[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]





                   THE COLLAPSE OF MF GLOBAL, PART 3

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 28, 2012

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-113





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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee

           James H. Clinger, Staff Director and Chief Counsel
              Subcommittee on Oversight and Investigations

                   RANDY NEUGEBAUER, Texas, Chairman

MICHAEL G. FITZPATRICK,              MICHAEL E. CAPUANO, Massachusetts, 
    Pennsylvania, Vice Chairman          Ranking Member
PETER T. KING, New York              STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota          MAXINE WATERS, California
STEVAN PEARCE, New Mexico            JOE BACA, California
BILL POSEY, Florida                  BRAD MILLER, North Carolina
NAN A. S. HAYWORTH, New York         KEITH ELLISON, Minnesota
JAMES B. RENACCI, Ohio               JAMES A. HIMES, Connecticut
FRANCISCO ``QUICO'' CANSECO, Texas   JOHN C. CARNEY, Jr., Delaware
STEPHEN LEE FINCHER, Tennessee


















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 28, 2012...............................................     1
Appendix:
    March 28, 2012...............................................    59

                               WITNESSES
                       Wednesday, March 28, 2012

Cosper, Susan M., Technical Director, Financial Accounting 
  Standards Board (FASB).........................................    46
Ferber, Laurie, General Counsel, MF Global Holdings Limited......     8
Genova, Diane, Deputy General Counsel, JPMorgan Chase & Co.......    43
Roth, Daniel J., President and Chief Executive Officer, the 
  National Futures Association (NFA).............................    44
Serwinski, Christine, Chief Financial Officer, MF Global Inc.....    11
Steenkamp, Henri J., Chief Financial Officer, MF Global Holdings 
  Limited........................................................     9

                                APPENDIX

Prepared statements:
    Neugebauer, Hon. Randy.......................................    60
    Cosper, Susan M..............................................    61
    Ferber, Laurie...............................................    77
    Genova, Diane................................................    89
    Roth, Daniel J...............................................    98
    Serwinski, Christine.........................................   101
    Steenkamp, Henri J...........................................   105

              Additional Material Submitted for the Record

Neugebauer, Hon. Randy:
    Letter from the Commodity Customer Coalition, dated March 27, 
      2012.......................................................   109

 
                   THE COLLAPSE OF MF GLOBAL, PART 3

                              ----------                              


                       Wednesday, March 28, 2012

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 3:02 p.m., in 
room 2128, Rayburn House Office Building, Hon. Randy Neugebauer 
[chairman of the subcommittee] presiding.
    Members present: Representatives Neugebauer, Fitzpatrick, 
Pearce, Posey, Hayworth, Renacci, Canseco, Fincher; Capuano, 
Lynch, and Waters.
    Ex officio present: Representative Bachus.
    Also present: Representative Royce.
    Chairman Neugebauer. This hearing will come to order. I 
would remind Members that the opening statements will be 
limited to 10 minutes on each side, as previously agreed.
    There are Members who may attend this hearing who are not 
members of the Oversight and Investigations Subcommittee, and I 
ask unanimous consent that those Members be allowed to 
participate in the hearing today, as well.
    I am going to go ahead with my opening statement. This is 
the third hearing that we have had on MF Global. This hearing 
is about the 8th largest bankruptcy in the history of this 
country, but more importantly, it is about trying to ascertain 
what happened where farmers and ranchers and customers lost 
over a billion dollars worth of their money.
    I would remind folks that this is a hearing and not a 
trial, in that the bottom line of what we are trying to 
accomplish today is basically to do an autopsy on how a 228-
year-old company came to its demise last year.
    It is important that we understand what was going on 
corporately, what was going on from a regulatory standpoint, 
and really what was going on within the systems that support 
this entity and these businesses. The reason that is important 
is that, obviously, there was a breach and people lost their 
money.
    But, more importantly, it is going to be important for us 
to make sure that whatever deficiencies happened, that 
corrective actions are taken so that customers and farmers and 
ranchers who use these kinds of services in the future have 
confidence in those markets.
    We have looked at different aspects of this--of the last 
days and months and years of MF Global and, today, this hearing 
will be focused on the last days of MF Global, and ascertaining 
how and when and why farmers and ranchers and customers lost 
their money.
    And so, I appreciate the witnesses being here today. I 
appreciate my fellow committee members. And I hope that when we 
complete this hearing today, we will have a better 
understanding of what happened and, more importantly, how we 
can prevent these kinds of things from happening in the future.
    And so, with that, I yield to the ranking member, Mr. 
Capuano, for his remarks.
    Mr. Capuano. Thank you, Mr. Chairman, and thank you for 
having this hearing. And I want to associate myself with all 
the comments you just made; that is exactly what I am doing.
    I have approached this--I am not looking for someone who 
stole money. If somebody stole money, the Justice Department 
will find them. That is their role, not our role, as I see it.
    I see our role as trying to find out what happened in order 
to make sure that it doesn't happen again, to see if there are 
rules that need to be clarified, to see if there are accounting 
principles that need to be clarified, whatever it might be. Or, 
if there is criminal wrong-doing, well then, just to encourage 
the proper authorities to do their job, not necessarily us.
    But I also want to talk today about some of the events that 
led up to today's hearing. I think it was pretty well known 
that there were some news stories last week that were based on 
a memo that was leaked inappropriately.
    I have spoken to the chairman about it. We agreed that 
was--things happen unintentionally, so be it. It is done. And I 
actually want to congratulate the chairman for the addendum to 
the memo to clarify that position.
    I think it took a lot of good wisdom and a lot of courage 
and a lot of foresight to do that, and it was well-written and, 
I think, right to the point.
    But I also want to make sure--and the chairman and I have 
talked and I think we both agree. I want to be clear that I am 
on the record to say that up until now this subcommittee, in my 
opinion, has worked very well.
    I have a good relationship with the chairman. I don't know 
that we--I am sure we have differences of opinions on certain 
matters, but not to the approach of this committee.
    We have a responsibility and we are doing it and we are 
going to continue to do it, but it has been done mostly in a 
bipartisan and in a cooperative manner.
    This incident last week raised some issues with some of my 
Members on my side--I think legitimate issues. I have raised 
them with the chairman. I think they are worked out. I believe 
they are worked out.
    But I want to be clear that, as we go forward, material of 
the committee belongs to the committee. It does not belong to a 
Member. Material of the committee is required, by House Rule 
11, to be shared amongst all members equally. Equally.
    It is not subject to the determination of staff or any 
other Member what to do with that material. And again, I think 
that things this week were inadvertent and that is fine. Things 
happen and you clear them up.
    But I want to be clear that, going forward, I expect that 
every person who works for or with this committee or other 
Members who serve with this committee will try to work in a 
cooperative manner, knowing full well that there will come a 
time when we have differences of opinion and we will express 
them appropriately and viciously and vociferously and all the 
other ways that we do.
    But as far as information, as far as trying to get to the 
bottom of this and other matters, the Oversight Subcommittee's 
job is to protect the American people. We may have different 
views on how to do that, but I don't think any of us disagree 
on that responsibility.
    And with that, Mr. Chairman, I want to thank you for the 
conversations we have had to try to clarify some 
misunderstandings this week, and I look forward to working with 
you in the future.
    Chairman Neugebauer. Yes, and I want to say that I 
appreciate the ranking member and I appreciate his cooperative 
spirit.
    I think this committee, quite honestly has--I agree with 
him--worked in a very bipartisan way because ultimately, we 
work for the American taxpayers.
    They give us the responsibility to oversee markets and 
entities and I know he takes this as seriously as I do. And so, 
I thank him for his remarks.
    Now, I yield to the chairman of the full committee, Mr. 
Bachus, for 10 minutes.
    Chairman Bachus. Thank you, Chairman Neugebauer, for 
convening this hearing to examine events in the tumultuous 
final days of MF Global. I commend you for the subcommittee's 
continued careful and comprehensive review of the facts.
    Through two hearings, this being the third, there have been 
dozens of interviews by the staff, reviews of thousands of 
pages of documents which--and those documents, as they came in, 
Members were notified that they were here, but maybe we can 
improve that communication.
    But the Oversight and Investigations Subcommittee and the 
full Financial Services Committee have sought to find out what 
led to the loss of $1.6 billion in customer funds.
    We need to understand what happened at MF Global, both for 
the benefit of ranchers and farmers who lost money, as well as 
the American public which benefits from a properly and 
effectively functioning commodity market.
    What we learned to date is that, notwithstanding the 
promise of the Dodd-Frank Act, regulators do not work together. 
There is very little evidence of regulatory coordination in the 
supervision of MF Global.
    In fact, FINRA, some 4 or 5 months before, was asking 
questions, but those questions--the SEC and FINRA were on one 
side and CME and the Commodities Futures Trading Board were on 
the other side. We can find no communication where they were 
sharing those concerns with the other regulators.
    Better coordination, I think, could have and should have 
led to greater vigilance over the safekeeping of MF Global's 
customer funds. We also have learned that internal controls do 
not work if they can be readily short-circuited by a company's 
CEO.
    And while not all of the facts are yet known about the role 
of MF Global's CEO, Jon Corzine, in the spectacular collapse, 
the subcommittee's investigation leaves little doubt that MF 
Global was, in many ways, his corporate alter ego, and that 
ultimate responsibility for what happened in the firm's chaotic 
final days rests with him. Today's hearing will examine whether 
customer funds were used to meet the firm's demand for cash in 
its fateful last week. According to a preliminary report filed 
by the bankruptcy trust, margin calls were a major source of 
stress to the firm in its last week.
    We hope to learn from witnesses today whether this 
liquidity crunch at MF Global led someone at the firm to 
improperly use customer funds to meet the firm's needs for 
cash.
    In order to get to the bottom of what happened and who was 
involved, the subcommittee needed the cooperation of various 
banks that conducted business with MF Global. A number of those 
banks were contacted about testifying today, but only JPMorgan 
Chase volunteered to appear before us.
    Financial institutions may understandably be reluctant to 
testify on complex transactions because of the time and 
resources it takes to ensure the testimony is accurate and 
complete. JPMorgan Chase's cooperation, therefore, is very much 
appreciated.
    MF Global was the 8th largest bankruptcy in the Nation's 
history, but that is not what makes its failure noteworthy. 
Firms of all size fail every day. For every reward, there is a 
corresponding risk, but that is part of the free market.
    However, a $1.6 billion loss of customer money is not a 
risk that should exist in an effectively regulated free market. 
I hope this hearing will bring us closer to understanding what 
went wrong and where that money is.
    Thank you to our witnesses. And let me say this, our 
investigation--everyone testifying on this panel has a good 
reputation. They have a good background. They are respected in 
the industry, and so, as I think has been said before, this 
hearing is to find out what happened, not to accuse any of you 
of any wrongdoing, because that hasn't been demonstrated.
    And so, we appreciate your testimony. You are not on trial 
here. You were simply in a fact-finding mode. And I have been 
struck by--I have looked at your resumes and your backgrounds. 
You are very qualified and you have a very good reputation, all 
of you. So thank you.
    Chairman Neugebauer. I thank the chairman and now the 
gentleman, Mr. Lynch, is recognized for 2 minutes.
    Mr. Lynch. Thank you, Mr. Chairman.
    I would also like to thank the witnesses here today for 
helping this committee with its work.
    Mr. Chairman, I believe that in many ways you should be 
given credit for the attention you have given to the collapse 
of MF Global. I think we can learn many lessons from the 
collapse of MF Global, about the accounting treatment of 
certain risky investments, about the ability of regulators to 
meaningfully oversee financial institutions, and about what we 
can do to make sure regulators have the tools to prevent a 
situation like this from occurring in the future.
    We have explored these issues in previous hearings, and I 
hope we have an opportunity to revisit them today. However, I 
must raise an issue of process with you today that has been 
mentioned by my ranking member, Mr. Capuano.
    I believe that your side, you and your staff, have been 
unacceptably slow in sharing documents with our offices and 
other Members on this side of the dais. In fact, my office did 
not receive a copy of the MF Global ``break-the-glass plan,'' 
something that seemingly Republican Members apparently had a 
copy of at least as of last February's hearings. Moreover, the 
ranking member was unaware until this Sunday that you were in 
possession of about 100,000 pages of documents relating to the 
final days of MF Global.
    House Rules, as my colleague has indicated, state that each 
Member shall have access to all committee hearings, records, 
data, charts, and files. I have not had access to the extensive 
portfolio of documents that your staff has obtained from MF 
Global in preparation for this hearing.
    Mr. Chairman, I have no intention of going easy on MF 
Global. We are of one mind here. And I am as incensed as you 
are at the breathtaking lack of care shown by employees at MF 
Global in the handling of customer funds.
    But I am also disappointed that as a member of this 
committee, I have not received the full extent of information 
collected by your staff and circulated to Republican Members.
    Now just like your side, we take our responsibility to 
prepare for these hearings very seriously. We take our 
responsibility to the taxpayer very seriously. And, again, 
while I give you great credit for focusing on this issue and 
you deserve that credit, I hope that this investigation will 
move forward in a bipartisan collaborative way, and that our 
office and the rest of the Members on this side of the dais 
will be privy to all the information that your staff has 
obtained and will obtain.
    Mr. Chairman, I thank you for the time and I yield back.
    Chairman Neugebauer. I thank the gentleman for his remarks.
    And now, I yield to the vice chairman of the Oversight and 
Investigations Subcommittee, Mr. Fitzpatrick, for 1 minute.
    Mr. Fitzpatrick. Thank you, Mr. Chairman.
    So here we are in hearing three of a series of hearings 
investigating the facts surrounding the collapse of MF Global. 
We know that throughout the week of October 24, 2011, MF Global 
suffered a severe lack of cash that ultimately led to the firm 
filing bankruptcy on October 31st, and in those chaotic final 
days up to $1.6 billion in customer money went missing.
    At a time when Americans already lack confidence in the 
financial markets, MF Global provides another devastating 
example of how multi-billion dollar securities firms can 
seriously impact middle-class Americans.
    Like many members of this committee, I have had 
constituents affected by this event, and that is who I am here 
to speak for. We owe it to customers who lost money to discover 
exactly what happened at MF Global.
    But what these hearings are also designed to do is to 
provide insight into our financial markets and the regulatory 
regimes designed to protect them.
    The American people expect us to hold the wrongdoers 
accountable and to protect those who played by the rules. So 
here we are. As Members of the House of Representatives, we are 
here to stand in the place of millions of Americans we 
collectively represent.
    We are here to find answers for them. And I commend the 
hundreds of hours that the subcommittee has spent devoted to 
digging deep into this matter. I look forward to the testimony 
of today's witnesses and the answers that we hope they should 
be able to provide.
    Thank you, Mr. Chairman.
    Chairman Neugebauer. I thank the gentleman.
    And I ask unanimous consent that a letter from the 
Commodity Customer Coalition actually thanking the full 
committee, or this subcommittee, for our work on MF Global be 
made a part of the record today.
    Without objection, it is so ordered.
    Now, I would like to yield to the gentleman from Texas, Mr. 
Canseco, for 1\1/2\ minutes.
    Mr. Canseco. Thank you, Mr. Chairman.
    Back in the fall of 2008 as the financial crisis was 
unfolding, then-candidate Obama stated in a debate the 
importance of ``holding ourselves accountable day in, day out, 
not just when there is a crisis for folks who have power and 
influence and can hire lobbyists, but for nurses, the teacher, 
the police officer who frankly at the end of each month, they 
have a little financial crisis going.''
    There is a big financial crisis going on right now for 
farmers and for ranchers across the country who can't access 
their portion of $1.6 billion that has gone missing at MF 
Global.
    This past week, we learned that CEO Jon Corzine likely 
wasn't the innocent bystander he claimed to be in front of this 
committee back in December.
    Yet, for all the rhetoric we hear from the Obama 
Administration about holding people accountable, this 
Administration sure has a way of clamming up when the person in 
question is a former Democratic Senator and Governor.
    I hate to sound cynical, but I can't help but think that 
the ``power and influence''--as President Obama may call it--
that someone like Jon Corzine carries is exempt from a thorough 
investigation by the Department of Justice.
    The victims of MF Global deserve their money back, but they 
also deserve to know what happened to it. This hearing and our 
continued investigation is of extreme importance.
    And I yield back the balance of my time.
    Chairman Neugebauer. Thank you.
    The gentleman from California, Mr. Royce, is recognized for 
1\1/2\ minutes.
    Mr. Royce. Thank you, Mr. Chairman.
    The clear problem that arose here, the clear problem that 
made bankruptcy the only option for MF Global, was that no one 
could account for what happened to over $1 billion in 
segregated funds, as we are going to learn today. But more than 
leaving the various customers of MF Global high and dry, what 
has happened is that those missing funds have rocked the 
foundation of the CFTC's customer protection regime.
    Rules governing segregated accounts have been around for 75 
years. And they are not difficult to understand, reportedly 
they are not difficult to enforce, yet the CFTC has failed in 
this most basic task.
    So we go to Commissioner O'Malia's observation at the CFTC. 
He says that basically he is arguing that since 2010, the CFTC 
has been consumed with drafting new rules to regulate not just 
our derivatives market, but the world's derivatives markets, 
with much of the manpower at that agency dedicated to enforcing 
the Dodd-Frank Act.
    According to Mr. O'Malia, the CFTC missed cracks in the 
system and it has cost them over a billion here in terms of the 
clients, at least hundreds of millions.
    So I will end by quoting him: ``Since the Dodd-Frank Act 
became law, the Commission has acted like a little child 
abandoning the old toys and swapping them out for the new. It 
has concentrated on swaps rulemaking, while averting its gaze 
from the future's markets and their developments.''
    Therein lies the concern, the broader question that has to 
be answered here regarding the ability and willingness of the 
CFTC to ensure customer funds are protected.
    I yield back, Mr. Chairman.
    Chairman Neugebauer. I thank the gentleman.
    I yield to the ranking member, Mr. Capuano for--
    Mr. Capuano. Thank you, Mr. Chairman.
    Mr. Chairman, it is kind of interesting. We started off in 
trying to be bipartisan and now I have just heard that both 
President Obama and the Dodd-Frank Act caused this problem.
    And I would like any Member here who has any information 
whatsoever that the Justice Department, the SEC, the CFTC, or 
any other appropriate agency has given Mr. Corzine or anyone 
else a pass on the investigation related to this matter.
    Because if you do, I would like to see it, and it would be 
another matter that we don't have. I would like to know if 
Dodd-Frank caused this problem, then what caused Lehman 
Brothers, what caused Madoff?
    I know we are all out here to make political points. I am a 
politician too, but let's stick to the matter at hand. What 
happened here? If you know, go to the Justice Department and 
tell them.
    If you want to make political points, there are microphones 
out in the hall, that is the appropriate--
    Mr. Royce. Will the gentleman yield?
    Mr. Capuano. I sure will.
    Mr. Royce. I appreciate you yielding. The point that I am 
making--I am quoting the Commissioner at the CFTC. It is his 
observation. It is his observation that since the Dodd-Frank 
Act became law, the Commission has acted in this way.
    It is his observation that it has concentrated on swaps 
rulemaking while averting its gaze from the futures markets and 
their development.
    Mr. Capuano. I would be happy to--
    Mr. Royce. So perhaps you should address--
    Mr. Capuano. --explain my comments. I would be happy to ask 
the gentleman--
    Mr. Royce. --his observation.
    Mr. Capuano. I would be happy to join the gentleman to 
invite the Director of the CFTC back and we will ask him that 
question to see if he thinks, here publicly, on the record, 
that Dodd-Frank caused this problem. And if he did, I will 
simply agree with you and say, good job. But if he doesn't, 
then I would expect you to do the same.
    Chairman Neugebauer. I thank the gentleman.
    And now, I am going to recognize our first panel: Ms. 
Laurie Ferber, general counsel, MF Global Holdings Limited; Mr. 
Henry Steenkamp, chief financial officer, MF Global; Ms. 
Christine Serwinski, chief financial officer of North America; 
and Ms. Edith O'Brien, assistant treasurer at MF Global.
    I will now recognize each of you now for your opening 
statement. And first of all, I need you to please stand and 
raise your right hand.
    [Witnesses sworn.]
    Chairman Neugebauer. Thank you, you may be seated.
    Without objection, your written statements will be made a 
part of the record.
    And at this time, I will recognize Ms. Ferber for your 
opening statement.

