this was 2 o’clock in 

the morning. I found out about it 8 o’clock the following morning. 

I was only told that they came to us and the CFTC saying, ‘‘Stop 

looking for the so-called accounting error. There was $950 million 

transferred out of customer segregation to the broker-dealer account.’’ That is what I was told from our—through our reports. 

Senator ROBERTS. Was this before or after the company had been 

placed into bankruptcy? 

86 

Mr. DUFFY. This was prior to. I think the company went into 

bankruptcy the following day—or actually it would have been the 

same day. 

Senator ROBERTS. Well, for the entire panel—I am sorry? 

Mr. DUFFY. It would have been the same day because it happened in the middle of the night. 

Senator ROBERTS. It seems to me that to figure out where the 

money went, once you go back to the time when one knew for sure 

that the money was there, try to trace its path forward in time— 

it is time-consuming, it could be done. And that would take quite 

a number of people. I understand the Department of Justice is involved in the investigation, locating the money through the FBI 

and through the offices of two U.S. Attorneys. CME has its own 

auditors, of course, and the CFTC is directly involved. 

Mr. Giddens, as trustee you have got your own team. It seems 

to me there are a lot of cooks in the kitchen. Who is in charge of 

this posse that we have arranged here to find out the truth? Are 

there too many members of the posse that you have not been able 

to find the money? Or are you satisfied that you are all talking 

with one another and it is a pretty smooth operation? 

Mr. GIDDENS. I think it is a very cooperative operation. The potential law enforcement investigation is led by the Department of 

Justice and the U.S. Attorneys in New York and Chicago, and they 

are taking the lead on that. 

My principal investigation is really to look at the transfers and 

try to find potential sources of recoveries to bring back the monies 

for customers. I do not have a role in the law enforcement aspect 

of this. There are frequent meetings, and there is cooperation, full 

cooperation from us. No one is asserting privilege or withholding 

any kind of information. And I think it is working well with the 

CFTC. 

Now, the SEC also is interested in this because there were transfers and transactions relating to segregated securities accounts and 

the like. I think all of the independent regulators—I do not think 

bodies are stumbling over bodies or there are too many people to 

be there. 

I think in terms of a conclusion of what happened, it is a complicated analysis, and I think it is fair to say it is more than just 

looking at transactions in the last few days. I think it is looking, 

whether it is relevant or not, for transactions and transfers that 

went over several months and are really hundreds of thousands of 

reconstructions of things to do. 

As I indicate, there is no magic source of where the money is. 

There is no depository, there is no counterparty or anyone who is 

sitting with, you know, $600 million that we have identified. I do 

not think that is going to happen. I think we have collected the 

available assets, and we have already distributed nearly 80 percent 

of that with our—we have other constituencies. With the last transfer motion, there were more than 25 objections, including objections 

from the U.K. administrator, including from the creditors committee of the holding company who were opposed to our distribution on the grounds that we may be distributing assets which belong to other creditors or other parties. 

87 

So as I say, I think the analysis of the business practices of the 

firm and whether they were solvent or insolvent is going to take 

some time. But I do not think it is going to magically come to a 

pot of gold at the end of the rainbow immediately. 

Senator ROBERTS. I appreciate your candor, and I think Mr. 

Duffy has something to add. 

Mr. DUFFY. Senator, I just want to make it clear that the CME 

is obviously cooperating with the authorities, but also the CME has 

been instructed by both the CFTC and the Department of Justice 

not to conduct its own investigation. All the information I have 

given you is by interviews that we have conducted internally of our 

own employees. So I just want to make sure that was clear for the 

record. 

Senator ROBERTS. I appreciate that. 

I yield back, Madam Chairwoman. 

Chairwoman STABENOW. Thank you. 

Senator Klobuchar? 

Senator KLOBUCHAR. Thank you very much, Madam Chairman. 

Thank you to all of you. 

