    [Senate Hearing 112-504]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 112-504

                            INVESTIGATIVE HEARING ON
                            THE MF GLOBAL BANKRUPTCY

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

                                    HEARING

                                   before the

                           COMMITTEE ON AGRICULTURE,
                             NUTRITION AND FORESTRY

                              UNITED STATES SENATE

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                               DECEMBER 13, 2011

                                   __________

                           Printed for the use of the
                Committee on Agriculture, Nutrition and Forestry

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                COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY

                     DEBBIE STABENOW, Michigan, Chairwoman

    PATRICK J. LEAHY, Vermont            PAT ROBERTS, Kansas
    TOM HARKIN, Iowa                     RICHARD G. LUGAR, Indiana
    KENT CONRAD, North Dakota            THAD COCHRAN, Mississippi
    MAX BAUCUS, Montana                  MITCH McCONNELL, Kentucky
    E. BENJAMIN NELSON, Nebraska         SAXBY CHAMBLISS, Georgia
    SHERROD BROWN, Ohio                  MIKE JOHANNS, Nebraska
    ROBERT P. CASEY, Jr., Pennsylvania   JOHN BOOZMAN, Arkansas
    AMY KLOBUCHAR, Minnesota             CHARLES E. GRASSLEY, Iowa
    MICHAEL BENNET, Colorado             JOHN THUNE, South Dakota
    KIRSTEN GILLIBRAND, New York         JOHN HOEVEN, North Dakota

                 Christopher J. Adamo, Majority Staff Director

                  Jonathan W. Coppess, Majority Chief Counsel

                        Jessica L. Williams, Chief Clerk

                  Michael J. Seyfert, Minority Staff Director

                    Anne C. Hazlett, Minority Chief Counsel

                                      (ii)

                                C O N T E N T S

                                  ----------
                                                                       Page

    Hearing(s):

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

                                  ----------

                           Tuesday, December 13, 2011
                        STATEMENTS PRESENTED BY SENATORS

    Stabenow, Hon. Debbie, U.S. Senator from the State of Michigan,
      Chairwoman, Committee on Agriculture, Nutrition and Forestry...     1
    Roberts, Hon. Pat, U.S. Senator from the State of Kansas.........     2

                                    Panel I

    Blew, C.J., Farmer/Rancher; Chairman of the Board, Mid Kansas
      Cooperative Association; Director, Board of CHS, Inc.;
      Hutchison, KS..................................................     9
    Hainline, Jeffrey W., President, Advanced Trading, Inc.,
      Bloomington, IL................................................     6
    Hupfer, Roger, Grain Elevator Operator, Freeland Bean & Grain,
      Inc., Freeland, MI.............................................     5
    Tofteland, Dean, Farmer, Luverne, MN.............................     8

                                    Panel II

    Abelow, Bradley, President and Chief Operating Officer, MF Global
      Holdings Ltd., New York, NY....................................    34
    Corzine, Hon. Jon S., Former Chairman and Chief Executive
      Officer, MF Global Holdings Ltd., New York, NY.................    33
    Steenkamp, Henri, Chief Financial Officer, MF Global Holdings
      Ltd., New York, NY.............................................    36

                                   Panel III

    Duffy, Terrence, Executive Chairman, CME Group, Chicago, IL......    77
    Giddens, James W., Trustee, Securities Investor Protection Act
      liquidation of MF Global, Inc., New York, NY...................    75
    Sommers, Hon. Jill, Commissioner, Commodity Futures Trading
      Commission, Washington, DC.....................................    73
                                  ----------

                                    APPENDIX

    Prepared Statements:
        Abelow, Bradley..............................................    96
        Blew, C.J....................................................    99
        Corzine, Hon. Jon S..........................................   101
        Duffy, Terrence..............................................   123
        Giddens, James W.............................................   128
        Hainline, Jeffrey W..........................................   134
        Hupfer, Roger................................................   137
        Sommers, Hon. Jill...........................................   139
        Steenkamp, Henri.............................................   151
        Tofteland, Dean..............................................   159
    Question and Answer:
    Stabenow, Hon. Debbie:
        Written questions to Hon. Jill Sommers.......................   179
    Roberts, Hon. Pat:
        Written questions to Terrence Duffy..........................   172
        Written questions to Henri Steenkamp.........................   181
        Written questions to Hon. Jill Sommers.......................   180
        Written questions to Bradley Abelow..........................   166
    Baucus, Hon. Max:
        Written questions to Hon. Jon S. Corzine.....................   170
        Written questions to Henri Steenkamp.........................   181
    Boozman, Hon. John:
        Written questions to Terrence Duffy..........................   175
        Written questions to James W. Giddens........................   178
    Chambliss, Hon. Saxby:
        Written questions to Hon. Jon S. Corzine.....................   170
        Written questions to Terrence Duffy..........................   172
        Written questions to Hon. Jill Sommers.......................   180
    Johanns, Hon. Mike:
        Written questions to Terrence Duffy..........................   173
    Abelow, Bradley:
        Written response to questions from Hon. Pat Roberts..........   166
    Corzine, Hon. Jon S.:
        Written response to questions from Hon. Max Baucus...........   170
        Written response to questions from Hon. Saxby Chambliss......   170
    Duffy, Terrence:
        Written response to questions from Hon. Pat Roberts..........   172
        Written response to questions from Hon. Saxby Chambliss......   172
        Written response to questions from Hon. Mike Johanns.........   173
        Written response to questions from Hon. John Boozman.........   175
    Giddens, James W.:
        Written response to questions from Hon. John Boozman.........   178
    Sommers, Hon. Jill:
        Written response to questions from Hon. Debbie Stabenow......   179
        Written response to questions from Hon. Pat Roberts..........   180
        Written response to questions from Hon. Saxby Chambliss......   180
    Steenkamp, Henri:
        Written response to questions from Hon. Pat Roberts..........   181
        Written response to questions from Hon. Max Baucus...........   181