TESTIMONY OF LAURIE FERBER, GENERAL COUNSEL, MF GLOBAL HOLDINGS 
                            LIMITED

    Ms. Ferber. Thank you. My name is Laurie Ferber. Since June 
2009, I have served as the general counsel of MF Global. Since 
the bankruptcy filing of MF Global Holdings, I have remained 
with the company to assist the bankruptcy trustee and the 
bankruptcy professionals in their efforts to maximize the value 
of the MF Global estate.
    I hope that my testimony will assist the subcommittee in 
its effort to understand what happened at MF Global during the 
firm's final days.
    I was born and raised in the Bronx, New York. I received a 
Bachelor's Degree from the State University of New York at 
Buffalo and graduated from New York University School of Law.
    Prior to joining MF Global, I served as general counsel of 
the commodities and/or fixed income trading units of two 
financial services firms.
    As general counsel of MF Global, I supervised the legal and 
compliance functions. My responsibilities included managing the 
legal function to support the firm's evolving business, 
advising the board and senior management, and facilitating MF 
Global's relationships with its regulators.
    MF Global's legal department included approximately 17 
attorney and 12 other professionals. The firm's legal team was 
supported by several highly skilled outside law firms with 
expertise in various areas of law pertinent to MF Global's 
operating businesses.
    The global head of compliance, who had substantial 
experience and expertise in compliance matters and managed the 
global department of over 80 people, also reported directly to 
me. I reported directly to the chief executive at MF Global and 
interacted frequently with the board of directors.
    My focus during the last week of MF Global's operations was 
to make sure the legal and compliance departments and outside 
counsel were available and prepared to support the firm as it 
attempted to deal with the rapidly unfolding events of MF 
Global's last days.
    The firm's senior management and board of directors reacted 
to those events by initially seeking to sell all or part of the 
firm and severely reducing it's balance sheet, while also 
seeking to make sure the firm met all of its obligations.
    Ultimately, when the sale of the firm became impossible, MF 
Global Holdings had no viable option other than to file for 
bankruptcy protection. Throughout MF Global's final weekend, I 
personally was in MF Global's offices in New York for all but a 
very few hours, as were many members of MF Global senior 
management. The board of directors was also present at MF 
Global's offices, carefully monitoring events and receiving 
almost constant updates.
    My colleagues and I were in very frequent contact with many 
of MF Global's regulators during this time, including the SEC, 
the CFTC, the CMA, the CBOE, FINRA, and the Federal Reserve 
Bank of New York, as well as the Financial Services Authority, 
the U.K. financial services Regulator.
    Keeping the regulators informed was one of my top 
priorities, and that included spending most of Sunday evening, 
October 30th, working with regulators to agree to the terms on 
which the firm would be sold and its accounts transferred to a 
buyer.
    As best as I can recall, it was shortly after concluding 
that process, and likely just before midnight on October 30th, 
that I learned the firm was unable to reconcile its segregated 
funds account. I was shocked, because I believed that the firm 
had in place a fully compliant system operated by highly 
qualified professionals for controlling and securing customer 
segregated funds.
    As a last effort, senior people from a potential buyer 
worked with people from our finance and operations team to 
provide a fresh set of eyes to help identify the reconciliation 
errors.
    Once the inability to reconcile the accounts became clear, 
at approximately 2 a.m., we notified the regulators. Later that 
morning after several hours of discussion with the regulators, 
we made the bankruptcy filing.
    Since that filing, I have been assisting in the complex 
efforts--global efforts to maximize the value of the bankruptcy 
estate for all MF Global stakeholders.
    I will try to answer any questions you have.
    [The prepared statement of Ms. Ferber can be found on page 
77 of the appendix.]
    Chairman Neugebauer. And up next will be Mr. Steenkamp.

 TESTIMONY OF HENRI J. STEENKAMP, CHIEF FINANCIAL OFFICER, MF 
                    GLOBAL HOLDINGS LIMITED

    Mr. Steenkamp. Thank you for the 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 2011. Let me say at the outset that I am deeply 
saddened, upset, and frustrated that money belonging to MF 
Global Inc.'s customers has not been returned in full.
    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 am working diligently with the Chapter 11 
trustee 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 have unfortunately not been able to participate in 
the current efforts to return customer funds.
    While I am deeply distressed by the fact that customer 
monies have not yet been fully repaid, I unfortunately have 
limited knowledge of the specific movements of funds at the 
U.S. broker/dealer subsidiary, MF Global Inc., during the last 
2 or 3 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 very 
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, work 
closely with our investors and the 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 
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, dealing directly with local regulators. 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 acts as a futures commission merchant in the 
ordinary course of business.
    To avoid confusion, when necessary to specifically refer to 
MF Global Inc., I will call it ``MFGI.'' 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 and overseen by MFGI finance 
professionals. To my understanding, MFGI segregation of client 
funds had 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 
segregated funds in the course of my duties as global CFO, nor 
were 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 very quick 
succession, extraordinary liquidity stresses, and efforts to 
sell all or a 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 24, 2011, 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 rest 
of the week, the speed and severity of which were unprecedented 
in my experience, placing extraordinary pressure on the firm's 
liquidity.
    As the situation deteriorated, the sale of the FCM merchant 
business and/or the entire 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.
    As I recall, on Sunday, 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 subcommittee is aware, the efforts to 
reconcile the segregation calculations were not successful and 
the deal fell through.
    I, along with others from MF Global, promptly notified our 
regulators about the segregation issues.
    I understand that the subcommittee, MFGI's customers, and 
the public have many unanswered questions about customer funds. 
I share many of those questions and I am personally extremely 
frustrated and distressed that the remaining outstanding client 
funds have not been repaid in full.
    I would be pleased to answer the subcommittee's questions.
    Thank you.
    [The prepared statement of Mr. Steenkamp can be found on 
page 105 of the appendix.]
    Chairman Neugebauer. Ms. Serwinski, you are recognized for 
5 minutes as well.

 TESTIMONY OF CHRISTINE SERWINSKI, CHIEF FINANCIAL OFFICER, MF 
                          GLOBAL INC.

