Posted on 02 Feb 2012
Former MF Global Holdings Ltd. Chief Executive Jon S. Corzine won't be attending Thursday's congressional hearing on the demise of the securities firm, but the onetime New Jersey governor's management style and outsize bet on European bonds still will come under the spotlight.
Lawmakers are expected to press a pair of former MF Global risk-management executives in the subcommittee hearing about the role played by Mr. Corzine in the decisions leading to its collapse.
Rep. Randy Neugebauer (R., Texas), chairman of the House Oversight and Investigations subcommittee, said in an interview that the panel is likely to quiz the two risk managers, Michael Roseman and Michael Stockman, about whether Mr. Corzine overruled their concerns about the risks posed by a massive $6 billion bet on European debt.
Mr. Corzine repeatedly made efforts to enhance his authority over the strategy, including pushing MF Global's board in 2010 or early 2011 to approve a new subcommittee that could give quicker authorization for European trades going beyond previously set limits, according to people familiar with the matter. The board declined the request, maintaining its authority to review the trades, the people said.
Such events show that Mr. Corzine was "autocratically running this organization," Mr. Neugebauer said. A spokesman for Mr. Corzine had no comment on Mr. Neugebauer's statement.
Thursday's hearing will be the fourth congressional grilling on MF Global. Mr. Corzine appeared at the first three and may get called again later.
Lawmakers Thursday also will question several ratings-company officials on their interactions with MF Global in the months leading up to its Oct. 31 bankruptcy filing and the disclosure that the firm's customer accounts were short by an estimated $1.2 billion, according to information posted on the committee's website.
Mr. Neugebauer said he may question whether Mr. Stockman was aware of any conversations inside the firm about the use of customer funds to meet margin calls.
In his prepared testimony, a copy of which is posted on the committee website, Mr. Stockman says that he "has no personal knowledge of any missing funds."
Mr. Roseman, who was brought in to be MF Global's chief risk officer in 2008, clashed with Mr. Corzine over the European bet, according to Mr. Roseman's prepared testimony.
Mr. Corzine argued to the board that having several different counterparties on its European trades diminished the bet's risks, according to a person familiar with the congressional investigation. Mr. Roseman disputed the statement, arguing that European problems could hurt all counterparties, the person said.
"I expressed my increasing concerns," Mr. Roseman is expected to say in his prepared testimony. "However, the risk scenarios I presented were challenged as being implausible."
Mr. Roseman is expected to tell Congress that he "was notified that I was being replaced," in January 2011.
A spokesman for MF Global said the trades were discussed by the board. Mr. Corzine has said the same in past statements. The Corzine spokesman declined to comment.
The new chief risk officer, Mr. Stockman, had experience that matched Mr. Corzine's ambitions to expand MF Global from its commodities roots into a broader investment bank.
He spent 12 years at UBS AG and worked at Goldman Sachs Group Inc. from 1989 to 1994, years in which Mr. Corzine was a senior executive at the firm.
Mr. Stockman is known as an expert in the volatile mortgage markets.
At UBS, he worked in a risk-management role through January 2008, the month that followed the firm's $10 billion write-down related to U.S. subprime mortgages. He was "very involved," in the mortgage market and the firm's issues in it, one person briefed on the matter said.
Like Mr. Roseman, Mr. Stockman became concerned with Mr. Corzine's European trade, and he is expected to testify that he suggested to Mr. Corzine and MF Global's board that the company reduce its exposure.
None of the European bonds defaulted, but concerns about the position's size prompted a panic among MF Global's trading partners and customers that ultimately led to the firm's bankruptcy filing.