                            INVESTIGATIVE HEARING ON
                            THE MF GLOBAL BANKRUPTCY

                                  ----------

                           Tuesday, December 13, 2011

                                  United States Senate,
              Committee on Agriculture, Nutrition and Forestry,
                                                         Washington, DC
        The Committee met, pursuant to notice, at 10:06 a.m., in
    room SH-216, Hart Senate Office Building, Hon. Debbie Stabenow,
    Chairwoman of the Committee, presiding.
        Present: Senators Stabenow, Harkin, Conrad, Nelson, Brown,
    Klobuchar, Bennet, Gillibrand, Roberts, Lugar, Chambliss,
    Johanns, Boozman, Grassley, Thune, and Hoeven.

    STATEMENT OF HON. DEBBIE STABENOW, U.S. SENATOR FROM THE STATE
     OF MICHIGAN, CHAIRWOMAN, COMMITTEE ON AGRICULTURE, NUTRITION
                              AND FORESTRY

        Chairwoman Stabenow. Well, good morning. We welcome all
    those and thank all those that will be with us this morning for
    a very important hearing. The Senate Agriculture, Nutrition and
    Forestry Committee will now come to order.
        Before this Committee today are just a few of the former
    customers of MF Global, which at the time of its bankruptcy had
    38,000 customer accounts.
        In the days preceding the collapse, it became apparent that
    MF Global would no longer survive as a company.
        While companies often make bad decisions and fail, no one
    expected the violation of one of the foundational principles of
    the futures markets: the protection of customer money. On
    Monday, October 31, at 2:30 in the morning, MF Global revealed
    that an estimated $900 million in customer money had gone
    missing--unaccounted for. MF Global filed for bankruptcy a few
    hours later.
        Now we are here left with more questions than answers. The
    customers are here still waiting to get their money back. And
    the executives and the former CEO of MF Global are here to tell
    us what they know. And the regulators are here to tell us where
    they are in the process of getting that money back and what
    they should do in the future to better oversee the financial
    management of customer funds.
        The Agriculture Committee oversees the futures and swaps
    markets in part because those markets are critically important
    for the successful functioning of America's agriculture
    economy. As I have said many times, nearly 16 million people
    have jobs because of agriculture in this country. And in this
    difficult economy, agriculture has been one of the few bright
    spots. And, frankly, we want to keep it that way.
        Situations like what happened at MF Global threaten that
    success. Our farmers and ranchers have lost trust in the
    system. They believed that there were safeguards in place to
    protect their money in exactly situations like this.
        A fundamental principle of futures trading is that customer
    money must always be kept separate from the firm's money.
        It is estimated that as much as $1.2 billion in customer
    money is missing. I know that every member of this Committee,
    and certainly the customers who are here today, and those
    across Michigan and across the country, would like to know what
    happened to that money. It has now been a month a half since
    the firm collapsed, and customer money is still nowhere to be
    found.
        This is not the Dark Ages. MF Global did not keep their
    books with feather quills and dusty ledgers. The rules about
    keeping customer money segregated are pretty straightforward.
    That it has been over a month and teams of lawyers and forensic
    accountants still cannot figure out what happened raises very
    troubling questions.
        So I am very eager to hear from the executives, as well as
    the trustee, as well as the front-line regulators about what
    happened.
        This hearing is about three things: getting the customers'
    money back, holding anyone engaged in wrongdoing accountable,
    and ensuring that proper customer protections are in place so
    that something like this does not happen again.
        The customers here today, and the thousands of others
    across the country whose money is missing, deserve answers. And
    I hope we can get some of those answers today.
        I would now like to turn to my colleague and friend,
    Senator Roberts, for his opening remarks.