    Ms. Serwinski. Thank you for the opportunity to testify 
today. My name is Christine Serwinski. At the time of the 
events in question, I was the chief financial officer of MF 
Global Inc., the firm's North American broker/dealer and 
futures commission merchant.
    In my position as the CFO of MF Global Inc., I was 
responsible for the accounting and regulatory accounting team.
    In light of the subcommittee's focus on the events of the 
week of October 24th, it is important to note that the 
departments responsible for the transfer of funds into and out 
of the company--treasury, treasury operations, and securities 
operations--did not report to me.
    I am aware that the subcommittee is particularly interested 
in the events of the week prior to the October 30th bankruptcy. 
I will do my best to provide whatever information I can, but I 
was away for the majority of that week. And I apologize in 
advance if I am unable to add a great deal of detail.
    On Monday, October 24th, Moody's downgraded MF Global's 
credit rating. On Tuesday, there was an earnings call. On that 
same day, I left Chicago for a previously planned vacation. I 
had every reason to believe that the firm was on solid ground 
prior to my departure.
    Before leaving, I spoke to members of my staff and drafted 
e-mails to coworkers to ensure that all of the functions of my 
office would be covered. All of my colleagues and subordinates 
knew how to and did reach me as necessary during my absence. I 
had access to e-mails via my BlackBerry during my week off, and 
I read e-mails when I could. I also spoke to people at MF 
Global on the telephone from time to time throughout the week.
    All communications with MF Global employees indicated that 
things were very busy, but I was assured that everything was 
under control. And at no time did anyone ever suggest that I 
should return to the office. Nonetheless, late in the day on 
Thursday, I decided to come back to Chicago a day early, on 
Sunday. I was not alarmed, but I believed that it would be 
better to return early given the level of activity at the firm.
    After receiving varying reports earlier in the day, and 
upon arriving at the office on Sunday evening, I was informed 
that in fact, there appeared to be a segregated and secured 
deficit of approximately $900 million. I dove into the 
accounting with my team, believing that this must be an 
accounting error, because such a large deficit was simply 
inconceivable to me.
    Early Monday morning the assistant treasurer handed me a 
piece of paper that identified a series of transactions that, 
according to calculations, accounted for the shortfall in the 
FCM's segregated accounts. I then realized the deficit in the 
segregated and secured funds was not an accounting error.
    We informed a representative of the CME, and my focus 
immediately shifted to identifying all firm funds within MF 
Global that might be transferred into the segregated and 
secured environment as quickly as possible. We worked 
relentlessly throughout the early morning hours and indeed 
throughout most of the day on October 31st to try to bring the 
segregated, unsecured accounts back to the appropriate levels.
    Although some of the funds were transferred into the FCM's 
segregated and secured accounts, a number of submitted wires 
were not executed by the bank and we were unable to move 
sufficient funds to make up for the shortfall. Sometime on 
October 31st, I learned that MF Global had filed for 
bankruptcy, that we were under SIPC protection, and that the 
firm could no longer engage in further financial transactions. 
Shortly thereafter, the SPIC trustee asked me to stay on at MF 
Global to assist in the wind-down of the business, which I 
agreed to do.
    I look forward to addressing to the best of my knowledge 
and ability any questions that the subcommittee may have.
    Thank you.
    [The prepared statement of Ms. Serwinski can be found on 
page 101 of the appendix.]
    Chairman Neugebauer. Thank you.
    We have been instructed that Ms. O'Brien does not plan to 
give an opening statement at this time, so we will therefore 
begin our questions.
    Ms. O'Brien, on Friday, October 28, 2011, MF Global 
transferred $200 million from the segregated customer accounts 
to the house account, and then subsequently sent $175 million 
of money from the house account to the MF Global U.K. account 
to cover an overdraft.
    As you are aware, in December Mr. Corzine testified here 
that you assured him that those transfers complied with the 
CFTC rules about customer segregation. Reportedly, you dispute 
Mr. Corzine's testimony.
    So let me ask you today, Ms. O'Brien, did you give Mr. 
Corzine assurances that the farmers' and ranchers' money that 
was in MF Global's account, the segregated accounts, did you 
give him assurances that that money was not their money?
    Ms. O'Brien. [Off mike.]
    Chairman Neugebauer. I am sorry. We--you are going to have 
to--yes.
    Ms. O'Brien. On the advice of counsel, I respectfully 
decline to answer based on my constitutional rights.
    Chairman Neugebauer. I am going to yield to Mr. Capuano and 
see if he would like to--
    Mr. Capuano. Ms. O'Brien, I just--I understand and I 
respect your constitutional rights. But there was an article 
in--I think it was today's Wall Street Journal, maybe 
yesterday's, that stated that you are trying to negotiate an 
immunity with Federal investigators. And I am just curious if 
that article was accurate or inaccurate. I am not asking about 
anything that happened at MF Global. What I am simply asking 
is, is that news report an accurate report or not?
    Ms. O'Brien. On the advice of counsel, I respectfully 
decline to answer based on constitutional rights.
    Chairman Neugebauer. Ms. O'Brien, the subcommittee asked 
you here today to testify so that you could help use your 
background and experience to solve a very serious matter, to 
try to find out exactly what happened and how we can keep this 
from happening again. We are extremely disappointed that you 
have chosen to do that. I would just ask you now, do you intend 
to invoke your Fifth Amendment right as to any question that 
the subcommittee may ask you on these subjects today?
    Ms. O'Brien. I will.
    Chairman Neugebauer. I am disappointed by your answer 
because I believe you have important knowledge, and I am 
hopeful that maybe at some point you will reconsider and come 
back and testify before this committee. But at this time, with 
unanimous consent, I am going to dismiss Ms. O'Brien from the 
panel.
    Ms. O'Brien, you are dismissed.
    Ms. O'Brien. Okay.
    Chairman Neugebauer. I am going to continue the 
questioning. I think what we will do at this particular point 
in time is--Mr. Capuano, I used that time. We will reset the 
time and we will begin the question-and-answer period again.
    Ms. Serwinski, on October 28th, MF Global transferred $200 
million from the segregated accounts and then subsequently 
transferred $175 million to the U.K. affiliate to cover an 
overdraft. In an interview that you had with our committee, you 
stated that if you were working that day, it was very unlikely 
you would have approved a $175 million transfer because it 
could have violated the SEC's net capital rules. Can you 
explain that to me?
    Ms. Serwinski. The transaction, $175 million transaction as 
I understand it, was an intercompany loan between MF Global 
Inc. and its affiliate, MF Global U.K., Limited. As I 
understand it, the $175 million was being taken out of 
customers' segregation. There were two things I would have 
looked at with respect to this transfer.
    First, did the firm, what was referred to and has been 
referred to as the firm-invested-in-excess-segregation-and-
secured-funds, with that $175 million, brought that level to a 
negative. The firm could still be in regulatory compliance, but 
it would have breached its own internal policy.
    The second consideration that would have had to be 
evaluated was a potential impact on the excess net capital of 
the firm. So, if that number without being adjusted would have 
brought, I believe, the firm to a potential under early warning 
situation, which wouldn't have been a rule violation, but would 
have required a reporting to the regulators.
    Chairman Neugebauer. I want to go back to my question. If 
you had been there on that day, would you have approved that 
transfer? Yes or no?
    Ms. Serwinski. I honestly don't know what all the 
circumstances were around that transaction. But it would be--if 
the impact would have breached a regulatory rule, I don't 
believe I would have approved it.
    Chairman Neugebauer. Knowing what you know today, would you 
approve that transaction, yes or no?
    Ms. Serwinski. No.
    Chairman Neugebauer. Okay. Thank you.
    You are aware of an e-mail in which Edith O'Brien described 
this $175 million transfer. And the e-mail states that her, Mr. 
Corzine, J.C. I believe that--is it normal course of business 
for the CEO to make instructions on wiring funds? Did that 
happen on a regular basis on your watch?
    Ms. Serwinski. No.
    Chairman Neugebauer. So, this would be out of the ordinary 
for Mr. Corzine to start calling people and instructing them to 
start wiring money?
    Ms. Serwinski. Yes, I believe that would be an unusual 
event.
    Chairman Neugebauer. I thank you for that.
    Ms. Ferber, according to CME, on the afternoon of Thursday, 
October the 27th, a representative of CME group sent a letter 
to you, Ms. Serwinski, and Mr. Bolan, I believe, and all of the 
MF Global senior managers. And it stated that effective 
immediately any equity withdrawals from MF Global Inc., must be 
approved in writing by CME's group audit department. Basically, 
CME is telling MF Global not to move its own capital out of MF 
Global without CME's approval.
    Who did you disseminate that information to when you 
received that letter?
    Ms. Ferber. I really don't recall. At the time it obviously 
went directly to our finance group and to myself. And I cannot 
remember exactly what I did with it back on that Thursday. I 
know I recall having conversations where people were aware of 
it.
    Chairman Neugebauer. Did you seek approval when you made 
the $175 million transfer to MF Global U.K.? Before you moved 
that money, did you notify CME that you were making that 
transfer?
    Ms. Ferber. I was not aware of that transfer before it was 
made, so I would not know that.
    Chairman Neugebauer. So you don't know who you disseminated 
the information to and maybe not everybody got the memo. Is 
that what you are--
    Ms. Ferber. Again, the memo went directly to key finance 
people, and the key people operating the transfers and things 
were all in Chicago. I assume it was shared there, but I really 
don't recall.
    Chairman Neugebauer. Mr. Steenkamp, I was interested in 
your testimony where you said you are the CFO for MF Global 
Holdings Limited, and that you were addressing very important 
issues facing the company at that time as their CFO.
    Is that your testimony?
    Mr. Steenkamp. That is correct, sir.
    Chairman Neugebauer. Yes. Wouldn't you think the liquidity 
of a company would be one of the important aspects of a entity 
the size of MF Global?
    And based on its businesses, would you think if they were 
having liquidity problems, that would be something in which the 
CFO should be involved?
    Mr. Steenkamp. Sir, there were many things going on at that 
point in time.
    Chairman Neugebauer. No, that wasn't the question. The 
question is, is liquidity of the corporation an important role 
of the CFO?
    Mr. Steenkamp. The liquidity of the financial firm--
    Chairman Neugebauer. This is a yes-or-no question. This is 
not rocket science here.
    Is the liquidity of the corporation an important piece of 
the role of a chief financial officer of a company?
    Mr. Steenkamp. Sir--
    Chairman Neugebauer. Yes or no, sir?
    Mr. Steenkamp. Sir, the liquidity is critical on a 
consolidated basis, yes.
    Chairman Neugebauer. Yes. So I am surprised that you have 
very little knowledge about the transfers and these were not 
small transfers of money, margin calls, people trying to 
liquidate a position as to create liquidity and you are saying 
you really didn't have much knowledge of that?
    Mr. Steenkamp. Yes. Sir, when it came to the liquidity, I 
was looking at liquidity on a global consolidated basis. That 
was a transfer within MF Global Inc., that obviously was 
important, but there were many liquidity events that were 
occurring across the firm, not just in Chicago, but across the 
whole globe with which we were dealing.
    Chairman Neugebauer. And how was the liquidity going?
    Mr. Steenkamp. We slowly experienced throughout that week a 
drastic change in liquidity, especially from Wednesday to 
Friday, and we experienced in this last couple of days 
significant liquidity stress, I think, but from the call not 
too dissimilar on the Thursday and Friday as a run on the bank.
    Chairman Neugebauer. I see my time is up.
    I now turn to the ranking member, Mr. Capuano.
    Mr. Capuano. Thank you, Mr. Chairman.
    I actually don't have a clue what questions to ask any of 
you. Because I have the general counsel to MF Global Holdings 
saying, ``I didn't know what was going on. I had nothing to do 
with this.''
    I have the chief financial officer of MF Global Holdings 
Limited saying, ``It was not my job. I didn't do it.''
    And the chief financial officer--by the way, who also said, 
``It is MF Global Inc.'s issue, not mine. I don't have anything 
to do with it, and though they report to me, I don't know 
anything.''
    And I have the chief financial officer of North America, MF 
Global Inc., saying, ``I was on vacation.''
    So how am I supposed to ask you questions, when apparently 
none of you knew what was going on, or claim to not know what 
was going on, have no information whatsoever?
    How did this company run? Did anybody in the company, 
anyone, have authority to transfer customers' funds?
    Mr. Steenkamp, I ask you, did anybody have that authority? 
I know you said in your written statement you didn't, but who 
did?
    Mr. Steenkamp. Sir, my responsibility was to oversee the 
global finance function. I was not responsible for--
    Mr. Capuano. I know what you weren't responsible for. I 
read the testimony. Apparently, you weren't responsible for 
anything.
    Who was responsible for deciding to transfer customers' 
funds? Who? If not you, fine. I read your testimony. Who?
    Mr. Steenkamp. Sir, the transfers of customer funds would 
be resident--the authority would be resident in each of the 
local regulated entities.
    So in Chicago, those--
    Mr. Capuano. Who would that be, a name?
    Mr. Steenkamp. It would be between the finance team, Ms. 
Serwinski's team. It would be between--
    Mr. Capuano. So it is Ms. Serwinski--
    Mr. Steenkamp. --Ms. O'Brien's team--
    Mr. Capuano. And that is what I read in your testimony, but 
I wanted to make sure I read it right.
    Ms. Serwinski, apparently Mr. Steenkamp thinks that you 
have the authority. Is that correct? Do you have the authority? 
Did you have the authority to transfer customers' funds?
    Ms. Serwinski. I did not have the authority to transfer 
customer funds.
    Mr. Capuano. Okay.
    Ms. Serwinski. As I mentioned in my opening statement, sir, 
the transfer of customer funds was managed by the treasury 
group--the treasury operations group and the security 
operations group.
    Mr. Capuano. I thought you were the chief financial 
officer. The treasury group didn't report to you?
    Ms. Serwinski. No, they did not.
    Mr. Capuano. Who did they report to?
    Ms. Serwinski. They reported to the global treasurer.
    Mr. Capuano. And who in the treasury group would be the 
main person responsible for making that decision?
    Ms. Serwinski. Making the decision to--
    Mr. Capuano. To transfer a customer's funds?
    Ms. Serwinski. It would be the assistant treasurer or the 
global treasurer.
    Mr. Capuano. Names?
    Ms. Serwinski. Edith O'Brien and Vinay Mahajan.
    Mr. Capuano. So I have not yet seen any corporate 
organizational table for all MF Global. I understand there were 
over 50 or 80 different companies, so it is going to be fun to 
try to read it.
    But of all the people who are probably going to show up on 
the corporate ladder, I am willing to bet that Ms. O'Brien's 
name or her position will not show up.
    And she, however, was the only person--she was the top 
ranking person to say, let's take all of the customer funds and 
do whatever we feel like with them.
    If that is the case, I think we have more than a little bit 
of a problem here. And I will tell you that this hearing, after 
reading this testimony and listening to you, reminds me an 
awful lot of a hearing we had on this committee, I don't 
remember how many years ago, on Enron.
    We had Mr. Skilling. We had Mr. Lay. We had Mr. Fastow 
here. And I told them exactly what I am going to tell you. I 
said, okay, none of you did. Apparently, no one did anything 
wrong but there is a billion dollars missing.
    Here is what you should be concerned with, not us, we are 
not the appropriate investigative body to determine who had 
that responsibility. Here is your concern, the people sitting 
next to you.
    Because somebody is going say something to the appropriate 
investigators to say, this is the person who had final 
responsibility. And when that happens, there are going be 
problems for those individuals.
    So I wish I could find some wonderful things. I guess one 
other question. All of you were working for MF Global before 
these problems arose; is that correct?
    Did I read your testimony correctly? You were all working 
there before? And you are all still working there? Is that 
correct?
    Ms. Serwinski. No, I am--
    Mr. Capuano. No, you are no longer there, Ms. Serwinski?
    Ms. Serwinski. --no longer there.
    Mr. Capuano. Then, I will ask you, Mr. Steenkamp, Ms. 
Ferber, there have been some reports that MF Global is 
considering bonuses.
    Are you in line for some of those bonuses?
    Mr. Steenkamp. As far as I am aware, there has been no 
decision made on bonuses, sir.
    Ms. Ferber. I think the trustee emphasized that in his 
statement.
    Mr. Capuano. So I have well-paid employees of a major 
company that somehow has misplaced or misappropriated a billion 
dollars of customer funds, and yet you are asking the trustee 
in bankruptcy--and may--you may not, not you, but someone is 
asking the trustee in bankruptcy to give bonuses to the very 
people who may or may not have had something to do with this?
    Do you see that as a potential little issue?
    Mr. Steenkamp, do you think that would be appropriate for 
this trustee in bankruptcy at this point, before we know what 
happened, to be giving out bonuses to people who were there who 
may have had something to do with creating this problem?
    Mr. Steenkamp. Sir, that is not a decision that lies in our 
hands. We believe the trustee will make a decision that is 
appropriate.
    Mr. Capuano. Ms. Ferber, do you think that is appropriate? 
You are the general counsel, would you advise your clients that 
is a good idea?
    Ms. Ferber. I would totally defer to the trustee. My focus 
right now is on helping the trustee. It is his responsibility 
to figure out how to manage the bankruptcy estate and to retain 
employees and everything else.
    Mr. Capuano. That is fair enough. I appreciate your 
consistency in having nothing to add to this discussion.
    And again, as I said from the beginning, I wasn't sure what 
questions I could ask to add the information, and apparently I 
have now spent 6 minutes and done just that.
    Thank you.
    Chairman Neugebauer. I thank the gentleman.
    And now, Mr. Fitzpatrick is recognized for 5 minutes.
    Mr. Fitzpatrick. Thank you, Mr. Chairman.
    Mr. Steenkamp, did you, on Sunday, October 30th, or any day 
for that matter, instruct anybody at MF Global to hold off on 
contacting the regulators about MF Global's segregated 
deficiency?
    Mr. Steenkamp. I have no memory of instructing anyone to 
hold off, sir.
    Mr. Fitzpatrick. You have no memory of instructing anybody?
    Mr. Steenkamp. No.
    Mr. Fitzpatrick. Ms. Serwinski, you state on page three of 
your testimony that, ``on Saturday I was initially told that 
the segregation and secured statement for Friday showed the 
firm to be under-segregated.''
    Who told you that?
    Ms. Serwinski. Someone on our staff, I believe. I don't 
recall who exactly the person was, but someone on my staff.
    Mr. Fitzpatrick. Someone on your staff told you--
    Ms. Serwinski. --in the finance team.
    Mr. Fitzpatrick. And who was that?
    Ms. Serwinski. I don't recall if it was the regulatory 
capital controller or the controller.
    Mr. Fitzpatrick. That would be a pretty significant piece 
of information you received on the day that you returned back 
from your vacation; correct?
    You don't remember who told you that you had a significant 
deficiency?
    Ms. Serwinski. Originally, when the calculation was done on 
Saturday morning, it showed a deficiency. My department was 
assured by the treasury or treasury operations group that there 
was a reconciliation item or issue to be resolved.
    They were spending that Saturday afternoon to do just that. 
On Sunday morning before I boarded a flight back to Chicago, I 
was informed that in fact the firm might have been truly 
undersegregated at that time--as of the 28th.
    When I landed, I received information to say, no, we were 
not actually undersegregated. When I went to the office I was 
told that, yes, in fact, we were undersegregated, and that is 
when the team started to look to see how that could possibly be 
the case.
    Mr. Fitzpatrick. Ms. Serwinski, did you inform anyone else 
of that fact?
    Ms. Serwinski. Once we determined that the funds had in 
fact not been an accounting error, but an actual deficit, we 
contacted the CME, who was on the premises, and I believe 
contacted my colleagues in New York at that point.
    Mr. Fitzpatrick. And what day was that? Was that Saturday?
    Ms. Serwinski. No. That was probably very early in the 
hours of Monday, October 31st, or very late Sunday, October 
30th.
    Mr. Fitzpatrick. So you would have waited approximately 2 
days to let anybody at CME know about the deficiency?
    Ms. Serwinski. We did not believe--I did not believe it was 
a deficiency at that point.
    As I mentioned, it was inconceivable to me that the firm 
could be undersegregated by that substantial amount.
    Mr. Fitzpatrick. But it was in fact deficient by that 
substantial amount, correct?
    Ms. Serwinski. It was brought to my attention later on, in 
the very early hours of October 31st, that yes, in fact, it was 
in deficiency.
    Mr. Fitzpatrick. Undersegregation is a hugely significant 
violation; is it not?
    Ms. Serwinski. Yes. We were undersegregated.
    Mr. Fitzpatrick. And yet, you didn't inform management or 
any regulator of this significant fact? Is that your testimony?
    Ms. Serwinski. I did after it was confirmed that it was an 
actual undersegregation situation.
    Mr. Fitzpatrick. Ms. Ferber, on Friday, October 28th, 
JPMorgan Chase sent a letter asking MF Global to verify in 
writing that it had the authority under CFTC rules to transfer 
$170 million to replenish an account that MF Global U.K. had 
overdrawn.
    Apparently, JPMorgan sent three drafts of that letter 
asking MF Global to confirm that the transfers were proper; is 
that correct?
    Ms. Ferber. Yes, I believe so.
    Mr. Fitzpatrick. At any time, did anyone at MF Global 
refuse to sign the letter?
    Ms. Ferber. Not in any discussions with me. No.
    Mr. Fitzpatrick. Were you told that anybody at MF Global 
refused to sign the letter?
    Ms. Ferber. No, I was not.
    Mr. Fitzpatrick. So you have no information of anybody at 
MF Global refusing to sign that letter; correct?
    Ms. Ferber. You have to focus on which version of the 
letter, so--
    Mr. Fitzpatrick. Any of the letters.
    Ms. Ferber. The first letter was asking one individual to 
confirm that everything that has ever been done in the history 
of those accounts, and everything that would ever be done in 
the future, was in compliance with all CFTC rules.
    And I think you know, as we certainly tried to convey, this 
was a very, very hectic time. And no one individual, as far as 
I know--and this is not an area that I supervise or am directly 
involved with--would be making all those transfers.
    My understanding was JPMorgan confirmed that they were 
interested in two transfers, only two related transfers. That 
is what they were seeking assurances on. And on inquiry, 
thought it would be better if it was limited to that. We would 
be able to make that. I understood the importance of getting 
something to them quickly, getting them comfortable, and asked 
them to limit the letter to what they needed and we would get 
it signed.
    Mr. Fitzpatrick. Did you tell Edith O'Brien, the assistant 
treasurer, about the letter being sent?
    Ms. Ferber. I forwarded a copy of the letter to Edith 
O'Brien.
    Mr. Fitzpatrick. Did you tell her it needed to be signed?
    Ms. Ferber. Certainly that was the substance of our 
conversation.
    Mr. Fitzpatrick. What was her response?
    Ms. Ferber. At the point that I discussed it with her, I 
had erased those from JPMorgan. I understood their focus was on 
those two transactions. And my clear understanding from 
speaking to Ms. O'Brien was that if they limited it to those 
two transactions, she would sign it.
    Chairman Neugebauer. I thank the gentlemen.
    Mr. Lynch is recognized for 5 minutes.
    Mr. Lynch. Thank you, Mr. Chairman.
    Ms. Ferber, how important is it for your firm, for MF 
Global, to protect client funds? How important is that?
    Ms. Ferber. It is a critical obligation of any FCM.
    Mr. Lynch. Yes.
    Ms. Serwinski, same question. How important is it that you 
protect client funds? Is that a peripheral responsibility, or 
how would you classify it?
    Ms. Serwinski. No, it is a very critical and important--
    Mr. Lynch. Mr. Steenkamp?
    Mr. Steenkamp. That is a critical objective of the firm.
    Mr. Lynch. All right. So this is a central core 
responsibility. This isn't some esoteric rule. This isn't some 
accounting error. This is central. This goes to the very trust 
that your firm relies upon, and that the whole market relies 
upon in order to function.
    And we have $1.6 billion of customer money take a walk, and 
none of you know anything about it. None of you are aware of 
it. This is not a small amount of money, $1.6 billion in money 
that was entrusted to you, and that the whole reason for a 
segregated account is to protect the client's money.
    It is absolutely disgraceful. It is utterly disgraceful 
what has happened here. And it is disgraceful that you sit 
there, and you say, ``We knew nothing about it.'' ``I was on 
vacation.'' ``I was in Chicago.'' ``I was in New York.'' ``I 
was doing the global thing.''
    It is not believable, I have to tell you. It is not 
believable at all up here. It is utterly disgraceful. It is 
disgraceful not only for MF Global, but I think for anybody in 
your industry, because it is such a central principle in 
protecting clients, and hard-working farmers and grain 
operators, families who invested their savings, their hard-
earned life savings. And they trusted you.
    This industry is supposed to protect their interests. And 
they were robbed. They were robbed. And nobody knew anything 
about it, $1.6 billion.
    Let me ask you, under CFTC Rule 1.23, it permits a firm 
to--and I think this is a problem, and we have to look at the 
regulations at some point--add its own funds to customer-
segregated accounts. I understand the practice.
    How do you tag your firm funds that you put in there, and 
you co-mingle with so-called segregated funds, which aren't 
segregated funds if you are adding firm funds to it, in my 
opinion. But how do you, Ms. Ferber, tag those funds?
    Ms. Ferber. I think that is an accounting question. And I 
would really defer to my colleagues who have more knowledge on 
that. As you pointed out, it is fairly ingrained--
    Mr. Lynch. But you don't know. As general counsel of this 
central responsibility in protecting customer funds, you don't 
know?
    Ms. Ferber. How funds are tagged in a bank account, no, I 
do not know. I know the customer funds need to be kept in a 
bank account that is denominated as a customer-segregated funds 
account.
    Mr. Lynch. Okay.
    Ms. Serwinski, Mr. Steenkamp, do you have any ideas on 
this? If Rule 1.23 allows the firm to co-mingle funds, put a 
buffer in there in that account, along with customer funds that 
are segregated, so-called, how do you tag the firm's funds, and 
distinguish them from customer-segregated funds?
    Ms. Serwinski?
    Ms. Serwinski. If I may for a moment--
    Mr. Lynch. You may.
    Ms. Serwinski. --I would like to take an opportunity to try 
to explain ``segregation'' and ``secured funds,'' and the--
    Mr. Lynch. How about you just answer my question? Judging 
by your other responses, since I sat down here some time ago, 
Ms. O'Brien's declaration of the Fifth Amendment was more 
helpful to this committee than any of your answers.
    So I don't want you going off on any long explanation. 
Because based on everything else that has come out of your 
mouths, all three of you, there has been nothing there that has 
owned up to the responsibility for any of the stuff that has 
gone on here, even though you are all three in major positions 
of responsibility.