Mr. Duffy, I was actually asking Mr. Corzine and MF Global witnesses about the statements that you had made and your understanding of what had happened. And in your testimony you give 

what I would consider the most detailed account I have heard to 

date as to when and how the customer funds were missing. From 

your testimony do I correctly understand that it is your belief that 

the customer funds were illegally transferred out of segregation on 

October 27th, Thursday, and Friday, October 28th? 

Mr. DUFFY. We were told that the customer funds were transferred from the customer segregation to the broker-dealer, and 

those are not excess customer funds. That is a violation of the 

rules. So, yes, that is correct. 

Senator KLOBUCHAR. And then this new information we got 

today, I just want to go over that. Was that one of those transfers 

or is that from another—this loan, $175 million loan to the European affiliate? 

Mr. DUFFY. I am unaware of what it was other than what I was 

told over the weekend by our lawyers by an e-mail and a conversation afterwards that Mr. Corzine was aware, because our employee 

had heard this, talking to another—was on the phone with the European affiliate, and the European affiliate—they were telling them 

to send back the $175 million, and the woman said that Mr. 

Corzine is aware of these loans. 

Senator KLOBUCHAR. And this was a woman at MF Global? 

Mr. DUFFY. MF Global, yes. 

Senator KLOBUCHAR. And who is this woman? 

Mr. DUFFY. I do not have her exact name, and I do not want 

to—— 

Senator KLOBUCHAR. All right. And so—— 

Mr. DUFFY. I told Senator Roberts I will give it to the Committee 

afterwards. 

Senator KLOBUCHAR. Okay. Very good. And so she told an auditor with CME about this? 

Mr. DUFFY. Yes, the auditor of CME was in the room while she 

was on the phone. 

88 

Senator KLOBUCHAR. And it was a $175 million loan to what European affiliate? 

Mr. DUFFY. I have no idea, ma’am. 

Senator KLOBUCHAR. Okay. And then I know that Senator Roberts just asked you about that, but in your testimony, you said the 

transfer of segregated funds—this is a quote: ‘‘The transfer of segregated funds out of the appropriate accounts was disguised from 

all regulators.’’ And I actually engaged a little in the previous 

panel about disguising and what they are required to do with the 

disclosures and the repo disclosures and those kinds of things. Can 

you explain further why you chose to use the word ‘‘disguised’’? 

Mr. DUFFY. Sure. Because as I said in my testimony and to Senator Roberts, we were tying out—which means that we were validating the segregated funds—from Wednesday’s statement through 

Thursday and Friday; we had 80 to 90 percent of the tie-out done 

to show that segregated funds were basically intact. This is on Friday, but it is based off of Wednesday’s report. 

Then they gave us another report. First, the report showed they had—their report showed $200 million in excess. And then they 

gave us another report 4 days later after bankruptcy with the same 

date prior that shows a $200 million deficit. So, clearly, they gave 

us two different reports from the same day with a $400 million 

swing, and we had tied out 80 to 90 percent of the funds being 

there on Friday from Wednesday’s report. 

Senator KLOBUCHAR. So this is a different issue then when I 

talked to him about the reporting to the SEC about where the 

funds went. This is during this weekend that you are talking 

about. 

Mr. DUFFY. Yes. I am talking about this work was being done on 

Thursday or Friday off of Wednesday’s report, and then the report 

that they gave us was revised on Monday. 

Senator KLOBUCHAR. Okay. Mr. Duffy, in your testimony you 

stated that, according to the information you have, you believe that 

there might be a shortfall in segregated funds of between 13 percent and 19 percent. Has that changed at all or is it more defined? 

Mr. DUFFY. Well, I do not know about the percent. I am going 

off dollars, so I know. 

Senator KLOBUCHAR. Yes, I wondered where that rested with the 

$1.2 billion figure that Mr. Giddens and his team—— 

Mr. DUFFY. We are estimating a shortfall of between $700 million and $900 million. 