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

        Senator Roberts. Thank you, Madam Chairwoman, for calling
    this hearing on MF Global's bankruptcy and its effect on our
    Nation's economy.
        As you have said, this Committee has jurisdiction over the
    futures markets and its regulator--the Commodities Futures
    Trading Commission. The futures markets provide businesses and
    investors--whether they are individuals, companies, farmers,
    ranchers, cooperatives, or others--the opportunity to manage
    risks.
        In light of recent events, it is imperative that this
    Committee exercise its oversight responsibilities to understand
    what happened in the days leading up to MF Global's bankruptcy,
    who was involved in any actions that resulted in the company's
    downfall, and how to move forward.
        First and foremost on my mind is how customer accounts will
    be made whole. Reports indicate anywhere between $600 million
    and $1.2 billion of customer funds are missing.
        The fundamental rule in the futures markets business is to
    segregate--to keep apart--customer accounts and company
    accounts. Some believe this rule was broken in this case. If
    this is the case, that is what we are here to find out.
        Among the witnesses today are officials from MF Global who
    can help answer the many questions that I and other members of
    the Committee have.
        According to testimony given in previous hearings before
    this Committee and in the House, customer funds were accounted
    for on Wednesday October 26 and believed to be accounted for on
    Friday, October 28. Yet by Monday October 31, they were gone.
        CME's press release of November 2 states, and I quote, ``It
    now appears that the firm made subsequent transfers of customer
    segregated funds in a manner that may have been designed to
    avoid detection insofar as MF Global did not disclose or report
    such transfers to the CFTC or CME until early morning on
    Monday, October 31, 2011.''
        Funds do not simply disappear. Someone took action, whether
    legal or illegal, to move that money. And the effect of that
    decision is being felt across the countryside.
        Now, the buck stops somewhere, and between the three
    witnesses from MF Global here today, I hope we can find out
    where those hundreds of millions of dollars landed.
        Since MF Global's bankruptcy on October 31, we have heard
    from many investors, businesses, farmers, ranchers, and their
    bankers across the country that are caught up in this event.
        Today we will hear firsthand from those hit hardest by MF
    Global's collapse. I truly appreciate Mr. C.J. Blew from
    Hutchison, Kansas, taking time, his valuable time, appearing
    today, as the other witnesses have done, to provide a
    description of the impacts on their business interests and
    their farming operations.
        We will also hear from CFTC Senior Commissioner Jill
    Sommers who is leading the investigation and enforcement
    actions at the Commission since Chairman Gensler has allegedly
    removed himself from these matters. So thank you, Commissioner
    Sommers, for appearing here today.
        I also thank Mr. Giddens, the bankruptcy trustee in this
    matter, for agreeing to be here. Customers have plenty of
    questions for you, as I do, about how money can be returned to
    those owed. I know you have worked very diligently to return
    funds to customers, and I appreciate your efforts.
        The Chairman has said it. Producers must have faith in the
    safety and stability afforded by the futures market.
        The need for faith and confidence in the ability to manage
    one's own risk is why we and this Committee will continue to
    push to get to the bottom of what happened.
        Thank you, Madam Chairwoman. We have several witnesses
    today. I look forward to hearing from all of them.
        Chairwoman Stabenow. Thank you, Senator Roberts, and thank
    you to all of our members that are here today, and we will ask
    you to submit opening comments for the record. We do have three
    panels with us today, and we want to move directly to our
    witnesses. And we thank all of you for being here today, for
    coming and joining us. We made a decision to ask you to speak
    first because you are the focus of why we are here. You are the
    focus of the financial markets and making sure they work well,
    and our number one focus is to make sure that you are made
    whole and have confidence in the markets moving forward. So we
    thank all of you for being here. As you know, we welcome your
    written testimony and ask you to keep your oral testimony to 5
    minutes today.
        Our first panelist is an MF Global customer from Freeland,
    Michigan, Roger Hupfer. I welcome you today. Mr. Hupfer is the
    president and markets director of Freeland Bean & Grain,
    Incorporated. He also sits on the board of directors and
    trustees for the Michigan Bean Shippers Association. So we
    welcome you.
        Next up we have Mr. Jeff Hainline, president of Advanced
    Trading, Incorporated, in Bloomington, Illinois. Prior to
    joining Advanced Training, Incorporated, in 1982, Mr. Hainline
    was a cross-country trade, a barge freight trader, and a
    merchandising manager for Behimer and Kissner. He is also a
    member of the National Grain and Feed Association's Risk
    Management Committee and the CFTC's Subcommittee on
    Convergence.
        Next I would like to ask Senator Klobuchar to introduce our
    next witness from Minnesota.
        Senator Klobuchar. Well, thank you very much, Madam Chair.
    I am pleased to introduce Mr. Dean Tofteland from Luverne,
    Minnesota. Luverne is a town of 2,600 people, and he and his
    daughter came all this way because they care very much about
    this issue. His family grows corn, soybeans, and raises pigs on
    their farm. He currently has over $200,000 in what was supposed
    to be a segregated MF Global account which he cannot access and
    which he may never fully recover.
        He is not a speculator, Madam Chair. He, in fact, invested
    to manage risk, locking in prices ahead of the growing season
    so he was protected against price fluctuations that could eat
    into his profits. If he does not get access to his account
    soon, he is not sure what he is going to do for next year's
    crop, and he is just one example of hundreds of farmers that we
    have in our State right now that want to get their money back
    and want to get this resolved.
        Thank you very much, Madam Chair.
        Chairwoman Stabenow. Thank you.
        Finally, along with Senator Roberts, I welcome Mr. C.J.
    Blew, who, along with his wife, Becky, operates a diversified
    crop and cow-calf operation in south central Kansas. Since
    2005, he has served as the director for his local co-op, Mid
    Kansas Cooperative Association, located in Moundridge, Kansas.
    He currently serves as its chairman.
        So, again, we welcome all of you, and I would ask at this
    point that you rise so we can administer an oath to you. If you
    would stand and raise your right hand. Do you swear that the
    testimony you are about to present is the truth, the whole
    truth, and nothing but the truth, so help you God?
        Mr. Hupfer. I do.
        Mr. Hainline. I do.
        Mr. Tofteland. I do.
        Mr. Blew. I do.
        Chairwoman Stabenow. Thank you very much.
        Mr. Hupfer, your testimony, please.