    So please answer the question that I asked. How do you tag 
the firm's funds and keep them separate from these customer-
segregated funds in the same account?
    Ms. Serwinski. Once firm cash and/or collateral is 
deposited into the segregated or secured environment, they 
become co-mingled with the customer secured and segregated 
funds.
    Mr. Lynch. So it is indistinguishable?
    Ms. Serwinski. On a dollar-for-dollar basis, we just--
    Mr. Lynch. So it is just a balance. It is just a balance, 
the balance of segregated funds, and then you know what the 
margin is that you have put on top of that. Is that basically 
what you are telling me?
    Ms. Serwinski. Yes.
    Mr. Lynch. So there is no ability, once that fund is in 
there, to distinguish any assets from another?
    Ms. Serwinski. We would track the firm's investments in the 
excess segregated and secured funds on a daily basis.
    Mr. Lynch. But if you had to sell securities out of that 
fund, you could take either securities out of that, that were 
placed in there by customers, or you could take securities out, 
based on the company's deposits in there?
    I am trying to figure out a way to prevent this from 
happening again.
    Ms. Serwinski. I understand, sir.
    Mr. Lynch. I think there is a loophole here that there 
should be--this is a situation where the regulation that is in 
place has not protected these people, these grain operators, 
and these farmers, from having $1.6 billion stolen out of their 
accounts.
    And I think somebody in your firm, or somebody out there in 
the industry should have recommended a better method of 
protecting them than exists right now.
    I realize I am over my time, and I yield back.
    Chairman Neugebauer. I thank the gentleman.
    And now, the gentleman from New Mexico, Mr. Pearce, is 
recognized.
    Mr. Pearce. Thank you, Mr. Chairman.
    Ms. Ferber, I heard Mr. Lynch say that the clients were 
robbed. I can sort of see his point. Do you think that is an 
appropriate term?
    Ms. Ferber. I--
    Mr. Pearce. Yes or no?.
    Ms. Ferber. Excuse me?
    Mr. Pearce. Yes or no?
    Ms. Ferber. Something--
    Mr. Pearce. The money isn't there.
    Ms. Ferber. Something terrible happened. But I don't know 
how to describe it. Since October 31st, we have not had 
access--
    Mr. Pearce. At the end of the day, the money is not there. 
They put the money there, and it is not there, and they can't 
get it back.
    Ms. Ferber. And that is terrible.
    Mr. Pearce. And does that fit the definition of ``stolen'' 
or ``robbed?''
    Ms. Ferber. Uh--
    Mr. Pearce. I just love this. This is magnificent. You are 
one of the highest-paid lawyers in the country. Bonnie and 
Clyde, they were chumps. They drove around. They used gas money 
to go out. You guys have people send things electronically to 
you, and nobody is responsible. And you can't even declare that 
it was robbed or stolen. What chumps those old-style bandits 
were.
    Ms. Serwinski, now, you seemed alarmed when you came back 
to the office that these funds were taken. Why were you 
alarmed? Now, we have gone through the 24 hours. Wednesday, it 
didn't reconcile. And you are a little bit alarmed. Why were 
you alarmed? You were distressed.
    Ms. Serwinski. I don't think I was alarmed on Wednesday.
    Mr. Pearce. Whatever term you used. You said you were 
distressed. You wouldn't have done it. So why would you not 
have done that? Why would you have not approved that?
    Ms. Serwinski. Why would I have not approved it? One, based 
on the previous day's information I had.
    Mr. Pearce. No. Is it right or is it wrong, I guess, that 
is what I am getting at. Is it right to take that money and not 
pay it back by the end of the day? Is it illegal?
    Ms. Serwinski. If it was utilizing customer funds--
    Mr. Pearce. Is it illegal to hold it overnight? Or is it 
illegal to hold it for a year? Is it illegal to take customer 
funds and shore up the sinking ship, and use them for a year?
    Ms. Serwinski. I don't know what was done--
    Mr. Pearce. No. I didn't say you did. I am not accusing you 
of knowing what was done. You just said that it was sort of, 
you found it alarming, or whatever word you used. So--
    Ms. Serwinski. I believe I said that if I was presented 
with the request to approve a $175 million inter-company--
    Mr. Pearce. We missed the deadline to pay it back. That is 
your testimony. We had missed the deadline. So what was the 
deadline? Was it a legal deadline? What deadline? What does it 
matter?
    Ms. Ferber said she doesn't know if it is stealing or not. 
So what rule?
    Ms. Serwinski. I think that I can explain. We were talking 
about two different items. But my reference in the written 
testimony with respect to the deadline being missed on the 
Wednesday for the repayment of intra-company, intra-day loans 
is what I was concerned about on Thursday, that had been 
brought to my attention.
    Those intra-day loans that were not paid back by the end of 
the day did not violate the--we were still--the firm was in 
regulatory compliance at the end of Wednesday. What had been 
breached was an internal policy to ensure that the firm-
invested-in-excess-segregation-and-secured-funds--
    Mr. Pearce. So it is not an external--there is no external 
prohibition against using segregated funds?
    Ms. Serwinski. Excess segregated and secured funds?
    Mr. Pearce. There is no external prohibition?
    Ms. Serwinski. Not that I am aware of.
    Mr. Pearce. Mr. Royce testified that it is against the law 
for 75 years. Mr. Royce's testimony was incorrect, then?
    So you still have those funds, basically. You have taken 
them. And so what you are telling me is that the $1.6 billion 
is still not against the law; that you did what was fair and 
square?
    Is that right, Mr. Steenkamp?
    Fair and square, I am hearing the other two witnesses say 
it is fine; it is okay. Is it okay?
    Mr. Steenkamp. Sir, not knowing what actually happened, it 
is impossible to be able to comment on--
    Mr. Pearce. No. You took the money and you are supposed to 
give it back if they want it. If I put money in the bank, and 
if I can't get my money back from the bank, then the bank has 
taken it from me. If I can't get my money back, then the bank 
has taken it. They put their money with you. These hog farmers 
put their money with you and they can't get it back.
    So is that right or is that wrong? Morally right, or is 
that morally wrong? It doesn't matter now anymore. Your legal 
counsel, obviously, she can't declare it to be against the law; 
nothing like that.
    So tell me?
    Mr. Steenkamp. Sir, I think there are a lot of different 
concepts that are being combined at the moment. And there are--
    Mr. Pearce. Now I think I understand why Mr. Capuano and 
Mr. Lynch were a little frustrated here. Nobody had authority 
to move it. It is not against the law. It is missing now; it 
will probably never get repaid, and that is okay, because we 
can't really declare it, why it is okay. This is really 
reassuring for the American people, who might want to know that 
the money they are putting in the safekeeping of people like 
you all is not quite in safekeeping after all.
    I think it sends a loud enough message that you all can't 
find the legality or illegality about it. I think that is the 
message that is going out today.
    I think Mr. Capuano said it perfectly: Shame on you, shame 
on you.
    Thank you. I yield back.
    Chairman Neugebauer. I thank the gentleman.
    And now, the gentlewoman from California, Ms. Waters, is 
recognized for 5 minutes.
    Ms. Waters. I thank you very much, Mr. Chairman.
    I was just talking with the staff here about some of the 
accounts that I have read in the newspaper where there has been 
some attempt to describe accounts, customer accounts, as 
opposed to other accounts.
    And I suppose what I am hearing is that company money was 
kept in the same account as client money. And of course, one 
story said that the client money had been taken out and put in 
another account. And then the money was taken from that account 
to pay an overdraft. And when Mr. Corzine asked about where it 
came from, someone was able to say that it came from an account 
other than the client account.
    So let me ask Mr. Steenkamp, do you know anything about 
another account where the client money was placed prior to the 
payout from that account to help take care of the overdraft?
    Mr. Steenkamp. Ma'am, to the best of my knowledge, I was 
not involved with any of those transfers. So I had not known 
about the details of those movements.
    Ms. Waters. Do you know about the details of what accounts, 
official accounts of the company, are there are 1, 2, 3, 4, 5, 
10, 15? Do you know that much?
    Mr. Steenkamp. There were obviously accounts that were held 
in the Finco, in the holding company. Those accounts are very 
different than the separate accounts that are held in each of 
the regulated entities. And in my role, I was not involved in 
the detail of those accounts, which were managed by the senior 
professionals we had in each of our regulated entities. But 
each country is different, so there are very specific and 
specialized rules that apply to each country.
    Ms. Waters. Okay. As the CFO of MF Global, you signed 
Sarbanes-Oxley 302 and 906 certifications attesting to the 
internal controls of the Global Corporation as required in 
every year-end. As the CFO, you attest that your certifications 
are accurate, and you know that when they are not, you could 
face civil and criminal penalties.
    So with that, my question is: Were you confident that your 
internal controls were adequate at the time that you signed 
them at year-end in each quarter period--quarter-end?
    Mr. Steenkamp. Ma'am, I became the CFO in April 2011. So I 
signed two SOX controls, the year-end, as you mentioned, as 
well as the first quarter and thereafter. As part of signing 
those controls, which are a snapshot at a point in time, you go 
through a lot of review, sub-certification, etc., over all of 
the controls across the world.
    Nothing came to my attention--
    Ms. Waters. Again, let me just ask, if as the CFO you 
attest that your certifications are accurate and you know that 
they are not, you could face civil and criminal penalties. So 
with that, my question is: Were you confident that your 
internal controls were adequate at the time that you signed 
them at year-end and each quarter-end? You felt good about your 
signature?
    Mr. Steenkamp. My last sign-off was in June and nothing 
came to my attention at that point in time that indicated that 
I shouldn't sign it.
    Ms. Waters. So what you are telling us is that you were not 
confident that there were internal controls that were adequate 
at the time that you signed at year-end and at each quarter-
end?
    Mr. Steenkamp. No, ma'am. I said nothing came to my 
attention as of June when I signed the last SOX certification 
that indicated there were any issues with internal controls.
    Ms. Waters. So you were confident?
    Mr. Steenkamp. At the time of my signing, nothing came to 
my attention to indicate otherwise.
    Ms. Waters. A lot of attention has been paid to the 
question of why MF Global's auditor, PricewaterhouseCoopers 
(PwC), gave the company a clean report in May, when their 
internal controls turned out to be compromised enough for them 
to lose $1.6 billion in customer funds.
    To the best of your knowledge, did PwC ever raise concerns 
about MF Global's internal controls as they relate to the 
segregation of customer accounts while you were employed at the 
firm?
    Mr. Steenkamp. That is a very broad question and a very 
long period of time. I would say that we worked closely with 
PwC and they performed their own independent assessment of the 
controls. To the best of my memory, nothing came up during my 
time as CFO that indicated an issue with segregated funds, with 
segregation of client monies.
    Ms. Waters. So basically, PricewaterhouseCoopers gave the 
company a clean report in May, when the internal controls 
turned out to be compromised enough to lose $1.6 billion. Do 
you think that Pricewaterhouse was incompetent in doing that? 
That they should take some responsibility for that?
    Mr. Steenkamp. Ma'am, I can't comment on the independent 
review that PwC does. As of May, they did not raise any 
concerns, to the best of my memory.
    Ms. Waters. Yes, but do you not have to have confidence in 
the auditor? You have to feel that your auditor is competent 
and acting properly, and that you have no reason to question 
them?
    Mr. Steenkamp. The auditors perform their own independent 
assessment of controls and reach their own independent 
conclusion.
    Ms. Waters. I yield back.
    Chairman Neugebauer. I thank the gentlewoman.
    The gentleman from Florida, Mr. Posey, is recognized for 5 
minutes.
    Mr. Posey. Thank you, Mr. Chairman.
    These are going to be easy questions, really. When we had 
the opportunity to question Mr. Corzine, I was advised and 
shocked, quite frankly, that he had not yet apparently been 
interviewed by the Department of Justice or any other 
authorities.
    And so I just wondered, Mr. Steenkamp, have you been 
interviewed by the FBI, the Department of Justice, or any other 
Federal investigators?
    Mr. Steenkamp. My lawyers have done a proffer with all the 
different, I guess, regulatory agencies and investigative 
offices. That is the status of it at the moment.
    Mr. Posey. I don't know whether you are mumbling or I don't 
hear very well, but is that a yes or a no?
    Mr. Steenkamp. Through my lawyers, a proffer, yes.
    Mr. Posey. You haven't, face-to-face, talked to any 
investigators yet?
    Mr. Steenkamp. I have not, no.
    Mr. Posey. Okay.
    Ms. Serwinski?
    Ms. Serwinski. Yes, I have.
    Mr. Posey. You have talked to them face to face?
    Ms. Serwinski. Yes, I have.
    Mr. Posey. How long ago?
    Ms. Serwinski. I have spoken to them twice.
    Mr. Posey. Okay. What do you think was the most compelling 
question or line of questions that they had?
    Ms. Serwinski. I don't recall. There were a lot of 
questions and a lot of topics discussed. I can't think of one 
off the top of my head that was more compelling than another.
    Mr. Posey. Okay.
    Ms. Ferber?
    Ms. Ferber. I am cooperating with the Department of Justice 
and I am scheduled to meet with them on April 6th.
    Mr. Posey. Okay. Have any of you been offered any immunity?
    Let the record show all three said ``no.''
    You have all indicated you thought the investors should get 
their money back in one way or another. You have intimated 
that.
    Ms. Ferber, what do you think the odds are for the 
investors to get their money back?
    Ms. Ferber. I really have no--we have no basis to answer 
that. It is really going to be up to the trustee.
    Mr. Posey. Okay.
    Ms. Serwinski?
    Ms. Serwinski. I don't know. It depends on whether or not 
the people who hold--
    Mr. Posey. Okay.
    Mr. Steenkamp?
    Mr. Steenkamp. Sir, it is still too early in the bankruptcy 
process. That is why we are there trying to work and maximize 
it.
    Mr. Posey. Who do you think is most at fault for investors 
losing money from an account that was supposed to be 
segregated?
    Mr. Steenkamp?
    Mr. Steenkamp. Sir, because I don't know what actually 
happened, it is hard to answer that question.
    Mr. Posey. Okay.
    Ms. Serwinski?
    Ms. Serwinski. Would you repeat the question, sir?
    Mr. Posey. Ms. Ferber?
    Ms. Ferber. Obviously, there was a terrible failure here of 
some kind, but what it was I don't know, since the SIPA trustee 
has controlled the investigation and all information since 
October 31st.
    Mr. Posey. Okay, thanks.
    A good analogy is a gambler is at a casino and if the 
casino doesn't provide more credit once the gambler's chips are 
gone, he has to stop playing. He can't just reach over the 
table and take somebody else's chips. If he did, he would be in 
handcuffs quicker than you could say, ``segregated accounts.''
    Isn't that, however, in essence what happened at MF Global?
    Mr. Steenkamp. I don't know what happened, sir.
    Mr. Posey. Ms. Serwinski?
    Ms. Serwinski. I don't know.
    Mr. Posey. Ms. Ferber?
    Ms. Ferber. I don't know.
    Mr. Posey. To be the experts of a company the size of MF 
Global, the scope of MF Global, there is sure a lot you guys 
don't know.
    Is there anything else that you might know that you might 
want to share with us to give us a little bit more insight?
    Ms. Ferber. I am happy to address any questions. That is 
extraordinarily broad.
    Mr. Posey. Take a shot at it.
    Ms. Ferber. I don't know where to start. We were talking 
about what happened over a very few days in an area that was 
handled by serious--as far as I knew--professionals, well-
staffed, expert in customer segregation rules, deeply within 
the finance and treasury and operations groups in Chicago.
    I share your frustration in not knowing what has happened. 
But again, we learned about this hours before the bankruptcy 
filing. So I am--you may have more access to information than 
we do, but I share that frustration. And as I have done for my 
entire career, I would have wanted to dive in on the first 
moment of learning that there was a problem and understand it 
and do everything I could with it, but we have been cut off 
from that information.
    Mr. Posey. Were any of you contacted by the CFTC in their 
investigation?
    Ms. Serwinski. The CFTC was at the meetings that I attended 
with the Department of Justice.
    Mr. Posey. Outside of that, were you contacted by them?
    Ms. Serwinski. On occasion, after October 31st, I had--
there were representatives of the CFTC in our offices.
    Mr. Posey. Would you have any idea why the CFTC would have 
been asked to cease and desist their own investigation?
    Ms. Serwinski. I do not, sir.
    Ms. Ferber. I doubt if they were.
    Mr. Steenkamp. I do not know, sir.
    Mr. Posey. Thank you, Mr. Chairman. I yield back.
    Chairman Neugebauer. I thank the gentleman.
    And now the gentlewoman from New York, Ms. Hayworth, is 
recognized for 5 minutes.
    Dr. Hayworth. Thank you, Mr. Chairman.
    Here we have three intelligent and able people who were in 
positions of tremendous authority and responsibility at a firm 
that was handling--who should have been handling with all 
degree of integrity and trust the hard-earned monies of farmers 
and ranchers and other clients who depended on you to do the 
right thing.
    And among you all, with no disrespect meant, and Ms. 
O'Brien, of course, who is conspicuous in her absence, it seems 
that there has been a great effort to maintain plausible 
deniability. That is certainly the impression with which one is 
left.
    Ms. Ferber, in your written statement you note that as of 
Wednesday, October 26th, you received a call from a 
representative of the SEC informing you that the SEC wanted to 
meet with management the following day to discuss various 
issues including liquidity and funding, and that the CFTC would 
also attend and would focus on segregated funds calculations.
    Now, that presumably would have triggered a question in 
your mind. Again, you are a highly capable person. You are a 
very skillful attorney; you are in a very responsible position. 
Didn't that trigger a question in your mind as to whether or 
not there was actually a problem with the segregated funds?
    Ms. Ferber. I--it would not trigger a question in my mind 
that there was a problem, we would make sure we had the right 
people there to discuss the status of the segregated funds. And 
that is exactly what we did; we assembled for a detailed 
meeting with the SEC and the CFTC that day.
    Dr. Hayworth. But you didn't inform--the firm didn't inform 
the regulators, as far as I can tell, of the deficiency, the 
shortages, until early Monday morning; correct, Ms. Serwinski, 
according to your testimony?
    Ms. Serwinski. There was no regulatory deficiency that I 
was aware of until that Sunday evening.
    Dr. Hayworth. But it sounds as though there was an 
insufficient level of communication between your department, 
Ms. Ferber, and yours, Ms. Serwinski. Is that, so to say, in 
the heat of everything that was going on? I would think that 
the top level at a firm like this, which is clearly, it is 
falling down around your ears practically, yet you say that, 
your testimony, obviously Ms. Ferber, you were heavily involved 
in trying to sell MF Global.
    Would that not to an outside observer suggest that you were 
endeavoring as vigorously as you could to make sure that the 
potential buyers for MF Global were not alarmed by what would 
have been an overt violation of everything a firm like MF 
Global should be doing on behalf of their customers, and 
indeed, the law itself?
    Ms. Ferber. Let me be very clear. I was never aware during 
the period you are describing or any time up until very late 
Sunday night or Monday morning that there were any issues 
regarding our segregated funds. I made it very clear I was 
making sure that we were frequently updating the regulators.
    That included finance and treasurer colleagues who were 
directly involved in the various--in those updates. As we now 
know, the CME was in our offices doing a review on Thursday and 
Friday. The regulators were in our offices through the weekend.
    There was every effort, at least in terms of myself and 
everybody I encountered, to be very transparent with the 
regulators.
    Dr. Hayworth. Ms. Serwinski, your absence--were you out of 
the United States when these things were occurring, just out of 
curiosity?
    Ms. Serwinski. No, I was not out of the United States.
    Dr. Hayworth. Okay. It certainly would seem to me that, 
again, if you were trying to stave off the inevitable. When 
someone knew, and someone had to know, Mr. Corzine at the very 
least knew, one assumes, that there was very, very bad news 
coming.
    Wouldn't it be in the company's best interest in terms of 
trying to salvage itself in a sale, that they keep as many of 
you ``siloed'' as possible, so to speak? It sounds as though 
there was a profound failure of communication within the 
company itself, that you guys don't know what happened, and 
that you are in this position now?
    Should the American consumer, should the American investor, 
should our farmers and ranchers be concerned that there are 
other firms like MF Global which operate in this same way?
    Does your experience with MF Global lead you to express any 
concern in that regard?
    Should we be worried, Mr. Steenkamp?
    Mr. Steenkamp. Ma'am, I think once we better know what 
actually happened, what went wrong, then I think we will be 
able to answer that question.
    Dr. Hayworth. Mr. Chairman, I yield back.
    Chairman Neugebauer. I thank the gentlewomen.
    And now, Mr. Renacci is recognized for 5 minutes.
    Mr. Renacci. Thank you, Mr. Chairman.
    Mr. Steenkamp, I am going to go back to internal controls, 
because we might not know the specifics, but would you agree--
you are a CPA, you worked for Pricewaterhouse. I am a CPA; I 
understand internal controls.
    You would admit that for this to occur, there had to be a 
breakdown in internal controls? You would have to admit that; 
correct? Yes or no? It is an important question, yes or no?
    Mr. Steenkamp. I--
    Mr. Renacci. And any time you have loss of money, you have 
a situation like this, there has to be a breakdown in internal 
controls; correct?
    Mr. Steenkamp. I don't disagree that something obviously 
went wrong.
    Mr. Renacci. And it would probably be internal controls, 
because internal controls is how you stop this from occurring, 
wouldn't you agree?
    Mr. Steenkamp. That could potentially have been what went 
wrong.
    Mr. Renacci. All right. I am going to go back to a follow-
up on some of the questions Ms. Waters asked, but 
Pricewaterhouse identified the management override of internal 
controls as a risk to MF Global in their audit work papers 
produced in 2011. Are you aware of that?
    Mr. Steenkamp. I can't specifically recall that.
    Mr. Renacci. You are the CFO of the company and you don't--
I actually have the work paper here that shows that they 
identified it. You are the CFO of the company and you were not 
aware that there was significant concern because of the 
override of internal controls, that your auditors had brought 
that to the attention of the company?
    Mr. Steenkamp. Sir, there are many discussions that are 
held on all the various controls. As you know, there are a 
hundred controls that operate in the firm, and so there are 
many discussions around them.
    Mr. Renacci. This is a significant one though.
    Mr. Steenkamp. Sir, we asked for any documents to be 
provided ahead of time for us to have a look. Unfortunately, we 
didn't get it and--
    Mr. Renacci. Let's keep going on, because again, your 
answers are going around in circles. And that is the problem I 
think most of my colleagues here are having.
    MF Global's chief executive officer, Jon Corzine, stated in 
his prepared testimony that he actively managed MF Global's 
European sovereign debt repurchased to a majority portfolio.
    Would this hands-on action by the CEO be some type of--
wouldn't it be something they were cautioning? Wasn't this what 
they were talking about?
    Mr. Steenkamp. Sir, again, I am not sure whether that was 
controls for MF Global Inc., or any other entity, or whether it 
was for the global that it was referring to. But you know, just 
as a general point, I would say that any actions of Mr. Corzine 
would still have to fall within the control framework that 
exists at the regulated entity.
    Mr. Renacci. If the internal controls say that he can do 
anything he wants and nobody can stop him, that is not a very 
good internal control. And I think when he was here and I asked 
him the question, the only person who could stop him is the 
board. He could override anybody except the board. Would you 
agree that was the case?
    Mr. Steenkamp. Sir, I have no memory of any comment like 
that off the top of my head. I--
    Mr. Renacci. He did testify to that. But I am saying, were 
you aware that he could make any decisions he wanted and the 
only person who could override it--it is an internal control 
feature. You are the CFO.
    Mr. Steenkamp. No, I--
    Mr. Renacci. It is shocking that you are sitting here--
    Mr. Steenkamp. I am not aware of a control such as that.
    Mr. Renacci. You are not aware of it? You are not--wait a 
minute, you are not aware of internal controls like that?
    Mr. Steenkamp. No, I am not aware of a control that said he 
could override any action, sir.
    Mr. Renacci. Would that be a breakdown in internal control, 
in your eyes as a CPA, and somebody who worked for 
Pricewaterhouse in a global firm, would that be a breakdown in 
internal control if the CEO could actually make decisions like 
that without anyone else overriding it?
    Mr. Steenkamp. If the CEO--
    Mr. Renacci. Forget it is MF Global, any other company.
    Mr. Steenkamp. If the CEO could just override any internal 
control, I agree with you. There could be mitigating controls 
in place further down, but that is the--
    Mr. Renacci. You answered the question ``yes,'' and then 
you started talking again. You did answer that it would be a 
problem in internal controls; correct?
    Mr. Steenkamp. If that is the control.
    Mr. Renacci. Right, I said it doesn't matter what company 
it is.
    On October 22nd, I e-mailed a credit rating agency, 
Moody's. You stated, MF Global's capital and liquidity has 
never been stronger and that MF Global is in its strongest 
position ever as a public entity.
    How could this be, when 1 week later, MF Global Inc.'s 
parent company filed for Chapter 11 bankruptcy?
    Mr. Steenkamp. Sir, that e-mail and that comment was made 
very early on Monday morning, the 24th. It reflected the 
capital and liquidity as of the end of Friday.
    Mr. Renacci. You are the CFO of this company. It is really 
shocking. I have been a business man my whole life. I would 
never be able to answer the questions they way you are 
answering them. You are the CFO.
    We are talking about liquidity, we are talking about the 
strong corporate position. And you are testifying a week before 
it that it is stronger than ever and it files for bankruptcy 1 
week later?
    Mr. Steenkamp. Sir, that comment was made before any of the 
downgrades that took place. It reflected a cash position off of 
two successful capital raises that we had completed in August 
with that cash still in hand. And it is--
    Mr. Renacci. This is in October, this is October 22nd. 
Again--
    Mr. Steenkamp. Correct.
    Mr. Renacci. --it amazes me, as the CFO of any company, 
that I would not know that we are in trouble, in the position 
you are in. I am sorry but, again, I am a business guy, I am a 
CPA. I have audited major global companies. I am totally 
shocked that you would sit here and say that you believed it 
was in the strongest position it could be a week before it 
filed bankruptcy.
    Mr. Steenkamp. Sir, that was prior to any downgrades; and 
conditions--
    Mr. Renacci. You should know prior to any downgrades, you 
are inside the company.
    I am running out of time. I am sorry.
    I yield back.
    Chairman Neugebauer. I thank the gentleman.
    And now, the gentleman from Texas, Mr. Canseco, is 
recognized for 5 minutes.
    Mr. Canseco. Thank you, Mr. Chairman.
    Ms. Ferber, hello.
    Let me back up a little bit and follow up on some questions 
that Mr. Fitzpatrick asked you, and this is regarding the 
October 28th JPMorgan request to MF Global to certify and 