Senator KLOBUCHAR. Okay. So that is less—— 

Mr. DUFFY. So that is, you know, $550 million is 10 cents, so you 

can do the math from there. 

Senator KLOBUCHAR. Okay. Mr. Giddens, for this difference, 

what is this difference about between what Mr. Duffy—— 

Mr. GIDDENS. There are three segregated funds. I think Mr. 

Duffy is referring only to the U.S. futures when he gives his figure 

of up to $900 million. I am also referring to the segregated accounts with foreign futures and also segregated securities accounts. 

Mr. DUFFY. For the record, ma’am, I am referring to U.S. 

Senator KLOBUCHAR. Got it. And then, Mr. Giddens, I know this 

was incredibly complicated and I guess there was some poor maintenance of the records in the last few days. Are you confident that 

89 

at the end of the day you are going to be able to account for all 

the transactions in and out of segregation from start to finish? 

Mr. GIDDENS. Well, that is what we are trying to do over a several-month period, and I have very good folks working for me from 

Deloitte and Ernst & Young who are trying to reconstruct this. 

Senator KLOBUCHAR. And so what I understood from reading 

your previous testimony, something like 72 percent of the money 

will go back to people like Mr. Tofteland for sure that are victims 

of this colossal collapse here. 

Mr. GIDDENS. Yes. The Commodity Exchange Act requires me to 

give the same pro rata distribution to every customer, and after 

this distribution, each customer should have received 72 percent of 

the value in their account. 

Senator KLOBUCHAR. All right. And how about above that? Under 

what circumstances could customers who had their funds in segregated accounts not be made whole? 

Mr. GIDDENS. If we continue to have a shortfall in total assets. 

It is my intention to make further distributions through the claims 

process as promptly as possible, and it depends on the total recovery of assets that we have. If we have only the assets we have at 

present, there will be a shortfall. And it is my goal or aspiration 

through litigation or otherwise, if possible, to make up that shortfall. 

Senator KLOBUCHAR. With the clawback or finding some ways to 

find this money? 

Mr. GIDDENS. Yes. 

Senator KLOBUCHAR. Okay. And so what do you see as the timetable now? You have got that distribution of the 72 percent, and 

you have determined what the shortfall is. So what should we tell 

our farmers? 

Mr. GIDDENS. Well, the time for filing claims expires on January 

31st, and by that time we should have a picture of all the claims. 

We have just an estimate. 

For example, a U.K. administrator had an account with MF 

Global U.S. of several hundred million dollars in an omnibus account. We have not distributed anything on that. 

There are also other subsidiaries around the world. There are 

also other potential creditors. And until the claims process is completed, we will not know with assurance what the claims are. But 

we have and we are very grateful for the CME guarantee because 

that has given us some assurance that we could proceed with fairly 

substantial distributions without knowing in reality what our total 

assets are and what the total claims will be allowed. 

Our intention is to do that as quickly as possible and to make 

further distributions as quickly as it appears comfortable to us, to 

the CFTC, and, of course, eventually we have to persuade the 

bankruptcy court to approve these transfers in the interest of all 

the parties in the bankruptcy. 

Senator KLOBUCHAR. Thank you very much, and I know I have 

talked with you, Commissioner Sommers, before, and if we have 

any more questions, especially about that timetable, we will follow 

up in writing. I appreciate it. 

Thank you. 

Chairwoman STABENOW. Thank you very much. 

90 

Senator Boozman? 

Senator BOOZMAN. Thank you, Madam Chair. 

Mr. Duffy, did you get a chance to hear the testimony of Governor Corzine and his associates? 

Mr. DUFFY. I did. 

Senator BOOZMAN. Was the testimony that you heard consistent 

with the facts that you have uncovered in your investigation? 

Mr. DUFFY. I am not a lawyer, sir. The only thing I can tell you 

is we were told by MF Global that they transferred money from 

customer segregated accounts to the broker-dealer, stop looking for 

the accounting error. 