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

        Mr. Hupfer. Good morning, Madam Chair, Ranking Member
    Roberts, and members of the Committee. My name is Roger Hupfer,
    and I am the president and marketing manager of Freeland Bean &
    Grain in Freeland, Michigan. I want to thank you for this
    opportunity to give you an overview of our company and how the
    MF Global bankruptcy has impacted our business.
        Our company is a family-owned and -operated full-service
    agribusiness. We originated in 1983 and have provided almost 30
    years of uninterrupted service to our local community. We
    operate two country elevator facilities, which accept corn,
    soybeans, and soft white and red wheat, and we also receive,
    process, and ship edible beans to various domestic packagers,
    canners, as well as interests in Mexico. We also provide feed,
    fertilizers, seeds, crop protection products, and custom
    application service for our customers. We are members of the
    National Grain & Feed Association, the South East Grain & Feed
    Association, and the Michigan Agribusiness Association. We are
    fortunate to have Jim Byrum representing our agribusiness
    interests in Michigan. He has been a great asset to our
    industry.
        We take great pride in how we operate our business, and we
    work very diligently with our customers to help them achieve
    their marketing goals. Our customers place great confidence and
    trust in us when delivering their commodities to our
    facilities, and they expect us to provide and maintain
    competitive, perpetual marketing programs to assist them with
    their risk management.
        It is this very confidence and trust that was shattered by
    the MF Global bankruptcy. The industry has always operated
    under the assumption that our funds were in a safe and secure
    place by being kept in segregated accounts. We were in total
    shock when we found out otherwise. Misuse of these funds for
    other purposes is not only unethical, but also criminal. Those
    responsible for oversight fell far short of fulfilling their
    responsibilities in this matter.
        Our company has plans to expand and construct a new state-
    of-the-art grain receiving and storage facility with
    groundbreaking scheduled for 2012. This new facility will help
    us meet increased demand and give us the ability to load out
    grain unit trains. With this increased demand, how will we be
    able to effectively manage the increased volatility and price
    risk and place our hedges with confidence if the very integrity
    of exchange-based futures trading is in jeopardy? Also, how do
    we know if there are other clearing firms that might be in
    financial trouble by being involved in bad investments and poor
    management?
        There are several livestock and dairy producers in Michigan
    that have a much greater amount of capital at risk than some of
    the commercial grain companies. I can personally give you an
    example of a customer of ours who has more capital at risk than
    we do. All he was attempting to do was to sell his cash grain
    and hedge by buying call options. He is not a speculator; he is
    just a prudent operator. If this situation is not resolved, I
    feel it will have an impact, a very negative impact, on rural
    communities across the country.
        When I put together my testimony, I called three other
    elevator operators in Michigan and asked for their input. One
    of them made this comment. He said, ``It is really sad when my
    risk management program needs risk management.''
        I can speak for our company and on behalf of the other
    agribusiness firms that have been impacted by this disaster
    that we expect to be made whole and have all of our funds
    returned to us in a timely manner so that the integrity of the
    exchange can be restored.
        Again, I want to thank you for this opportunity to share my
    views with you today. I would be happy to respond to any
    questions.
        [The prepared statement of Mr. Hupfer can be found on page
    137 in the appendix.]
        Chairwoman Stabenow. Thank you very much.
        Mr. Hainline?