confirm that funds being sent from MF Global to JPMorgan were 
not customer assets.
    How many iterations of these letters did you get?
    Ms. Ferber. Three.
    Mr. Canseco. Why?
    Ms. Ferber. When I was first asked to take a look at the 
certificate, I was also asked to call JPMorgan, understand what 
they were focused on, and try to, if appropriate, get them what 
they needed.
    In that first call with JPMorgan, they indicated that very 
specifically the two related transfers that they were focused 
on, and that is what they were seeking assurances on.
    As I tried to explain before, the certificate was 
extraordinarily broad and not something that any one individual 
could quickly sign. They could if they had time to make to make 
reasonable inquiry, if you know, potentially to look at that.
    Mr. Canseco. So it was your legal opinion that it was too 
broad and could not be signed. Did you discuss it with anybody 
else?
    Ms. Ferber. It was too broad to quickly address what they 
needed, and they were very clear that what they needed was 
relating to two transactions.
    Mr. Canseco. Okay. Did you speak to anybody about any of 
those letters?
    Ms. Ferber. I spoke to Edith O'Brien about the transfers 
that JPMorgan was focused on. She provided me with copies of 
the--actually the transaction reports on those two transfers. 
They matched what JPMorgan has described to me. And again, my 
very clear understanding was that if the compliance certificate 
was limited to those two transactions, those two transfers, she 
would be able to sign it.
    Mr. Canseco. Right. But did she have any--did she express 
to you any kind of concerns about whether she should sign it or 
not?
    Ms. Ferber. Not if it related to those two transfers.
    Mr. Canseco. Were there any other transfers that she was 
concerned about?
    Ms. Ferber. We did not discuss any others, because again, 
the compliance certificate asked somebody, one individual who 
was probably involved in some transfers, not others, to say 
that everything that has ever been done on those accounts from 
the beginning of time, to any time in the future, was in 
compliance. Again, the focus was that JPMorgan needed comfort 
right now, let's get them comfort on what they need, provided 
it is appropriate, and our main--
    Mr. Canseco. Did she ultimately sign any of those letters?
    Ms. Ferber. I understand that she did not.
    Mr. Canseco. She did not. And do you know why?
    Ms. Ferber. No, I don't.
    Mr. Canseco. You don't. Did you ever talk to Mr. Corzine 
about these letters?
    Ms. Ferber. Only when he initially asked me to take a look 
at it, and he may have that afternoon said, did you call 
JPMorgan yet? Something like that. But that was my only 
conversation about it.
    Mr. Canseco. Why would MF Global not be able to certify, as 
Ms. O'Brien did not, that the firm had not used customer funds 
on October 28th and it would not use them in the future?
    Ms. Ferber. Actually, first off, the certification is a bit 
broader than that. It was every transfer within compliance 
with, I believe, it was all CFTC rules.
    I certainly expect that we would be able to make that with 
time and that somebody would have to go back and make 
reasonable inquiry, and should be able to make that 
representation. Not one individual sitting there that day.
    Mr. Canseco. Pardon me for interrupting you, but aren't 
these forms that they sent out from JPMorgan or any other 
house, aren't those normal forms? Aren't those standard forms?
    Ms. Ferber. Not to my understanding. I had certainly never 
seen one before, broad like that. And certainly in my general 
legal experience, asking somebody to represent, make a 
representation today that everything they might do in the 
future is in accordance with certain rules is not something 
that is appropriate. You could say, I have procedures in place 
to reasonably assure they might be, or something.
    Mr. Canseco. Were you not concerned about their concern?
    Ms. Ferber. First, they did not express a concern. They 
said they saw these transactions, because of the size, 
whatever, and because of certain compliance procedures they had 
in place because of their own history or experience, that they 
were inquiring about those.
    I knew that person, Ms. O'Brien, is somebody for whom I had 
tremendous respect, and I knew that the futures industry 
generally had great respect for her. She is the person I would 
rely on generally with regard to Rule 125 in--and she is--
    Mr. Canseco. Don't run the clock on me, please. I have very 
little time here.
    So on Sunday, October 30th, you were copied on an internal 
MF Global e-mail at 4:27 p.m., in which one employee asked 
another whether it was permissible to send the CFTC a customer 
segregated funds statement that showed a $952 million 
deficiency. Why would MF Global employees hesitate to share 
such vital information with their regulator?
    Ms. Ferber. I am not aware that they would be hesitant. In 
fact, these regulate--remember, the CFTC was in our offices 
here in New York, CME was in the offices working with those 
people in Chicago.
    I think, if had said this is the calculation in these 
complex times and all, you would have some reasonable signoff, 
and let people know that.
    Mr. Canseco. Did you--
    Ms. Ferber. And I believe the signoff people said yes, send 
the report.
    Mr. Canseco. All right. So then you instructed employees to 
release the information to the CFTC?
    Ms. Ferber. I did not, but if I recall correctly and I did 
not review it here, but if I am recalling the e-mail you are 
referring to, I think you said I was copied on it, somebody 
else would usually respond yes, give it to them.
    Mr. Canseco. Okay. Let me, before I run out of time, Mr. 
Chairman, if I may have with Mr. Steenkamp, on what date did 
there begin to be a shortfall in customer segregated funds at 
MF Global?
    Mr. Steenkamp. Sir, I have no memory of knowing about any 
shortfall prior to the Sunday. On the Sunday, we found out that 
there was a shortfall, and originally we had heard that the 
shortfall was for the Friday, but that there might have been 
for the Thursday as well, although that might just have been an 
accounting error.
    And at the time we were finding out, it was just so 
unbelievable that there could be a shortfall that everyone was 
under the impression Sunday night that there was some 
accounting reconciliation that just wasn't working and that was 
causing it. And that is why, as you have heard in the 
testimonies, there was a big effort to work together to try and 
resolve that.
    Mr. Canseco. But you are ultimately aware, especially with 
the SIPA trustee, that the shortfall began on October the 26th; 
is that correct?
    Mr. Steenkamp. I don't work with the SIPA trustee, so I 
can't--
    Mr. Canseco. But you are aware of October 26th being the 
day of the shortfall?
    Mr. Steenkamp. I have been reading in the papers that it 
was the 26th.
    Mr. Canseco. You are aware of it? Are you aware, or are not 
aware of the 26th of October being the shortfall date?
    Mr. Steenkamp. I am aware of what I am reading.
    Mr. Canseco. From whatever source.
    Mr. Steenkamp. Yes.
    Mr. Canseco. Okay. The shortfall began on October 26th and 
grew until the company went bankrupt on the 31st. Is that 
correct?
    Mr. Steenkamp. I don't have that knowledge, sir.
    Mr. Canseco. My time is way over. I thank you.
    Chairman Neugebauer. I thank the gentleman.
    The gentleman from California, Mr. Royce, is recognized for 
5 minutes.
    Mr. Royce. Thank you, Mr. Chairman.
    Ms. Ferber, did you have the opportunity to speak to Gary 
Gensler prior to MFG declaring bankruptcy?
    Ms. Ferber. Yes.
    Mr. Royce. In your opinion, were his priorities protecting 
customer funds, or making sure the company was sold to inter-
dealer brokers?
    Ms. Ferber. My conversations with Mr. Gensler were related 
to two topics. He was very focused on the customer funds. And 
he, along with his colleagues, wanted an update on where we 
were in concluding the sale of the firm.
    Mr. Royce. Okay. Let me also ask you, to your knowledge was 
Mr. Corzine in contact with Mr. Gensler prior to MFG declaring 
bankruptcy?
    Ms. Ferber. I assume you are talking about in those last--
in those very last days?
    Mr. Royce. Prior to bankruptcy, right.
    Ms. Ferber. I am not aware if they had any discussions.
    Mr. Royce. So there wasn't any conversation Mr. Corzine had 
with you about his conversations with Mr. Gensler?
    Ms. Ferber. That is correct, to the best of my 
recollection. Mr. Gensler may have been--may or may not have 
been--I am not sure, on a call with a large number of 
regulators, being updated. There was a call at 2:00 on Saturday 
afternoon with many regulators. And I do not know whether Mr. 
Gensler was on that call.
    Mr. Royce. Let me ask you another question. If we go back 
to June of 2011, FINRA was concerned about MF Global's European 
debt exposure. And FINRA directed MF Global to increase its 
capital requirements. Did you agree with FINRA's directive on 
that score?
    Ms. Ferber. But just as to the timeframe, my understanding, 
and I was not involved in the early conversations. But over a 
period of time, probably starting in June or early July, FINRA 
had conversations as far as I know with the firm about their 
view of the appropriate capital treatment for some of our 
positions. And those conversations ultimately led to their 
determination, I believe, quite late in August of 2011 that a 
different capital treatment was appropriate.
    Mr. Royce. Then let me ask you this: Did Jon Corzine agree 
with it at the time? He apparently didn't, because he flew to 
D.C. to meet with the SEC to set them to overrule FINRA. 
Correct?
    Ms. Ferber. First, I should say that my accounting 
colleagues, our outside counsel, PricewaterhouseCoopers, all 
disagreed, to my knowledge, with FINRA's view on what the 
appropriate capital treatment was for these positions under the 
rules as they were written. And so yes, the firm did make a 
determination. And to some extent this certainly was a topic 
that was discussed with outside counsel that there should be a 
meeting directly with the SEC on something so important.
    Mr. Royce. Let me go to another question, which is 
interesting.
    Ms. Serwinski testified that she would not have approved 
the $173 million transfer on October 28th to cover MF Global's 
overdraft. Do you remember that? Do you find it interesting 
that MF Global blew past the same capital requirements that Jon 
Corzine lobbied for?
    Ms. Ferber. First, I think the--as I recall Ms. Serwinski's 
testimony, was basically certain unassumed facts. If there was 
a concern that it violated certain rules, then she would not 
have approved the transaction. So, that is that part.
    I am not sure that you said violated the same rules that 
Mr. Corzine lobbied against. I need a little help understanding 
the question, Mr. Royce. I am glad to address it.
    Mr. Royce. My time has expired--
    Ms. Ferber. Sorry.
    Mr. Royce. --but I want to thank you for your testimony 
here today. I appreciate it.
    Chairman Neugebauer. I thank the gentleman.
    We are going to just kind of have a little bit of follow-up 
here. But what I wanted to do, because I think we kind of 
danced around this issue a little bit--this is a glass of 
water. And I hope you can see that black line. Can you all see 
the black line there?
    Ms. Ferber. Yes.
    Mr. Steenkamp. Yes.
    Chairman Neugebauer. So, this is the segregated account. 
And so the segregated account, all of the water below the line, 
it belongs to the customers. And all the water above the line--
and so that is illegal for, and common practice for, the 
company to keep excess company funds in the segregated account. 
Is that correct? You would sometimes have company funds and 
customer money in the segregated account? Right?
    Ms. Serwinski. Yes.
    Chairman Neugebauer. This is not rocket science. And so 
this is the company's account. And so, this little black line 
here was what it would take to get the company back from being 
overdrawn. So, what the only way that customers lose money is 
when you pour--you take some of the company's money out. And as 
long as you are at the line, you are in compliance. Is that 
correct?
    Ms. Ferber. Yes.
    Ms. Serwinski. Yes.
    Chairman Neugebauer. When you do this, though, are you in 
compliance?
    Ms. Ferber. No.
    Chairman Neugebauer. No. So the only way customers can lose 
money is when you take their money and you put it in the 
company's or somewhere else. Is that right? Because you 
weren't--and what you are supposed to do is if you take money 
out and borrow it, you are supposed to securitize it. So 
theoretically, if this does not have water in it, it has 
collateral in it. Is that correct?
    Ms. Serwinski. Yes.
    Chairman Neugebauer. Okay. So, now we have that clear. 
Everybody understands that money was lost because money was 
taken out of that segregated account that belonged to farmers 
and ranchers and investors, right? Does anybody disagree with 
that? Because that is the only way you can do that. How else 
does the money get out if you don't take it out? This is not 
rocket science, folks--
    Ms. Ferber. Based on what I know--
    Chairman Neugebauer. Can you show me, Mr. Steenkamp, can 
you tell me another way where customers would lose their money, 
other than the money being taken out?
    Mr. Steenkamp. They could. The only other way is they could 
be losing money on their trades, if they are making losses.
    Chairman Neugebauer. There might be losses but the 
customer's account would go down proportionately.
    Mr. Steenkamp. Correct. Absolutely.
    Chairman Neugebauer. So, Mr. Steenkamp, I want to go back 
to something that is kind--and I know we are all perplexed 
there. Are you familiar with a Mr. Roseman and a Mr. Stockman?
    Mr. Steenkamp. Yes. They were the chief risk officers of 
the firm.
    Chairman Neugebauer. And were you aware that they made--
both of them made recommendations that the repo-to-maturities 
in the foreign sovereign debt were a potential risk to the 
company? Were you aware of that?
    Mr. Steenkamp. Sir, I only became CFO in April. So, what I 
was aware was that there were numerous and many discussions 
between the board and Mr. Corzine and the chief risk officer in 
the board meetings around risk limits and risk parameters.
    Chairman Neugebauer. Are you aware of a document called 
``Break the Glass'' that was put together by your firm?
    Mr. Steenkamp. I am, sir.
    Chairman Neugebauer. Who prepared that document?
    Mr. Steenkamp. There was a working group put together in 
the firm to--
    Chairman Neugebauer. And who was in that working group 
then?
    Mr. Steenkamp. There were members of treasury, members of 
finance, members of risk, treasury operations. Because that was 
like a scenario, straight scenario analysis-type document. And 
so, it required the input--
    Chairman Neugebauer. Did you participate in that?
    Mr. Steenkamp. I did, yes.
    Chairman Neugebauer. When did you put that document 
together?
    Mr. Steenkamp. The original request for the document was 
made in August, I believe, by the board.
    Chairman Neugebauer. And it was completed when?
    Mr. Steenkamp. It was presented to the board sometime 
around the middle of October.
    Chairman Neugebauer. Isn't it kind of ironic that you put 
together a ``Break-the-Glass'' scenario and you finish it 14 
days before you declare bankruptcy?
    Mr. Steenkamp. Sir, it is very prudent and common to have a 
document like this. I think all firms do it. And the initiation 
of it was many months prior.
    Chairman Neugebauer. Do you disagree with any analogy that 
I made here that the only way that the customers would have 
lost money is if people took money out of that account and 
didn't put it back? Yes or no?
    Mr. Steenkamp. Except for the example I made--
    Chairman Neugebauer. No, just yes or no. We are not going 
to ``except.'' The only way customers lose money other than if 
they lose money on their positions, but it is their money. But 
if you net out their positions, the only way that the customers 
lost over a billion dollars is if somebody took more than money 
out than they were supposed to. Yes or no? Yes or no?
    Mr. Steenkamp. That appears reasonable, sir.
    Chairman Neugebauer. Yes or no?
    Mr. Steenkamp. Sir, I am not an expert enough on that--
    Chairman Neugebauer. Yes--
    Mr. Steenkamp. --to be able to know whether there are other 
ways in which--
    Chairman Neugebauer. I am not talking about what happened. 
I just want to truly get some definitive answer here. Under the 
way that the law operates, the only way someone can lose money 
is--from a customer, other than his net position, is that money 
is taken out of an account that shouldn't have been taken out. 
Yes or no?
    Mr. Steenkamp. Sir, I guess what I am saying is I don't 
have enough knowledge to be able to answer that.
    Chairman Neugebauer. I am appalled that you can't answer a 
simple question like that. I think you are not being honest 
with this panel.
    Ms. Serwinski, do you agree with the analogy that the only 
way that customers, net of their positions, lose money is if 
people take money out of the account and do not put it back?
    Ms. Serwinski. There is a permissible secured--a secured 
calculation.
    Chairman Neugebauer. But it had to be--there would be 
collateral in that other--
    Ms. Serwinski. The secured calculation rules allow and 
permit if a client gave the firm $100, under the secured rule 
there is an alternative method available that does require--can 
require--less than that $100 be required to be maintained in 
the secured environment.
    Chairman Neugebauer. But if we--I am not talking about 
security, but I am just talking about if this was the money 
that belonged to customers, and you poured it all out, that is 
the way you lose money, right?
    Ms. Serwinski. I am--if--yes. Yes.
    Chairman Neugebauer. Okay. Thank you.
    Ms. Ferber--
    Ms. Ferber. I think that is correct.
    Chairman Neugebauer. This is where you lose money for 
customers, right? If you took money out that shouldn't have 
been taken out?
    Ms. Ferber. With the exception of what Ms. Serwinski 
described, yes, you still have an obligation to return customer 
funds, be able to return customer funds. I would agree with 
you, yes.
    Chairman Neugebauer. Exactly. And so what happened on--when 
they declared bankruptcy was--nobody put the money back, did 
they?
    Ms. Ferber. Not to my knowledge.
    Chairman Neugebauer. Yes.
    Are there any other Members who want to follow up with this 
panel?
    Mr. Pearce, yes?
    Mr. Pearce. Mr. Steenkamp, I am sorry. I was looking 
through my papers and I don't find your resume. Where did you 
get your education?
    Mr. Steenkamp. I am from South Africa, so I did my graduate 
degree and post-graduate degree in accounting in Johannesburg.
    Mr. Pearce. Accounting?
    Mr. Steenkamp. Correct.
    Mr. Pearce. What kind of a grade point average did you 
graduate with, just more or less?
    Mr. Steenkamp. It works differently in South Africa. It is 
percentages. So I probably had an average was around 78 
percent, somewhere there.
    Mr. Pearce. How many hours of accounting did you have?
    Mr. Steenkamp. I don't know off the top of my head in 
hours. It is 4 years: 3 years, graduate; and 1-year, post-
graduate. And then, you are at your CPA equivalent to C.A..
    Mr. Pearce. All right. I am just trying to establish that 
you do remember things in the past, but you don't remember some 
really, really, really, really big significant things from less 
than 6 months ago.
    I am just trying to bring that to the attention of the 
public, who is watching today, because they are wondering who 
is in charge of all these companies up here.
    Ms. Serwinski, when we have an overage, when we have taken, 
we have dipped into those segregated funds like the water 
poured out of that glass and it is not secured, do you have 
to--was there a requirement to notify someone?
    Ms. Serwinski. Yes, there is a report--
    Mr. Pearce. Who would have to be notified?
    Ms. Serwinski. The regulators would all have to be 
notified, and we did--
    Mr. Pearce. Nobody inside the institution?
    Ms. Serwinski. They would be notified, but it is not--the 
regulatory requirement is that you report--
    Mr. Pearce. But you didn't have an internal process that 
would say, ooh, we just kind of messed up here. Let's see that 
we don't do it again.
    And the treasurer or the assistant treasurer, I think is 
who we ascertained earlier could have made those calls. So you 
have a couple of people and maybe they have authorized the 
dipping into those funds out of that little paper and out of 
that little plastic glass.
    And so, who would they have to notify that, who had just 
poured the funds out here?
    Ms. Serwinski. There would have been a process whereby the 
situation would have been escalated to, at the very least, our 
SOX committee to rectify whatever contributing factors existed 
that led to--
    Mr. Pearce. So there was somebody notified?
    Ms. Serwinski. Yes.
    Mr. Pearce. Yes, so you had a process.
    Ms. Serwinski. You are right, you are--
    Mr. Pearce. You had a process. Okay. So we know--
    Ms. Serwinski. --required, yes.
    Mr. Pearce. So we dipped into those funds and we are 
supposed to securitize them and we are supposed to return them 
by the end of the day or something and supposed to balance all 
the accounts and all that jazz.
    And we didn't do that. And so, at what level does it--did 
you ever discuss at what level it should go to Mr. Steenkamp? 
These guys are the umbrella, and so if we are doing things that 
take people's money away from them without losing it, if you 
lose it fair and square, that is fine.
    But if the shepherd takes the wool off the sheep and sells 
it on the side, so at what level did you--should you--have 
notified, should have--not you, because you are out and I 
understand.
    And at what level should Mr. Steenkamp have been notified, 
or maybe Ms. Ferber, because now we are dealing with issues 
that somebody is going have to answer some questions for 
someday.
    Surely you all have discussed that. Is there a level?
    Ms. Serwinski. Once the numbers were confirmed to be a true 
deficit, I believe they were informed.
    Mr. Pearce. I am sorry. Say it again.
    Ms. Serwinski. Once it was confirmed that the $900 million 
was a true and factual shortfall--
    Mr. Pearce. Was $900 million the threshold, or would $100 
million--
    Ms. Serwinski. No. One dollar would have been the 
threshold, sir.
    Mr. Pearce. Now, so you got back on Thursday and nobody had 
been notifying anybody and everybody just said okay. Mr. 
Steenkamp saying in his testimony I don't--that wasn't my deal. 
I wasn't really concerned. I don't much care if they were doing 
that.
    But what was the--surely there was some sequence that 
somebody was supposed to say the place is on fire.
    Ms. Ferber, you didn't--you were saying that it never rose 
to your attention, that it was not really your concern. At what 
point would you be concerned with missing customer accounts?
    Ms. Ferber. I would be concerned with any missing customer 
funds. I--
    Mr. Pearce. Okay. So if she found that on Wednesday--she 
says that we have dipped in and maybe you don't have it 
collateralized and that was on Wednesday or Thursday.
    Wednesday or Thursday it really became evident.
    Ms. Serwinski. Excuse me, sir--
    Ms. Ferber. Yes.
    Ms. Serwinski. --I don't believe I said that. The firm was 
in regulatory compliance to the best of my knowledge on 
Wednesday.
    Mr. Pearce. So you are saying that we did it all on 
Saturday night? We did it all on Saturday? You are saying there 
was no build-up over time?
    Ms. Serwinski. No, what I am saying, sir, is that the firm 
was in regulatory compliance with the excess segregated and 
secured rules until I was aware on Sunday night that we were 
not in compliance on Friday, close of business Friday.
    Mr. Pearce. So you think that entire billion went in one 
day? Okay.
    Thanks, Mr. Chairman. I yield back.
    Chairman Neugebauer. Thank you.
    Any other Members? All right.
    Mr. Posey, you will be the last one.
    Mr. Posey. Thank you, Mr. Chairman.
    Ms. Ferber, I appreciate you actually trying to help us 
unravel some of this. You are the only one who has answered 
questions beyond a yes or a no, or I don't know, mostly I don't 
knows. And we do appreciate that, your willingness to do more 
than dodge questions.
    Mr. Steenkamp, is it correct that your work now consists 
primarily of making assets available for trustee-free?
    Mr. Steenkamp. Yes, one of the top priorities--
    Mr. Posey. Okay. The answer is yes.
    Are the assets you recover for the benefit of customers?
    Mr. Steenkamp. Sir, I am not an expert in bankruptcy. I 
don't know how the--
    Mr. Posey. Okay.
    Mr. Steenkamp. I don't know--
    Mr. Posey. Or, do they go to the creditors and MFG 
Holdings?
    Mr. Steenkamp. Sir--
    Mr. Posey. You don't know that either.
    Mr. Steenkamp. I am just--
    Mr. Posey. Okay. So you wouldn't know if any of the assets 
he pays out would reduce the potential pool of assets available 
to pay back customers?
    Mr. Steenkamp. Sir, that is for the trustee to determine if 
the assets are eligible--
    Mr. Posey. You don't know that? You have no idea? You 
absolutely have no idea?
    Mr. Steenkamp. Sir, I--
    Mr. Posey. Under oath, you have no idea what I am talking 
about?
    Mr. Steenkamp. No, sir, I believe the Chapter 11 trustee 
obviously of--is of the holding company, so he works with the 
creditors.
    But I am not sure how that process works around allocating 
out assets amongst the firms and paying--
    Mr. Posey. Did Mr. Freeh recently propose paying you, and 
others like Mr. Abelow, substantial bonuses for helping recover 
assets?
    Mr. Steenkamp. Sir, there had been one discussion, but no 
bonuses have been proposed as of yet. It was being finalized.
    Mr. Posey. Do you believe you deserve a bonus?
    Mr. Steenkamp. Sir, I believe for all the hard work that we 
are doing, we are just asking to be fairly compensated. We are 
not part of the discussions on whether that includes bonuses or 
not.
    Mr. Posey. Yes, fairly compensated in the future, but not 
de-compensated for the humongous losses that you might have 
been culpable in.
    Will you accept bonuses if the motion is approved by the 
bankruptcy court?
    Mr. Steenkamp. Sir, if the trustee determines that is fair 
and reasonable compensation.
    Mr. Posey. Because you told us how brokenhearted you are 
over the losses suffered by these investors?
    How do you think the customers will feel about the idea of 
using money that could potentially be used to reimburse them 
for the money stolen from their segregated accounts underneath 
the watch of you and others, to pay for the bonuses and legal 
fees of the very people who were running the company that 
looted the accounts?
    Mr. Steenkamp. Sir, I am sure the customers want all their 
money returned.
    Mr. Posey. Are you familiar with the principle called 
``willful blindness?''
    It is a term used when an individual seeks to avoid similar 
criminal liability for a wrongful act by intentionally putting 
himself in a position where he claims to be unaware of facts 
which would render him liable.
    Mr. Steenkamp. I am not specifically aware of that, no.
    Mr. Posey. Okay. Do you have any idea whether that applies 
in this case or not?
    Mr. Steenkamp. I would assume if one takes the Fifth, for 
example, that is something one is concerned about.
    Mr. Posey. Okay.
    Ms. Ferber, who was involved in the decision to put MF 
Global Inc. into SIPA liquidation?
    Ms. Ferber. First just let me say, we had bankruptcies--
    Mr. Posey. All right. Let me make it shorter. Anyone from 
the SEC, the CFTC, or representing creditors or trading 
counterparts?
    Ms. Ferber. The SEC would have been involved only--one 
cannot file themselves under SIPA. I believe it is the SEC that 
has to make that application or do that.
    I also--obviously there was a period of time overnight 
where the regulators were deep in conversations among 
themselves.
    Mr. Posey. Was Mr. Cook with the SEC involved?
    Ms. Ferber. He was certainly one of the people who 
organized the conference call where we asked to notify the 
regulators--
    Mr. Posey. Okay.
    Ms. Ferber. --early in the morning on the 31st.
    Mr. Posey. Who was involved in placing MFGH, the holding 
company, in Chapter 11, allowing the assets to flow to 
creditors and counterparties?
    Ms. Ferber. The board made the determination that the 
company would file for bankruptcy.
    Mr. Posey. Okay, the board and particularly, anyone in 
particular on the board?
    Ms. Ferber. No, the board of directors.
    Mr. Posey. Okay.
    I yield back.
    Chairman Neugebauer. I thank the gentleman.
    And I thank this panel. At this time, you are dismissed, 
and we will call up the second panel. Thank you for coming.
    I want to welcome the second panel: Ms. Diane Genova, 
deputy general counsel, JPMorgan Chase & Company; Mr. Daniel 
Roth, president and chief executive officer of the National 
Futures Association; and Ms. Susan Cosper, technical director 
and chairman, Emerging Issues Task Force, Financial Accounting 
Standard Boards.
    I would remind each of you that your written statements 
will be made a part of the record and we would ask you to 
summarize your testimony in 5 minutes.
    Ms. Genova, you are now recognized.

