MF Global lobbied on rule to curb certain risky investments
— -- Months before MF Global collapsed, then-CEO Jon Corzine met with regulatory officials about a proposed rule that could put new restrictions on investments in foreign government debt — the type of strategy that led to the brokerage's bankruptcy filing.
Commodities Futures Trading Commission records show that Corzine, accompanied by other MF Global executives met on July 20 for a pair of conference calls with CFTC Chairman Gary Gensler and other commission officials about the proposal.
Gensler and Corzine are longtime friends and associates who once worked together as Goldman Sachs executives.
Some details of the July meeting were first reported by the New York Post.
Additionally, congressional lobbying records show that Delta Strategy Group, a Washington lobbying firm working for MF Global regularly monitored the status of CFTC regulations.
Delta Strategy, which lobbying records show was paid roughly $110,000 during Corzine's 20-month tenure, includes several former CFTC officials, including James Newsome, a former chairman of the regulatory agency, and R. Scott Parsons, a former chief of staff.
The yet-to-be-adopted CFTC rule change, introduced last November, would limit investment of customer segregated funds to U.S. federal and state obligations that are "fully guaranteed as to principal and interest" by government or municipal securities.
The proposed change, designed to strengthen financial security, would have specifically removed foreign sovereign debt from the types of investments allowed for customer funds. It also would have changed the list of investments permitted with clients' funds.
MF Global filed for bankruptcy protection on Monday after Corzine led the brokerage in a disastrous $6.34 billion losing bet on European sovereign debt. The implosion came after rating agencies downgraded the brokerage's bonds to junk status, prompting margin calls that threatened the company's liquidity.
Corzine, 64, abruptly resigned on Friday. Announcing his departure, MF Global said the former U.S. senator and ex-New Jersey governor would not seek an estimated $12 million in severance payments.
Federal investigators and financial regulators are now checking whether MF Global moved hundreds of millions of dollars out of customer accounts as its corporate financial crisis deepened.
A statement issued Wednesday by the corporate parent of the Chicago Mercantile Exchange said MF Global "was in compliance" with its obligations to safely segregate customer funds when an audit was completed one week earlier.
"It now appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection," the corporate parent said.
Gensler, testifying Thursday at a Senate subcommittee hearing, said "the most troubling aspect about (the) MF Global Situation is the shortfall of customer money in the firm."
"You don't put your hand in the cash register," said Gensler, responding to a question from Sen. Tom Coburn, R.-Okla., ranking minority member of the Senate Permanent Subcommittee on Investigations. "It's a customer's money, and it's supposed to be there every nanosecond of the day, segregated."
Gensler said the CFTC would act to uncover the cause of the shortfall and ensure that MF Global customers receive the maximum possible recovery.
However, Sen. Charles Grassley, R.-Iowa, a senior member of the Senate Finance Committee, on Friday called on Gensler to recuse himself from the CFTC's investigation of MF Global.
"It's hard to see how the commission chairman could be completely objective in looking out for wronged investors when he has such strong ties to the principal of the failed firm," said Grassley.
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