    STATEMENT OF JEFF HAINLINE, PRESIDENT, ADVANCED TRADING, INC.,
                         BLOOMINGTON, ILLINOIS

        Mr. Hainline. Thank you, Chairman. My name is Jeff
    Hainline, and I am the chairman of Advanced Trading. Advanced
    is a non-guaranteed introducing broker that did business with
    MF Global. Our customers are farmers, elevators, grain
    processors, meat producers, and owned about 3,000 accounts
    there. Advanced Trading's customers and its business, with
    large sums still unaccounted for, are suffering from confusion
    6 weeks after the failure.
        I suggest the Committee have most of its focus in this
    initial effort on the crucial issue that must be dealt with
    immediately. In the grain industry, 100 percent of each year's
    supply is produced within a narrow time frame and used
    throughout the year. As such, the business is overwhelmingly
    dominated, like few others, by inventory management and
    financing. Depending on market behavior, borrowings can amount
    to many times the net worth of the elevator company, but
    lenders make funds available at very competitive rates because
    the loan is well secured by verifiable presence of grain in the
    elevator and the financial soundness of the futures hedge.
        The futures market is the essential central financial
    instrument upon which world grain commerce is entirely based,
    and any change in the lender's assessment of risk on what can
    be an extremely large and rapidly increasing loan balance would
    alter their financial relationships with grain businesses in a
    dramatic fashion.
        Each firm's customer segregated capital is guaranteed by
    the capital of the clearing member. Thus far, no statement by
    the bankruptcy trustee that I have seen seems cognizant of the
    fact that segregated customer funds are guaranteed by the full
    capital of the clearing member. It is entirely clear to all
    that is a pre-condition of becoming a clearing member of the
    Chicago Mercantile Exchange and others. Absent the reality of
    that guarantee, the business cannot operate.
        Both priority and rapid execution of the priority of
    customer segregated funds and bankruptcies of clearing members
    must occur instead of years of uncertainty that stretch in
    front of us. This principle absolutely must be clear for
    futures exchanges. Futures contracts at the Mercantile Exchange
    and others are rightly regarded by lenders as financially sound
    precisely because and only because each clearing member
    guarantees its own capital as a first line to back the customer
    segregated funds, and the clearing corporation guarantees the
    trades between clearing members. Any ambiguity or hesitation as
    to exactly where those necessary guarantees stand will not only
    freeze the industry, it will certainly translate into a sizable
    multiplier effect in terms of lower prices to farmers and
    higher prices to consumers.
        It is not overstating the case to project that if the
    priority of customer segregated funds in a bankruptcy is not
    firmly entrenched, it will need to be in the wake of MF Global
    after the effects of not doing so become apparent. This is an
    absolute, necessary principle for U.S. agriculture, which is
    why this Committee must see that it is upheld.
        Many suggest making changes in separation between
    segregated funds and proprietary capital, but this could add
    complexity and bureaucracy. In the end, even if additional
    restrictions on financial instruments or accounting or other
    operational measures are proposed, we should remember a few
    things: that clearing members also have their capital pledged
    to their segregated customer funds against the single greatest
    threat they themselves face, which is that their customers
    defraud or go bankrupt on them. This has occurred with relative
    frequency, and because the capital of the clearing member
    itself was acquired to be paid into customer segregated funds,
    the other customers were made whole with little delay.
        We also know that new financial techniques will arise
    hereafter, that accounting rules ambiguities will always foster
    different opinions, and that financial executives will always
    take innovative steps to maximize returns. So establishing
    rules that would have precluded the last problem will not
    necessarily preclude the next.
        Exchanges have the greatest abiding interest of anyone in
    the solvency of the clearing members, the security and good
    will of their customers, and the trust of the fiduciaries that
    lend large sums to both. While the CFTC and the Committee
    should examine what the exchanges do carefully, the exchanges
    must propose changes that the CFTC should then consider.
        This Committee must use its authority and expertise to
    clarify the bankruptcy status of the FCM member's
    responsibility to their customer segregated funds, which is the
    only way the futures industry at the financial heart of U.S.
    agriculture can possibly operate. That is the largest and most
    important issue, I feel, with MFG.
        In the end, we need to protect our efficient system, to be
    vigilant for possible corruption, to send a strong signal of
    deterrence. We need restitution of all segregated funds, and we
    need a reform of our system to prevent abuse.
        I would like to thank the Committee for its consideration
    and would welcome any questions.
        [The prepared statement of Mr. Hainline can be found on
    page 134 in the appendix.]
        Chairwoman Stabenow. Thank you very much.
        Mr. Tofteland, welcome.

        STATEMENT OF DEAN TOFTELAND, FARMER, LUVERNE, MINNESOTA

        Mr. Tofteland. Hello. It is an honor to be here today. I
    want to thank Madam Chairwoman Stabenow, Ranking Member Senator
    Roberts, and other honorable Senators of the Committee. I
    especially want to thank my home State Senator Klobuchar for
    her support.
        My name is Dean Tofteland. I am a farmer from southwest
    Minnesota. My wife and I raise corn, soybean, and pigs as well
    as four kids 8 to 13 years old. I have been a farmer for about
    25 years. Throughout those years, I have used the futures
    markets to transfer risk from my farm to the CBOT by selling
    futures contracts. These contracts have enabled me and other
    farmers to lock in a selling price which could enable a profit
    on my production.
        Today I want to just briefly describe how this MF Global
    bankruptcy has impacted my bottom line as well as how it has
    influenced my confidence going forward in these markets.
        This past fall, following the harvest, I locked in prices
    on the CME for my 2011 production. I did this by entering into
    an agreement where I promise to sell a set number of bushels on
    the exchange at an agreed-upon price for a future delivery
    date. To execute these hedges, I am required to post margin to
    an escrow account, in my case which was held at JPMorgan Chase
    Bank. These funds were not an investment in MF Global. These
    funds were not a loan to MF Global. These funds were simply
    collateral required by the exchange as a guarantee for my
    promise to deliver the bushels I had priced.
        On October 28th I heard news that MF Global may be having
    some problems, and I immediately called my broker. She told me
    that since my funds were in ``customer segregated accounts,''
    they were not a part of MF Global and would not be affected. I
    was told that ``no customer has ever lost a penny in segregated
    accounts.'' I later read about that statement before--after
    that, or I ran across it before. At this time I was not aware
    that the company was mailing bad checks to customers.
        That following Monday, October 31st, I read that MF Global
    had filed Chapter 11 background and later learned that customer
    funds were missing. The accounts were immediately frozen, and I
    was unable to adjust my short positions. The hedge account at
    this time contained $253,000. This account was also counted as
    collateral at my bank against my operating loan. It was not
    long before I received a call from my banker asking about it.
        Later, my positions were transferred to a new broker with
    only 15 percent of the required collateral. I was then informed
    that I needed to re-margin the hedges within 24 hours, even
    though I had more than three times the margin already at the MF
    Global account. As a result of this, I was forced to liquidate
    my hedges. Since that time, prices have dropped significantly,
    resulting in well over an additional $100,000 in losses.
        On the morning of November 9th, I sat through a USDA Crop
    Production and Supply and Demand Report. This was one of the
    biggest crop reports of the year, and being unable to adjust
    positions created a great deal of stress. I have not used the
    futures market since.
        Producers like myself commonly purchase seed and fertilizer
    and pay cash rents far before the crops are planted. The use of
    these markets is imperative to reduce risk, but we must have
    the confidence to do so.
        As you know, this impact has been felt far across this
    country, and just in my local area, I ran across a feed company
    and local producers of livestock that are still looking for
    answers and how to get their money back. There are also many
    other untold stories.
        I hope that in the following panels we can get some of
    those answers to fill in the blanks. I look forward to finding
    out those answers because the truth of the matter is that
    commingling money is stealing money, especially when it
    disappears.
        I want to again thank each of you for your invitation. I am
    encouraged by your hard work, and I believe in the end that we
    will get the answers we need, and it will make for a more
    efficient and confident marketplace where customer assets are
    safe.
        Thank you.
        [The prepared statement of Mr. Tofteland can be found on
    page 159 in the appendix.]
        Chairwoman Stabenow. Thank you very much.
        Mr. Blew?