  STATEMENT OF DIANE GENOVA, DEPUTY GENERAL COUNSEL, JPMORGAN 
                          CHASE & CO.

    Ms. Genova. Thank you.
    Chairman Neugebauer, Ranking Member Capuano, and members of 
the subcommittee, my name is Diane Genova. I am the deputy 
general counsel for the investment bank of JPMorgan Chase. As 
such, I was one of the JPMorgan officials dealing with MF 
Global over the weekend before it filed for bankruptcy 
protection on October 31, 2011.
    I appreciate the opportunity to appear before the 
subcommittee to describe those events and I would also like to 
thank Chairman Bachus for noting JPMorgan's cooperation in 
appearing before this committee.
    As I will describe in more detail, JPMorgan professionals 
worked through the week of October 24th to accomplish two main 
goals: first, to provide first-rate operational clearing and 
settlement support and services to MF Global; and second, to 
make sure that we did not wind up in a position where we had 
extended credit to MF Global without proper collateral and 
security protections.
    To understand what we were trying to accomplish, let me 
describe briefly the banking services that JPMorgan, along with 
other financial institutions, provided to MF Global. These are 
fairly standard services that clearing banks typically provide 
to support the day-to-day broker/dealer and futures commission 
merchant operations of firms like MF Global.
    First, MF Global maintained a large number of cash demand 
deposit accounts, much like a retail checking account, at 
JPMorgan, as well as other banks.
    Second, MF Global used JPMorgan, as well as Bank of New 
York Mellon, and other banks for clearing services.
    Third, JPMorgan served as the administrative agent for two 
committed revolving credit facilities, one consisting of 22 
banks and one consisting of 10 banks that MF Global had put in 
place.
    Finally, MF Global had entered into securities lending and 
repurchase arrangements with JPMorgan. These arrangements 
served as a financing tool for MF Global.
    As noted in my written statement, we worked hard to assist 
MF Global, our client, when it began experiencing problems. 
These efforts, which would in turn benefit MF Global's 
customers, included several actions.
    We sent a JPMorgan team to MF Global's offices on Friday, 
October 28th, to assist MF Global with its ongoing efforts to 
unwind its securities lending arrangements. By doing so, MF 
Global was able to regain access to the securities it had 
posted as collateral and then sell those securities to generate 
additional liquidity.
    JPMorgan also facilitated an auction of a portfolio of $4.9 
billion of securities held by MF Global involving multiple 
market participants. This was another way to assist MF Global 
in its ongoing efforts to generate liquidity.
    We also agreed to provide same-day liquidity for the 
auction sales where JPMorgan was acting as agent for MF Global 
with respect to securities custodied with JPMorgan. This 
measure provided MF Global with liquidity on the fastest 
possible basis, far faster than the typical one to two business 
days for regular way settlement for such securities trades.
    Since the bankruptcy, JPMorgan has engaged with committee 
staff to assist the subcommittee in its examination. Among 
other items, we have shared our perspective on the events 
surrounding overdrafts that MF Global had in accounts with 
JPMorgan in London, and the questions we asked MF Global to 
make sure that customer segregated funds were not used to 
satisfy those overdrafts.
    In my written submission, I explained the principal points 
of contact between MF Global and JPMorgan. I also discuss the 
circumstances on Friday the 28th that caused us to ask MF 
Global to confirm in writing that they were in compliance with 
their customer segregation obligations.
    Briefly, I took the lead in reaching out to Laurie Ferber, 
MF Global's general counsel, and Dennis Klejna, MF Global's 
deputy general counsel, and I received assurances from both of 
them that MF Global understood the customer segregation rules 
and had complied with them.
    Over the course of our conversations, we discussed the 
contents of a letter that we had requested to confirm MF 
Global's compliance with customer segregation rules.
    As you heard Ms. Ferber testify earlier today, she and her 
deputy, Mr. Klejna, raised concerns about the scope of our 
proposed letter. We narrowed the letter as they requested. And 
as Ms. Ferber also confirmed earlier during this hearing, we 
were told the narrowed version of the letter would be signed.
    Although the letter ultimately was not signed that weekend 
before MF Global filed for bankruptcy, we believed we had been 
given clear and credible assurances that the transfers were 
lawful.
    I would like to thank the committee for the opportunity to 
share with you our perspective on this matter, and I am happy 
to answer any questions you may have.
    [The prepared statement of Ms. Genova can be found on page 
89 of the appendix.]
    Chairman Neugebauer. Thank you.
    Mr. Roth, you are recognized.