I can also only tell you that one of our employees was on a call 

with one of their employees when they said Mr. Corzine was aware 

of the loans being made from segregated accounts. 

Senator BOOZMAN. Okay. Very good. 

Ms. Sommers, again, it is remarkable. You mentioned Lehman 

Brothers and things like this. Is this unique, this sort of thing happening, certainly to this extent? But is it unique in itself 

Ms. SOMMERS. Yes, it is, sir, for the customer funds to be missing. 

Senator BOOZMAN. Okay. You mentioned customers. How do we 

differentiate between what is and what is not customer dollars? 

Mr. DUFFY. The customer funds on the FCM side would be put 

in a 4d segregated account, and those accounts would be tagged as 

4d segregated accounts. 

Senator BOOZMAN. And the money that they discovered outside? 

Ms. SOMMERS. There could be money in a lot of other accounts 

outside of 4d. There could be house proprietary accounts, brokerdealer accounts, the foreign future accounts, which we take at 30.7 

accounts. 

Senator BOOZMAN. Okay. Very good. Mr. Giddens, the $550 million guarantee, is that money—is it 

going to be used to make customers whole if we cannot find the 

shortfall? 

Mr. GIDDENS. That is not the nature of the guarantee. The guarantee, which we are grateful for, is not a sum of money or an additional sum of money. If we make the mistake and it turns out at 

the end of the day the proper pro rate distribution is 75 percent 

and we have given out 80 percent to somebody or to others, the 

money could be used to cover that deficiency. So Mr. Duffy may—— 

Mr. DUFFY. That is not quite correct either. What is correct is 

CME has said to the trustee, Pay up to 75 cents for every dollar, 

and if you end up only having 60 cents or 65 cents, we will make 

up to 10 cents. So we do not go above the 75-cent number, as Mr. 

Giddens was referring to. Maybe we are saying the same thing in 

a different way. 

Mr. GIDDENS. I think we are. 

Mr. DUFFY. But it is basically CME—if he pays up to 75 cents, 

finds out he does not have 75 cents, has 70, then we pay $250 million to him. If he has 65, we pay another $250 million to him. If 

he has 60, he is on his own after that. 

Senator BOOZMAN. I see. Okay. Thank you, Madam Chair. 

Chairwoman STABENOW. Thank you. 

Senator Hoeven? 

91 

Senator HOEVEN. Thank you, Madam Chairman. 

I would like to start with Mr. Duffy. Would you feel that it is fair 

to say that either customer money was moved from segregated accounts to the company accounts for use by the company or there 

is an accounting error here or we are going to find the dollars? 

Would you say it is fair that one of those three scenarios needs to— 

either is the case or will be the case? 

Mr. DUFFY. I do not know if I could say that because I can only 

tell you what I have been told, sir. We were told—not me personally, but our staff was told there is no accounting error. So I have 

to take that off the table. I was told there was money moved from 

customer segregated funds to the broker-dealer account. That is 

what we were told. 

Senator HOEVEN. You indicated $200 million? 

Mr. DUFFY. No, sir; $950 million was moved out of customer segregated accounts to the broker-dealer. What I was referring to on 

the $200 million was a customer segregation report from the week 

prior that showed them having excess of customer monies, $200 

million of their own monies in the segregated pool. And then that 

was revised down to be a $200 million deficit a week later or 5 

days later. 

Senator HOEVEN. So your auditors indicated that the dollars 

were transferred from the customer segregated accounts to the 

firm’s accounts? 

Mr. DUFFY. No, sir. Our auditors were told by MF Global that 

is what MF Global did, to stop looking for the accounting error. 

Senator HOEVEN. What authority did they have to make those 

transfers? 

Mr. DUFFY. I do not know if they were the ones that made the 

transfers or not, sir. All I am telling you is they told our auditors 

stop looking for an accounting error, they moved the money out of 

segregation. 