     STATEMENT OF CLINTON J. (C.J.) BLEW, FARMER/RANCHER, CHAIRMAN
    OF THE BOARD, MID KANSAS COOPERATIVE ASSOCIATION, AND DIRECTOR,
                 BOARD OF CHS, INC., HUTCHISON, KANSAS

        Mr. Blew. Good morning, Chairwoman Stabenow, Ranking Member
    Roberts, and members of the Committee. As Madam Chairman
    indicated, my name is C.J. Blew, and I do operate a farm and
    ranch in south central Kansas. And I am chairman of the board
    at MKC, Mid Kansas Co-op, in Moundridge, and I currently serve
    as its chairman.
        MKC is a full-service farm cooperative offering a full line
    of supplies and services for both farm and urban customers in
    11 counties throughout central Kansas. Our current membership
    is more than 4,800 members. MKC's grain division is operated by
    Team Marketing Alliance, or TMA, a LLC wholly owned by four
    central Kansas cooperatives operating 48 country elevators that
    total 38 million bushels of elevator space.
        I also serve on the board of directors of CHS Inc., the
    Nation's leading cooperative. CHS is an energy, grains, and
    foods company owned by approximately 55,000 individual farmers
    and ranchers and about 1,000 local cooperatives.
        Thank you for the opportunity today to provide not only my
    personal perspective, but also the perspective of MKC on the MF
    Global bankruptcy and the effect it has had on agribusiness and
    production agriculture.
        I consider myself fortunate because, unlike other fellow
    farmers and ranchers, I do not personally have assets tied up
    in the MF Global bankruptcy. However, I am impacted as an
    individual farmer because I rely upon my local cooperative to
    manage my risk by forward pricing my grain.
        This bankruptcy has sent a shockwave throughout the
    industry. We have long believed that risk to segregated
    customer funds held by members of the clearinghouse was non-
    existent. We now realize that was not true. The attorney for
    the trustee in the bankruptcy case, just last week during the
    House Ag Committee Hearing on MF Global, also confirmed this in
    his reference that 100 percent of these funds need to be
    returned as promptly as permitted by governing regulations.
        Immediately following MF Global's bankruptcy filing, MKC
    and its respective grain marketing arm, Team Marketing
    Alliance, struggled with lack of access to futures positions
    and had no access to the funds in our accounts. Additionally,
    our accounts were transferred to a new futures commission
    merchant, and we have spent countless hours trying to
    understand how and why various adjustments to account balances
    took place.
        My cooperative continues to deal with the aftermath of this
    situation. At the time of the MF Global bankruptcy filing, my
    co-op had a significant amount of assets in segregated accounts
    tied up with MF Global. While we now have access to positions
    in our hedge accounts, only 36 percent of the initial margin
    funds needed for the transferred positions have been
    transferred to the new accounts. We applaud the SIPA trustee's
    proposal for an additional distribution of funds and property
    that would bring the value of our distributions to about two-
    thirds of the original account values.
        However, for MKC, there is still a significant amount, or
    about 64 percent, of the margin funds and excess cash not yet
    received. This needs to be priority number one for the trustee
    and bankruptcy court. Segregated funds should not be part of
    the bankruptcy.
        I am here today to ask the Committee, regulators,
    exchanges, and trustee to make the return of customer funds and
    property a top priority. Customer funds were to be segregated
    and not used for other purposes. The confidence in the system
    has been compromised, and it is imperative that we restore the
    integrity of the system.
        The ability for thousands of businesses like MKC and CHS to
    hedge risk on an exchange offers producers a wide range of cash
    forward contracts that help optimize farm income. MKC's
    business model has been one that helps producers manage their
    risks. This includes grain marketing. Hedging and forward
    contracting is an integral part of that.
        A key to providing any type of hedging and forward
    contracting is the ability to finance it. We are fortunate to
    have a strong relationship with our lender. Although we have
    that strong relationship, the MF Global bankruptcy has impacted
    our ability to borrow funds. It has impacted our borrowing base
    since the missing funds cannot be used as collateral.
        Looking ahead, it will be very important to re-establish
    confidence in the futures markets and the safety of segregated
    customer funds and property. As part of the process, we must
    ensure the sanctity of customer segregated funds. This should
    include the treatment of missing funds in the bankruptcy, and
    those funds should have exclusive rights above the bankruptcy.
    This process must be a priority and expedited to make all
    segregated account holders whole.
        In conclusion, I would ask that this situation be resolved
    as quickly as possible and that MKC's assets and those of other
    segregated account holders affected by MF Global's bankruptcy
    be returned immediately. I would also ask that you ensure this
    situation never happens again.
        Thank you again for the opportunity to share my views
    today. This concludes my prepared remarks, and I would be happy
    to respond to any questions.
        [The prepared statement of Mr. Blew can be found on page 99