  STATEMENT OF DANIEL J. ROTH, PRESIDENT AND CHIEF EXECUTIVE 
        OFFICER, THE NATIONAL FUTURES ASSOCIATION (NFA)

    Mr. Roth. Thank you, Mr. Chairman.
    My name is Dan Roth and I am the president of the National 
Futures Association.
    For the longest time, for decades and decades, the futures 
industry had an impeccable reputation and a well-earned 
reputation for financial integrity. Obviously, the events 
surrounding MF Global have dealt a blow to that reputation and 
I think all of us involved in the regulatory process need to be 
thinking about the types of regulatory changes that we can make 
to try to prevent this kind of an occurrence from ever 
happening again.
    At NFA, when we considered the changes that we might 
implement, they fell into three basic categories. There were 
certain changes which we felt we could accomplish only in 
coordination with other self-regulatory organizations. There 
are other changes that we thought we could implement just 
through NFA rulemaking. And there is a third category of 
changes that we think would require either congressional or 
CFTC action.
    And what I would like to do today is just sort of describe 
for you where we are in each of those three categories and what 
our initial recommendations have been.
    With respect to the issues involving coordination with 
other self-regulatory bodies, those issues involve how we 
monitor firms for compliance with segregation requirements, and 
coordination with the other SRO's is very, very to us critical 
here.
    All FCM's are required to be members of NFA, but we are the 
designated self-regulatory organization only for those FCM's 
that are not members of the exchanges. So it is very important 
for us to work with the exchanges to try to develop these 
changes.
    With that in mind, back in December the Chicago Mercantile 
Exchange and NFA jointly announced the formation of an SRO 
committee. The other participants included the exchange members 
of NFA, the Kansas City Board of Trade, the Intercontinental 
Exchange, and the Minneapolis Grain Exchange.
    That group has been meeting for the last several months. We 
have taken a look at what we do and how we do it and how we can 
do it better. And we have developed some initial 
recommendations. We reviewed those recommendation with other 
committees at NFA, including members of the FCM community and 
our public directors, and we just several weeks ago announced 
four initial recommendations. And these are just initial 
recommendations. There is more work to be done.
    But those four basically are, number one, to require all 
FCM's to submit daily segregation reports with their designated 
self-regulatory organization. Right now, that obligation 
extends only to those FCM's that are members for which NFA is 
the DSRO. We want to extend that to all FCM's.
    In our experience that will be a very useful risk 
management tool, because you can see not just where the firm is 
on a given day, but you can spot trends, you can spot 
fluctuations, you can spot things that seem unusual and that 
catch your attention and that will prompt further action.
    The second change that we are recommending has to do with 
what we call a segregation investment detail report. Currently, 
we get these reports on a monthly basis from those FCM's for 
which we are the DSRO.
    These reports show how customer funds are being invested 
and where those investments are being held. We want to take 
that requirement, and again, it extends to all FCM's, and move 
those reports from a monthly to a bi-monthly basis.
    The third thing we want to do is perform more periodic spot 
checks for FCM compliance with segregation requirements. Each 
FCM is audited twice a year: once by its DSRO; and once by its 
outside accounting firm. We want to supplement those 
examinations, which go into great detail testing for 
segregation compliance, with periodic surprise visits to 
monitor compliance with various components with the segregation 
regime.
    The fourth rule that we are proposing has to do with 
accountability. We want to make sure that if a firm is drawing 
down its excess segregated funds, that if a firm is making in 
any given day, draws down its excess seg by 25 percent, then 
two things have to happen: number one, a principal of the firm, 
such as the CEO or the CFO, has to sign off on those 
disbursements that are drawing down the segregated funds; and 
number two, there has to be immediate notification to the 
regulators.
    That will not only improve accountability and also give 
regulators important notification about potential problems to 
which they can react, it will also capture intraday 
transactions. The daily segregation reports that we get now 
just reflect the firm's status as of the close of the previous 
day. It does not--if a firm were to wire funds out of 
segregation during the day and wire them back in by the end of 
the day, that will not be captured in the daily segregation 
reports. They would be captured under this rule.
    Those are the four initial recommendations of the SRO 
group. Let me mention that we also have a special committee of 
our public directors that is looking at other issues. One of 
those is FCM disclosures. We want to make it easier for 
customers, especially small customers, to do due diligence on 
their FCM's.
    We are trying to identify that information which would be 
most meaningful to customers without overwhelming them. We 
want--it is information like the firm's capital requirement in 
its excess capital, it is segregation requirement and it is 
seg. Maybe the amount of leverage the firm employees, whether 
it allows trading as a principal that is not hedge trading. We 
want to identify those pieces of information and then require 
FCM's to disclose that information to NFA so that NFA will then 
put it on its Web site and make it available for customers to 
try to make it easier for them to do their due diligence.
    Let me emphasize again that these are our initial 
recommendations. Both our special committee and the SRO 
committee continue to work. There are other issues we want to 
look at, including possible changes to the Bankruptcy Code, and 
we look forward to working with the industry and the Commission 
and Congress to try to develop the regulatory changes that are 
needed.
    Thank you.
    [The prepared statement of Mr. Roth can be found on page 98 
of the appendix.]
    Chairman Neugebauer. Thank you.
    Ms. Cosper, you are recognized for 5 minutes.

  STATEMENT OF SUSAN M. COSPER, TECHNICAL DIRECTOR, FINANCIAL 
               ACCOUNTING STANDARDS BOARD (FASB)