Senator HOEVEN. And that was on what date? 

Mr. DUFFY. October 31st, 2:00 a.m. in the morning. 

Senator HOEVEN. So would it be your expectation that the investigation led by the DOJ in tandem with your help, the CFTC, the 

SEC, the trustee and everyone involved here, that they would then 

be able to determine the amount that was transferred, when it was 

transferred, who authorized the transfers? 

Mr. DUFFY. We have given them pretty much all the information 

we had, sir. We were not part of the investigation. We have been 

asked not to be by both the CFTC and the Department of Justice. 

Senator HOEVEN. Based on your earlier testimony, you felt that 

this was not a system failure but, rather, that somebody violated 

the system. 

Mr. DUFFY. There is somewhere between $700 million and $1.2 

billion, to Mr. Giddens’ recollection. It is literally 6 or 7 weeks 

later. The money is not there yet. So the money appears to be missing. 

Senator HOEVEN. Commissioner Sommers, would you give me 

your thoughts on the same issue, system failure versus somebody 

violating the rules, and then also your sense of how soon we will 

be able, through the investigative process, to determine what happened, who is accountable? 

92 

Ms. SOMMERS. The first part of the question: I think it is a little 

bit premature for us to make determinations about whether the 

system failed until we know exactly what happened. After we have 

a chance to go over all the facts and circumstances of the case, obviously we can decide whether or not there were any parts of the 

system that failed in this instance. 

The second part of your question, how long it may take to follow 

the trail, just to assure the Committee that we will follow, you 

know, every single lead in this investigation, both the law enforcement side of the investigation as well as tracing where every penny 

of the money went, but it is complicated. And while you may know 

that a certain amount of money could have been transferred out of 

the FCM at one time, that money being transferred could have 

splintered into thousands of different accounts after it was transferred out of the FCM. And we have to trace to make sure which 

of those transfers were legitimate versus illegitimate transfers. 

If a customer on the FCM side had money that they asked to be 

transferred to the broker-dealer, that would be a legitimate transfer, and we would have to follow any supporting documentation 

that is with MF Global to know which of those transfers are legitimate versus illegitimate. So while we have a very good idea at this 

point about what had happened, it is painstakingly difficult and 

complex to follow every single transfer of this money. 

So, you know, we are working closely with the trustee and the 

forensic accountants to make sure we get every single detail unveiled. 

Senator HOEVEN. Mr. Duffy? 

Mr. DUFFY. You know, Senator, maybe I did not answer your 

question properly, but I believe I am the only one in two hearings 

now that is giving a timeline of sequence of events that we know. 

I do not believe it is a system failure only because of the timeline 

we have walked through. 

Then when the question was asked today to the earlier panel— 

I think Senator Boozman asked me a question, was I paying attention to the other panel. When the Senator from Minnesota asked 

was my statement correct that they were told that monies were 

transferred out of customer segregated into the broker-dealer account, nobody refuted that of the three participants that I saw. 

So we are the only ones that have shown a timeline. I do not believe there is a system failure here. So maybe I did not answer 

your question properly. I think something—I think there was a violation of the rules. Again, I am not a judge, jury, or lawyer. I am 

just telling you we gave a chronological order of events here, sir, 

to show that it is not a system failure. 

Senator HOEVEN. I understand you are saying that you do not 

feel it was a system failure, which I think means that either transfers were made inappropriately or there is an accounting error. But 

you indicated that you were told it was not an anything error, that 

transfers were made. 

Mr. DUFFY. That is exactly what I said, sir. 

Senator HOEVEN. Mr. Duffy, in terms of the ability to recover— 

because some of the earlier testimony was, well, this may be an accounting error. And certainly there should be controls in place so 

you do not have this type of accounting error, which is, you know, 

93 

properly part of the system. But whether it is accounting error or 

whether there were unauthorized transfers, Mr. Giddens, will that 

affect, in your opinion, the ability to get full recovery for the customers of MF Global? 