    in the appendix.]
        Chairwoman Stabenow. Thank you very much, and I appreciate,
    again, all of you being here. We are deeply concerned about the
    situation you find yourselves in, and through no fault of your
    own.
        Let me first start by asking each of you, if you were in
    our shoes and could say anything to the executives of MF Global
    or the regulators or the trustee, what would you want to say to
    them? Mr. Hupfer?
        Mr. Hupfer. Well, I think like the other comments that were
    made by the other panelists, I think the money needs to be
    returned in a fashion--I mean, segregated accounts need to be
    held above the bankruptcy, in my opinion. I think there needs
    to be a full investigation, and we need to have some safeguards
    in place where this cannot happen again.
        Production agriculture cannot operate and function without
    the use of exchange-based futures and being able to transfer
    risk and lock in pricing. That is integral. It is just
    impossible for the industry to operate without that ability.
        So I think this is crucial. This affects not just
    commercial grain companies, but I think it affects farmers,
    dairymen. There are a lot of people that are greatly affected
    by this.
        Chairwoman Stabenow. Thank you.
        Mr. Hainline, what would you want to ask of those we are
    going to hear from yet today?
        Mr. Hainline. Well, obviously my point was having the
    segregate funds a priority, but the thing that I wonder is, in
    light of all the financial problems that we have had over the
    last several years, how were these speculative investments
    allowed to be part of segregated funds?
        Chairwoman Stabenow. Thank you.
        Mr. Tofteland?
        Mr. Tofteland. I guess the real question is: What happened
    to the money? This money was real money in real banks. It was
    not under somebody's mattress. And now it is missing. And when
    you have a--I know in your personal bank account, the bank
    knows if you are overdrawn one penny. The bank knows if you are
    1 day late with your payment. The bank knows where the money is
    at. Somebody at the company knows where the money is at. We
    have to ask--if there is a debit, there has got to be a credit.
    Where is the credit?
        And, secondly, since there were bad checks mail, there has
    already been crimes committed. And if the rules are broken in
    the case of segregated money, the segregated funds were
    commingled, that is also a crime. So I guess if there were
    crimes committed and the money is missing, we have got to find
    the money and then deal with the consequences of that.
        Chairwoman Stabenow. Thank you.
        Mr. Blew, what would you want to ask?
        Mr. Blew. I would agree with Mr. Tofteland. Where is the
    money? You know, this has a rippling effect, I think,
    throughout the industry. Not only does it--you have got farmers
    double-margining. You have got people that have stress on their
    lending situations already. So it is imperative we get to the
    bottom of it.
        Chairwoman Stabenow. Thank you.
        Secondly, for any of you that would want to answer this, do
    you think commodities firms like MF Global should be allowed to
    invest customers segregated money and profit from the
    investments? Mr. Hupfer?
        Mr. Hupfer. I think segregated funds should be segregated
    funds and need to be treated that way. I guess that is how I
    feel about it. It is our money.
        Chairwoman Stabenow. Mr. Hainline?
        Mr. Hainline. I think that controls are an imperative if
    that investment is allowed. I am not sure that our current
    regimen has enough oversight to know where those monies are,
    and as I said previously, I think the classes of those
    investments have been way too far afield for protection of the
    customers.
        Chairwoman Stabenow. Yes, Mr. Tofteland?
        Mr. Tofteland. The issue with--I guess I have no comment
    about that. What was the question exactly?
        Chairwoman Stabenow. Well, do you think that companies, I
    guess, commodities firms, should be able to invest customer
    segregated dollars under any circumstances?
        Mr. Tofteland. No, I do not believe--I understand that
    there are some stress on the profits. Interest rates are low.
    It is hard for these companies to make money on their idle
    cash. But in this case, there were rules that were pushed.
    There was influence, I think, undue influence put on the CFTC
    and the SEC, and maybe some conflicts of interest that
    transpired, and the rules should not be pushed like that. So,
    no, there should not be any investment of these funds.
        Chairwoman Stabenow. Mr. Blew?
        Mr. Blew. Segregated funds are segregated funds for a
    reason. We must ensure the sanctity of segregated funds.
        Chairwoman Stabenow. Thank you.
        Mr. Tofteland, you testified that you have not used futures
    markets since MF Global's bankruptcy. Could you talk a little
    bit more about how that affects your business not having the
    confidence to use that market?
        Mr. Tofteland. Well, first of all, we are still out of a
    lot of capital, so to be involved here, you have to have
    collateral for the exchange. Unfortunately, I was forced to
    liquidate my hedges, and, you know, we have been unable to
    hedge since that time, and I am going ahead and looking at my
    input expenses for next year, and it is hard to--when you do
    your break-even analysis, you need to look at the prices
    offered for next year, and I just do not have the confidence