    Ms. Cosper. Chairman Neugebauer, Ranking Minority Member 
Capuano, and members of the subcommittee, my name is Susan 
Cosper and I am the technical director of the Financial 
Accounting Standards Board, also known as the FASB. I oversee 
the staff work associated with the projects and the Board's 
technical agenda. I would like to thank you for this 
opportunity to participate in today's important hearing.
    I understand the subcommittee would like me to explain the 
current accounting and reporting standards related to 
repurchase agreements. I will do my best to do so, but first, I 
would like to give you a brief overview of the FASB and the 
manner in which accounting standards are developed.
    The FASB is an independent private sector organization 
which operates under the oversight of the Financial Accounting 
Foundation and the Securities and Exchange Commission. Since 
1973, the FASB has established standards of financial 
accounting and reporting for public and private entities and 
not-for-profit organizations. Those standards are recognized as 
authoritative, Generally Accepted Accounting Principles, or 
GAAP, by the SEC for public companies and by the American 
Institute of Certified Public Accountants for other 
nongovernmental entities.
    An independent standard-setting process is the best means 
of ensuring high quality accounting standards, since it relies 
on the collective judgment and input of all interested parties 
through a thorough, open, and deliberative process. The FASB 
sets accounting standards through processes that are open, 
afford due process to all interested parties, and allow for 
extensive input from all stakeholders.
    It is important to note that although FASB sets the 
accounting standards, it does not enforce them. The SEC has the 
ultimate authority to analyze whether public companies have 
complied with accounting standards. The PCAOB is charged with 
ensuring that auditors of public companies have performed an 
audit in accordance with auditing standards.
    Let me try now to explain how repurchase agreements work 
and how they are treated under current accounting standards. In 
a typical repurchase agreement, a company, also known as a 
transferor, transfers securities to a counterparty, the 
transferee, in exchange for cash with a simultaneous agreement 
to the counterparty to return the same or equivalent securities 
for a fixed price at a future date.
    The price paid by the transferor includes an interest rate, 
which is like a lending rate for secured borrowing. The 
motivation for entities to use repurchase agreements is 
generally finance related: the desire to borrow or lend cash.
    Current accounting guidance results in most repurchase 
agreements being accounted for as secured borrowings. The 
accounting guidance is based on the concept that the transferor 
maintains effective control of the security under most 
repurchase agreements, since the transfer is temporary and 
because the transferor has to repurchase the asset before its 
maturity.
    Another type of repurchase agreement, a repo-to-maturity, 
is accounted for as a sale with a separate agreement to 
repurchase the security. In these transactions, the transferor 
never actually gets back the transfer security. Because the 
repurchase date is the same as the securities maturity date, 
the counterparty instead redeems the security and the 
transferor simply pays the transferee the difference between 
the proceeds received by the transferee and the redemption in 
the agreed-upon repurchase price.
    In this transaction, the transferor does not have effective 
control over the transfer security. I understand that a 
specific question is how a loss in value in the underlying 
security would be accounted for if the repurchase agreement is 
considered a secured borrowing or sale?
    In a transfer of the securities that is accounted for as a 
secured borrowing, the transferor recognizes the cash as 
proceeds of the transaction, together with the liability for 
the obligation to return the cash to the transferee. The 
security remains as an asset on the transferor's balance sheet, 
and declines in the value of the security would reduce a 
company's overall net worth.
    In a repo-to-maturity, the transactions are accounted for 
by the transferees of sales of securities, cash is increased, 
the security is removed from the balance sheet, and a gain or 
loss is recognized. A forward repurchase commitment, a 
derivative, is also recognized in the financial statements. 
Since the transferor maintains the credit risk associated with 
the securities it transferred, any reduction in the value of 
the security after the inception of the agreement is accounted 
for as a liability, which reduces the company's overall net 
worth.
    Finally, whether the transaction is a repo or a repo-to-
maturity, companies are required under GAAP to make extensive 
disclosures about assets that have been transferred, including 
both quantitative and qualitative information about the 
transferor's continuing involvement, the risk that the 
transferor continues to be exposed to, including credit and 
liquidity risk, the amount to be recognized, and gains or 
losses on transferred assets.
    Thank you again. And I would be pleased to answer any 
questions about the standards.
    [The prepared statement of Ms. Cosper can be found on page 
61 of the appendix.]
    Chairman Neugebauer. Thank you very much.
    I now recognize Mr. Capuano for 5 minutes.
    Mr. Capuano. Thank you, Mr. Chairman. I appreciate the 
opportunity.
    Again, thank you all for coming today. And I actually find 
this panel a little more technical, and hopefully more 
enlightening. We will find out.
    I guess I want to start out by making clear what I think 
our role is, or where I am at the moment, based on the hearings 
we had and research I have done. If there was criminal activity 
at MF Global, I just don't think that is Congress' role to 
investigate criminal activity. Expose it, but then let the 
people who do a better job at it, do it. And if that is the 
case, so be it. But of course at the moment, I am not aware 
that anybody knows that or doesn't know that.
    But so far, there have been two issues, and I think this 
panel actually relates to both; two issues that have really 
come to my attention that raise serious questions: the so-
called segregated accounts; and some of the FASB rules.
    Again, I want to distinguish the FASB rules from the way 
they--if they might have been used improperly. That would be an 
inappropriate use of it. But the rules, even if they were 
applied properly, still raise questions to me.
    I guess I would like to start with the FASB rules. To me, 
it is mostly a statement 140. But reading your statement, there 
are other ways to refer to it, 860 and whatever the number is. 
It is basically the rule that says a repo is booked as a sale. 
And that has been reported in the media, whether it is 
appropriate or not.
    It is appropriate to the layman, not necessarily to the 
technician. But that effectively takes it off the books. And it 
makes it look--it makes the company look like it is healthier 
than it really is, in any normal sense of the word, because in 
my definition, even reading the FASB rules, it is not a sale. 
They still have control over it. They are still getting it 
back. And I understand that is a reasonable difference of 
opinion.
    But I wanted to make sure that--or not make sure. First of 
all, I wanted to ask Ms. Cosper, is FASB reviewing the current 
standards? Not necessarily as it relates to MF Global. I 
understand that is not your function. That is PCAOB's and 
others' function. But at least having--now knowing where we 
are, being here today, knowing that this rule has had something 
to do with the concerns here, and knowing it is subject to 
debate as to how it should be interpreted. I need to know 
whether FASB is reviewing whether this rule is an appropriate 
rule moving forward, in order to provide the true transparency 
and the consistent application of whatever rule you come up 
with. Because thus far, I think this rule is applied 
inconsistently. Not necessarily intentionally, but just because 
it is a difficult rule with lots of subsets.
    So I guess I wanted to hear from you as to whether FASB is 
reviewing the current rules as you have them. Again, not even 
giving away what you may or may not do. But at least I need to 
know whether you are reviewing them with a thought of possibly 
addressing them at some point.
    Ms. Cosper. Thank you. FASB strives to continue to improve 
our accounting standards. And once we became aware that there 
were concerns with respect to repo-to-maturities and repurchase 
agreements in general, we actually undertook an effort to 
understand what concerns were in the marketplace.
    We have performed an extensive amount of outreach to 
practitioners, to users, to understand what the concerns may 
be. That outreach did not identify that there were application 
issues associated with the rule or perhaps diversity in 
practice. However, users have advised us that they have 
concerns because of the market practices that have changed 
since the rule was originally put into place.
    That is, originally, repo-to-maturities, the securities 
that were generally transferred, were high-quality treasuries. 
And it has come to our attention that companies are now using 
riskier securities. So, taking that information, we discussed 
that with the Board. The Board has added a project to its 
agenda to revisit those rules and to understand whether there 
are changes that need to be made, and/or enhanced disclosures 
that need to be made.
    Mr. Capuano. In the normal course of events, when you 
individually--I know it is not the first rule you have made. I 
know it is an ongoing process. Just that is what we do with 
laws you are doing with accounting rules. In the normal course 
of events, what would you expect? I will not hold you to it. 
Just give me a ballpark idea how long you think it might take 
for FASB to conclude its review of this and decide whether to 
amend it or not to amend it. How long do you think that might 
take?
    Ms. Cosper. We expect to start discussing the changes that 
we make next month. And we expect to issue a standard by the 
end of the year.
    Mr. Capuano. By the end of the year? Okay. Thank you. I 
appreciate it.
    Ms. Genova, just out of curiosity, if I had some money that 
I was holding with you, would you let Chairman Neugebauer pick 
up the phone to you and say, hey, I want to use Mike's money 
for a day or two and I will pay it back tomorrow. Would you let 
him do that? I know he is a nice guy and I trust him. But would 
you let him do that?
    Ms. Genova. I am not sure what the context is, but it 
doesn't sound like I would.
    Mr. Capuano. Good. I guess I feel better that you wouldn't, 
because I am not aware that any financial institution in the 
world would let that happen in any legal capacity. Yet, we have 
commingled funds. It is kind of funny. It is a classic.
    I actually think they ought to be in politics, whoever came 
up with this term. They are commingled funds, yet they are 
called ``segregated accounts.'' It is the opposite of 
segregated. It is commingled. And under that responsibility, 
from everything that I read, how could you possibly know whose 
money is whose in a commingled account?
    Ms. Genova. The obligation to keep a minimum of client 
money in the account belongs to the FCM. So, it is the FCM that 
has the obligation to figure out what money is theirs and what 
money belongs to clients.
    Mr. Capuano. Just for clarity, the FCM in this case would 
be--
    Ms. Genova. It would be MF Global.
    Mr. Capuano. That is what I thought. So, you would--there 
is no way in the world you would know what they had in an 
account of $100 or $100 million or a billion, how much money is 
customer money and how much money is not customer money. Is 
that correct?
    Ms. Genova. That is correct. We would not have the 
information.
    Mr. Capuano. So, you kind of have to trust the other guys?
    Ms. Genova. We know that they have a legal obligation to 
comply with the rules and that they are regulated entities.
    Mr. Capuano. Okay.
    Mr. Roth, I will tell you that I read your statement. I 
actually like some of the things you are proposing. I want to 
congratulate you for it.
    I guess I would first ask, because you are trying to 
address this very issue, I am going to go a little further in a 
minute, but at least for my first question: Are the other SROs 
following your lead on this issue, reviewing this issue and 
maybe making some proposed changes to how this gets done?
    Mr. Roth. The four recommendations I outlined are supported 
by all of the SROs that were part of that SRO committee, as 
well as other exchanges that we spoke to that weren't on the 
committee, as well as our FCM advisory committee that we spoke 
to, as well as our public directors on our board. They have all 
been supportive of those four changes.
    Can I just go back for one second? I don't mean to use up 
your time--
    Mr. Capuano. You can try. As long as the chairman is 
indulgent.
    Mr. Roth. I just wanted to point out that excess segregated 
funds are a very important thing for the protection of 
customers. There are multiple customers with money in those 
accounts. If one customer incurs substantial trading losses, 
that excess segregated fund is a way of making good that 
customer's shortfall to protect all the other customers.
    Mr. Capuano. Yes, I guess at some point, somebody is going 
to have to explain to me how using my money protects my money. 
Today is not the day. And I guess my last question, and I am 
way over my time, so my last question, and I think I know the 
answer, but I am going to ask it anyway, is why don't you just 
say stop commingling funds? If you want to invest--if any of 
the companies want to invest their own money, good luck. Why do 
they need to use my money?
    Mr. Roth. The reason we allow FCMs to have their own funds 
in the segregated account is for precisely the reason I already 
described, which is to say to protect other customers. In the 
event of one customer incurring a substantial trading loss and 
creating a shortfall in that account, the customer--
    Mr. Capuano. How does it protect me if some other customer 
loses their money and, to me, somebody else uses my money to 
cover their losses? I didn't--it wasn't my game.
    Mr. Roth. I--
    Mr. Capuano. It is my money. I didn't play that game, and 
yet, you are taking my money to protect some other customer--
    Mr. Roth. No, sir.
    Mr. Capuano. --who lost their money, because they took a 
gamble.
    Mr. Roth. No, sir. If I could, can I try to explain it?
    Mr. Capuano. You can try.
    Mr. Roth. If there is an FCM and it has two customers and 
each customer has $100 in the account so that the seg required 
is $200. Customer number one loses not only all of his money, 
he goes into a debit position so that there is only--he has 
incurred--he has a $50 trading loss. He is in the hole $50. 
That account, which had $200, now has $50. And to protect that 
customer who didn't have that loss, that is why the firm has 
its own money in there.
    Mr. Capuano. But you didn't protect me. I didn't have the 
loss. You protected the guy--
    Mr. Roth. No.
    Mr. Capuano. I guess I am way over time. We are going to 
have to go through this another day, Mr. Roth. I have yet to 
understand how me not gambling and protecting Randy's gambling 
losses somehow helps me.
    And I am willing to be educated. I am looking forward to 
education, but I have to tell you, it makes no sense to anybody 
else I know, except--and, by the way, Ms. Genova, is there 
anyplace else where people can pick up the phone and use other 
money at JPMorgan? Is this the only one, or is there someplace 
else?
    Ms. Genova. I am not aware of any other circumstance.
    Mr. Capuano. Okay, and Mr. Roth, this is not the place. I 
am way over--
    Mr. Roth. I would just like to visit with you sometime, if 
that would be possible.
    Mr. Capuano. I would like to. Thank you.
    Chairman Neugebauer. I would just say that one of the 
things, as you know, or part of the goal of this committee, is 
once we have completed our investigation and our oversight, we 
are going to publish a report that will be approved by the 
committee.
    And one of the things that we hope to accomplish from that 
is once we ascertain exactly where the pitfalls are, we want to 
work with everybody to come up with what are some reasonable 
solutions.
    If there are some holes in the current system that we need 
to fill and, obviously, the MF Global thing points out that 
there are ways to do that, whether one of the issues I think we 
have to always make sure we address is if people--if there is 
malfeasance there, you can pass all the rules and laws that you 
want to do and that is not going to keep malfeasance from 
happening. So we look forward to having that discussion.
    And I now yield to the gentleman from New Mexico, Mr. 
Pearce, for 5 minutes.
    Mr. Pearce. Thank you, Mr. Chairman.
    And, just for the record, I have not seen Mr. Neugebauer 
gambling away his life savings, and I so appreciate Mr. 
Capuano's generosity, but I did want to keep the good name of 
our chairman clear.
    So, Mr. Roth, you hear what Mr. Capuano is saying. Should 
there be a statement that warns Mr. Capuano that his money 
could be used to cover other people's losses? And we could--
should that--
    Mr. Roth. I think--
    Mr. Pearce. That wasn't in your suggestion.
    Mr. Roth. There is fellow customer risk of loss; it is one 
of the things that they talk about in the segregated funds 
regimen. And that is a situation in which one customer incurs 
huge trading losses, the firm's own capital is not sufficient 
to make good those trading losses, that can result in a 
shortfall in which non-defaulting customers suffer a loss.
    Mr. Pearce. And all customers know that?
    Mr. Roth. That has nothing to do with MF Global, as far as 
I know.
    Mr. Pearce. All customers know that?
    Mr. Roth. And I think there are disclosures about that. But 
I think whether we need to--I think it is certainly an issue 
that we can look at to see whether those disclosures can be 
sharpened and made more clear.
    Mr. Pearce. Yes, if those disclosures are something like 
the app disclosures; you have to read the thing and say, I 
agree.
    Mr. Roth. No, it is not a click thing.
    Mr. Pearce. Yes, so.
    Mr. Roth. But and I think that is an area that is certainly 
ripe for study.
    Mr. Pearce. Yes, it ought to be in blinking lights, because 
there are people who lost $1.6 billion. Did MF--
    Mr. Roth. Excuse me, I am sorry. That sort of fellow 
customer loss, risk of loss that I talked about, as far as I 
know, had nothing to do with MF Global.
    Mr. Pearce. Did MF Global break any laws, in your opinion?
    Mr. Roth. I don't know the facts of this investigation. I 
know that there is a shortfall in customer funds and that 
shouldn't happen.
    Mr. Pearce. No, it shouldn't happen. They shouldn't be able 
to take that. Do you know of any other of the trading firms 
that are dipping into the segregated accounts to make things 
whole?
    Mr. Roth. No. We monitor our firms on a daily basis. We 
have done special visits to these, the firms for the DSRO back 
in December, confirmed all the balances to outside sources. I 
am not aware of any other firm that has a shortfall in 
segregated accounts.
    Mr. Pearce. Were you all monitoring MF Global?
    Mr. Roth. I beg your pardon?
    Mr. Pearce. Were you monitoring MF Global?
    Mr. Roth. No, we were not the designated self-regulatory 
organization for MF Global. Chicago Mercantile Exchange--
    Mr. Pearce. Who are the other self-registered organizations 
that you would not be monitoring?
    Mr. Roth. There are around 75, 80--
    Mr. Pearce. Right, don't list them here then. I thought 
there was just one or two.
    Mr. Roth. --that are holding customer funds to trade 
futures. We are the designated self-regulatory organization for 
about 26 of them. The other ones, for the most part, are the 
CME is the DSRO.
    Mr. Pearce. Okay.
    Ms. Cosper, on your FASB rules. So, now I have the money. I 
get Mr. Capuano's money and I buy some security that he has 
asked me to buy. Is that basically the initial transaction?
    Ms. Cosper. Basically--
    Mr. Pearce. Just, yes, I am trying to simplify it down 
where people like me can understand it.
    Ms. Cosper. Basically, Congressman Capuano would have a 
security, which he would transfer--
    Mr. Pearce. Yes, we would give him a piece of paper saying 
we bought this for you and have your promise--
    Ms. Cosper. He would transfer it to you--
    Mr. Pearce. Yes.
    Ms. Cosper. For cash.
    Mr. Pearce. Okay. And so then the repo account--
    Ms. Cosper. And at the same time he has entered into a 
agreement to repurchase--
    Mr. Pearce. So the repo account takes that same security 
and sets it over here and borrows money back against it, right?
    Ms. Cosper. That is correct.
    Mr. Pearce. And then we buy another security for someone 
else or ourselves. So now then--
    Ms. Cosper. No, you enter into the--Mr. Capuano--
    Mr. Pearce. You have done something with the money that you 
got, right? You don't just sit it in the bank. They want--
    Ms. Cosper. They would do something with the cash, 
presumably--
    Mr. Pearce. They want it to turn, right?
    Ms. Cosper. But at the same time, you enter into a forward 
purchase commitment and that is recognized--
    Mr. Pearce. Yes, there are all sorts of legalities at the 
bottom of the line. At the bottom of the day, I take money that 
he gives me and I buy a security and then I trade that security 
to someone else to get cash, right?
    And I still have the control over it, but I get cash, 
right? I bring that cash back and those--MF Global wasn't 
sitting that money in the bank. They weren't keeping it in 
JPMorgan's bank, they were then doing something else with it. 
They were buying something else, right?
    Ms. Cosper. I can't comment as to what they would have done 
with the cash.
    Mr. Pearce. It is possible in a repo account to buy 
something else, right?
    Ms. Cosper. They can use the cash however they would like 
to use the cash.
    Mr. Pearce. Yes, okay. My question is, is there a limit? 
You said that is all kosher from accounting standards, right?
    Ms. Cosper. In a repo-to-maturity transaction.
    Mr. Pearce. Yes, so it is all kosher. Is there a limit to 
the number of times we can--so we get this security and then we 
trade it over here and we get money back and we trade it, so we 
can have 50 or 60 RPAs.
    Is there a limit at where the accounting board says well, 
that is pretty confusing and maybe somebody has some exposure 
here and it is all based on that one deal. Do you all ever--
    Ms. Cosper. That is--
    Mr. Pearce. Is there a limit to the number of RPAs?
    Ms. Cosper. That is a regulatory matter, so we wouldn't be 
able to comment on if there was a limit.
    Mr. Pearce. You, as accountants, don't think that investors 
would really have an opinion about that?
    Ms. Cosper. However, the company that initially transfers 
the security is fully culpable for the credit risk associated 
with that security, so as the value of that security declines, 
they recognize the liability and it hits their net worth. It 
reduces their net worth.
    Mr. Pearce. I know, but I am back to the number of RPAs 
that can be stacked on that initial transaction and I just 
think that investors, from an accounting standpoint, I don't 
know much about accounting and I don't know much about anything 
really.
    We grew pigs growing up, but this kind of it just seems 
like that would be a kind of a significant thing for investors 
to know that their money is being--
    Ms. Cosper. I think--
    Mr. Pearce. RPA'd back and forth and back and forth until 
there is a house of cards stacked up with not much underneath 
it.
    Ms. Cosper. There is no doubt that GAAP requires that the 
company that transfers the security continues to make 
disclosures about the involvement and the risk associated with 
that--
    Mr. Pearce. When you start your meeting--
    Ms. Cosper. That is required under GAAP.
    Mr. Pearce. Yes, I know my time is over, Mr. Chairman.
    But when you start your meetings, you ought to probably be 
talking about these things, because people like us sitting up 
here you see, most of us are not really knowledgeable about MF 
Global. All we know is that $1.6 billion worth of money 
disappeared and we have a panel full of people and none of them 
can remember anything and they don't know who did that 
transaction. Nobody internally had to tell anybody else 
anything.
    And we are the ones who get to answer the questions when we 
go back to the House. You guys are the sheriffs, so please 
mention that, at some point, you might want to consider the 
ethical legality questions.
    Thanks.
    Mr. Chairman, you have been very tolerant.
    Chairman Neugebauer. I thank the gentleman from New Mexico 
and I would just let the gentleman from New Mexico know that if 
he would like to know more on how you do that, you can call Mr. 
Corzine. I think he can share some information on that.
    I now yield to my good friend from Texas, Mr. Canseco, for 
5 minutes.
    Mr. Canseco. Thank you, Mr. Chairman, thank you.
    Ms. Genova, why did JPMorgan Chase request assurances from 
MF Global that the firm was not improperly moving money out of 
customer accounts?
    Ms. Genova. As I previously mentioned, it is the obligation 
of the FCM to know what funds in the account are their own and 
what are the customers' funds. And, therefore--and we wouldn't 
have the information to be able to tell.
    So normally, we don't ask questions for every account 
transfer. That would just be untenable in a normal banking 
relationship. But, in this case, we did take the unusual step 
of asking questions and that was for two reasons.
    First, it has been my experience that when firms have had 
issues with clients--with compliance with client segregation 
rules, it is often due to innocent operational errors. And 
those operational errors tend to occur under times of stress 
when there is a lot of trading and a lot of things going on in 
a company.
    So given the situation in MF Global, I thought that was 
just something that--it gave me some pause.
    The second was that the funds were being--we knew that the 
funds were going to ultimately be used to pay an overdraft in 
an account with JPMorgan. So therefore, if there was an error, 
JPMorgan would be the one benefiting from that error. And we 
did not want to benefit from an error. So we thought it was 
prudent to seek assurances.
    Mr. Canseco. And is that why the first letter was written 
so broadly?
    Ms. Genova. The first letter was written broadly, because 
it was sort of put together, ``Oh, let's just get assurances.'' 
And we hadn't really thought it through completely as to what 
did we really need.
    Mr. Canseco. And then the subsequent letters sort of 
satisfied their needs and their desires; is that correct?
    Ms. Genova. Yes, that is true. We revised the letter to 
reflect what we really wanted to know.
    Mr. Canseco. And did they ultimately sign it and send it to 
you?
    Ms. Genova. No, they didn't. I personally had conversations 
with both Ms. Ferber and her deputy, Mr. Klejna, who gave me 
oral assurances that they knew the rules, they were in 
compliance with the rules, and that--and when we finally 
revised the letter to only refer to the two transfers that we 
really had some concerns about, that in fact the letter would 
be signed.
    Mr. Canseco. One more question. On October 29th, Mr. 
Corzine told regulators that JPMorgan was one of two possible 
buyers of MF Global. Is that true?
    Ms. Genova. I know that there was some discussion within 
JPMorgan about evaluating whether pieces of the MF Global 
business might be attractive to us. And after an evaluation, we 
decided that it really wasn't a good business fit.
    Mr. Canseco. Thank you, Ms. Genova.
    Mr. Roth, Congress passed the Dodd-Frank bill using the 
logic that more rules and regulations are an adequate 
substitute for enforcing existing laws.
    Right now, the CFTC is writing new rules at a furious pace. 
But in the case of MF Global, they failed to enforce the most 
basic of rules that monitor commodities accounts. In your 
opinion, how do the new rules and regulations written by the 
CFTC benefit producers in rural areas that in many cases rely 
on small, local banks for credit?
    Mr. Roth. I believe the expression is ``above my pay 
grade.''
    Mr. Canseco. Can you venture an answer nonetheless?
    Mr. Roth. I can tell you that I have been at NFA for about 
29 years. So I have been in the regulatory process for futures 
for a long time. And I know that whenever bad things happen, 
there is a tendency to write new rules. That is sometimes very 
helpful. I think the rules that we are proposing here are very 
helpful rules.
    But ultimately, it comes down to a matter of enforcement. I 
don't care what set of rules you have, ultimately, at the end 
of the day, it is about enforcement. And I think that is true 
of the rules in the futures regulation area, and I am sure it 
is going to be true in the swaps area as well.
    Mr. Canseco. Thank you. Should the CFTC be focusing its 
efforts on writing new rules, or do you feel they first need to 
do a better job enforcing them? And I guess your answer is 
``yes.''
    Mr. Roth. I believe that the way the statute is set up, is 
that the CFTC is an oversight agency for NFA. NFA is not an 
oversight agency for the CFTC.
    Mr. Canseco. Thank you for your candor.
    And I yield back the balance of my time, if there is any.
    Chairman Neugebauer. I thank the gentleman.
    I just have a couple of questions.
    Ms. Genova, this $200 million, $175 million transaction has 
gotten a lot of scrutiny with Mr. Corzine.
    I think what gave it some of that scrutiny is that it was 
precipitated by the fact that Mr. Zubrow, I guess, from 
JPMorgan, actually called Mr. Corzine directly and said, ``You 
are overdrawn. You need to take care of that.''
    Would that be a normal call that Mr. Zubrow would call the 
CEO of the company, or would you have called the treasurer? 
What was significant about Mr. Zubrow calling Mr. Corzine and 
telling him he was overdrawn?
    Ms. Genova. I think in the context, this would be in the 
context of the fact that the company had just been downgraded 
to junk. Mr. Zubrow, who is the chief risk officer for the 
entire firm, would have concerns about this company. It would 
be his normal practice, if there were issues such as a large 
overdraft in an account, for him to call the most senior person 
in the company that he knew.
    So, this would be something that would be actually an 
ordinary step for a company that was in some distress.
    Chairman Neugebauer. And was it about this time that you 
dispatched your team to go over and have a presence at--when--
just refresh my memory. When did you all dispatch your team to 
go over to MF Global?
    Ms. Genova. We went to MF Global on Friday, October 28th. 
And it was to help them see if we could do things to help them 
raise some liquidity.
    Chairman Neugebauer. That was on which day, now?
    Ms. Genova. Friday, October 28th.
    Chairman Neugebauer. Okay. So is that the same day that 
they covered the overdraft?
    Ms. Genova. That was the same day that they covered the 
overdraft, yes.
    Chairman Neugebauer. I think one of the things you said is 
that a debit alert was placed on this company. So you are 
looking at the deposits, the out-goes, the in-goes, kind of 
making sure that everything is appropriate. So someone was 
approving those transfers in JPMorgan, then, if you are on 
debit alert?
    Ms. Genova. I would just like to clarify what ``debit 
alert'' really means.
    Chairman Neugebauer. Okay.
    Ms. Genova. ``Debit alert'' means that, because of concerns 
about the company's financial condition, we will not transfer 
funds out of the account unless there are actually funds in the 
account. So in the normal course of business, to facilitate 
client transactions, we would transfer funds out of the 
accounts that aren't really there, and in a sense, creating--
    Chairman Neugebauer. --an overdraft.
    Ms. Genova. --an overdraft. So basically, the day of the 
debit alert, means no overdrafts. But it does not mean that we 
approve each transaction. And if there is money in the account, 
and the client asks us to move the money, we just execute the 
client's instructions.
    Chairman Neugebauer. So you kind of put them on a COD. You 
had to have the cash in the account.
    Ms. Genova. Yes.
    Chairman Neugebauer. Okay. Thank you.
    Mr. Roth, I used a little analogy--I don't know if you were 
in the room or not--about how the customer funds went missing, 
that they were--the bottle was full, and the water below this 
belonged to the customer. The water below that, we poured it 
into that glass.
    Mr. Roth. Right.
    Chairman Neugebauer. And that is the way customer funds go 
missing, except for the fact, and I think you brought that 
point up, is that if somebody, some of the money, some of the 
people in the account, had big losses.
    Mr. Roth. Right.
    Chairman Neugebauer. Do you have any reason to believe that 
there were significant customer losses that precipitated the 
fact that the farmers' and ranchers' bottle is empty now?
    Mr. Roth. Mr. Chairman, my knowledge is based on what I 
have read in the press. What I have read in the press, I don't 
have any reason to believe that that issue was involved in this 
case.
    Chairman Neugebauer. So the way the money went missing is 
people took money out that shouldn't have been taken out?
    Mr. Roth. As far as I can make out from the press reports, 
that is exactly right.
    Chairman Neugebauer. Okay. I want to thank this panel. I 
want to thank the previous panel. I want to particularly thank 
the members and the ranking member. This is an important 
hearing. And it is important not only to the people who lost 
money in MF Global, but it is extremely important, I think, to 
the marketplace moving forward.
    And Mr. Roth would probably agree with me. We will need to 
make sure that people have the confidence that when they do 
business with these firms, that their money--the only risk they 
are taking is their own risk, and they are not taking the 
firm's risk as well.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for Members to submit written questions to these 
witnesses and to place their responses in the record.
    And with that, we are adjourned.
    [Whereupon, at 5:57 p.m., the hearing was adjourned.]









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                             March 28, 2012





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