Mr. GIDDENS. If it were simply an accounting error, then presumably it could be corrected and you would have the funds. We are 

basing our analysis on what actual dollars are there against estimated claims, and there is a substantial shortfall. I should say 

while the technical investigation by the Department of Justice will 

be thorough, and by the regulators, it may take months, that is not 

going to deter us if we see a source of funds that we think should 

come back into the estate from pursuing that. In fact, we have already made demands of counterparties who closed out transactions 

for accountings into—and, in fact, we have recovered some small 

amount of money. 

So what I am saying is we will be proactive immediately, and 

even though the investigation in its formal sense may take many 

months before anybody can unravel the thousands if not hundreds 

of thousands of transactions—and we will be doing all we can as 

the members of this Committee have encouraged us to do to pursue 

dollars to make people whole—I am certain that the distribution 

will be more ultimately than 72 cents. How much I cannot really 

say at this point. 

Chairwoman STABENOW. I think that is a good place to end—yes? 

Senator HOEVEN. I do have a follow-up question. I can wait or— 

but I would like to have a follow-up question. 

Chairwoman STABENOW. We do have—we are needing to bring 

the hearing to a close. I wonder if you might either do that quickly 

or put it in writing. 

Senator HOEVEN. Just one more to follow up. 

Chairman STABENOW. Very quickly. 

Senator HOEVEN. For Mr. Giddens, $1.2 billion is the shortfall. 

You anticipate—just take me through the math real quick so that 

we can communicate with folks who are out the money. The Senator from Minnesota talked with you about the timeline, but just 

take me through the number, the $1.2 billion, you anticipate 72 

percent recovery. How much of that is paid out? When do you expect more payout? And then are we talking about the difference of 

roughly $300 million is what you anticipate the shortfall to be at 

this point? 

Mr. GIDDENS. No, Senator. We will have distributed $4.2 billion. 

The bankruptcy court entered the order on Monday, and with the 

CME and with the CFTC, we have put in place a mechanism to 

start making distributions, and actually the first distribution 

should go out tomorrow. That process will take, estimated with the 

CME, 2 to 4 weeks before all of the money is out. 

When that is completed, that distribution should give every person 72 percent of their claim. If their claim were for $1 million, 

they should get $720,000. The shortfall, the $1.2 billion, is an estimate, and that is based on what we see as estimated claims 

against three segregated pots: one for securities customers; one for 

the U.S. folks who transacted in foreign futures, such as on the 

London Metals Exchange; and then the largest pot of that, which 

is under the CME jurisdiction, are U.S. futures. The combination 

94 

of those three pots of assets, what we actually have and what we 

have collected, is what leads us to the approximate $1.2 billion. 

Senator HOEVEN. Thank you. 

Chairwoman STABENOW. Thank you very much, and we thank all 

of you for coming today. This has been a very, very important hearing, and we have received answers. Also, I have more questions. 

And so as I indicated in my opening statement, we have three goals 

as we continue to look into this situation: getting the customers’ 

money back, and, Mr. Giddens, we are counting on you to stay 

laser-focused on that, as I am confident that you will; holding anyone accountable for any wrongdoing; and ensuring that proper customer protections are in place to make sure this does not happen 

again. 

I will just reiterate that any policy changes will come through 

this Committee, and we will continue to examine the collapse of 

MF Global. And we have heard today from customers who are very 

worried about using the futures markets, and that is, frankly, not 

acceptable. It is the duty of our Committee and all of you and the 

regulators to ensure that the markets are safe and sound and that 

there is, in fact, confidence in the system. And so we look forward 

to working with you to make sure that happens. 

Thank you very much. The meeting is adjourned. 

[Whereupon, at 5:03 p.m., the Committee was adjourned.] 

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DECEMBER 17, 2011 

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