    right now until we get 100 percent of our cash back to have 100
    percent confidence until that point.
        Chairwoman Stabenow. On that point, if any of you would
    like to answer, my last question is: Given the bankruptcy, I
    assume this has caused you to take a closer look at any new
    futures commission merchant and its financial position. I
    wonder if anyone might just speak to that, going forward what
    this has meant to you as you are attempting to do business,
    assuming that you are. Mr. Hupfer?
        Mr. Hupfer. Well, we work with Mr. Hainline's firm,
    Advanced Trading, and they got all our positions transferred in
    a really good fashion, very orderly. So we are in the process
    of--we are with a new clearing firm, and we are going to open
    an account through them with another clearing firm in the near
    future to spread our risk.
        Chairwoman Stabenow. Mr. Hainline, from your perspective,
    how are you evaluating things differently? Or are you?
        Mr. Hainline. It is very unfortunate, but I think you have
    to. Numerous clients are asking about having more than one FCM
    so that at a moment's notice we can transfer accounts if
    somebody throws up a red flag. The inefficiencies of that kind
    of activity that it needs to be required is rather significant,
    but, again, for people to protect their risks, those are some
    of the conversations that are, unfortunately, going on because
    of the system.
        Chairwoman Stabenow. Thank you. I am going to stop at this
    point. I have run over my time. As I am sure my colleagues have
    noticed, we are doing 7 minutes of questions given the topic
    this morning. We will ask colleagues to watch closely for the 7
    minutes.
        I will turn now to Senator Roberts.
        Senator Roberts. Well, thank you, Madam Chairman.
    Gentlemen, thank you for coming. You have certainly put a
    personal face on this travesty. You have accurately described
    the breach of trust for yourselves personally and for everybody
    else involved. Really, this is a violation of the most sacred
    rule of the futures industry, you do not break the glass in
    regards to segregated funds. It has not happened before until
    this incident. Thank you for your personal testimony. That took
    some guts.
        I want to certainly thank you for clarifying for everybody
    present the severity of this issue and the personal experience
    that you have gone through, which I think is very helpful. We
    obviously need answers, and we are dedicated to that.
        Mr. Blew, it sounds like--well, welcome to Washington, I am
    sorry under the circumstances, but at any rate, it sounds like
    Mid Kansas Co-op is well on its way to getting up to 72 percent
    of its money back, according to the trustee. You and I have
    visited about that. Have you received any official indication
    from the trustee on this? You indicated that you are at 36
    percent. We need to get you up to that 72 percent.
        Mr. Blew. We have not received anything officially to get
    us to the 72 percent. We know we are at the 36 percent, but
    have not received anything officially on the 72 percent, no.
        Senator Roberts. I hope we can get that taken care of.
    Seventy-two percent is better than where you stood a week ago,
    but you are not made whole. Walk me through the conversation
    that Mid Kansas Co-op is having--that is 5,000 farmers. That is
    my count. You said 4,800. But walk me through the conversations
    that you have been having with your bankers in the aftermath of
    the MF Global bankruptcy. Are your bankers requiring you to
    come up with more collateral against your margin account?
        Mr. Blew. Well, it is pretty simple, really. We have
    working capital requirements that are 7 times our borrowing
    base, and so you take the number times 7, and that is the
    number that we cannot borrow.
        Senator Roberts. For the entire panel, in your testimony
    this morning all of you have referenced a loss of confidence in
    the futures market in the aftermath of the MF Global
    bankruptcy. That in and of itself is of tremendous importance.
        What changes are you going to make or recommend to how you
    or how your companies manage risk as a result of this
    bankruptcy? We will start with Mr. Hupfer and just go right
    down the line.
        Mr. Hupfer. Well, first and foremost, getting our accounts
    transferred----
        Senator Roberts. I cannot hear you.
        Mr. Hupfer. I am sorry. I said first of all, having our
    positions transferred and opening another account with
    another----
        Senator Roberts. Can you turn the microphone on? I am
    sorry. Maybe it is me. It turns red.
        Mr. Hupfer. Sorry about that. Is that better?
        Senator Roberts. Speak right into the microphone. Yes,
    thank you.
        Mr. Hupfer. Okay. Having our accounts transferred to
    another clearing firm and opening a secondary account I think
    goes a long way toward spreading our risk. I think everybody--
    talking with the other commercial operators that I visited
    with, they are all more--I do not want to say cognizant of what
    they are doing with their excess funds. You know, they are
    withdrawing. You know, they are drawing--if they have margin
    excess, they are bringing it back to their checking accounts.
    They are not leaving it there. I think people are doing things
    a little bit differently as more of a precautionary measure.
        Senator Roberts. I appreciate that.
        Mr. Hainline?
        Mr. Hainline. Well, unfortunately, the biggest problem is
    that because of this uncertainty, many are choosing not to
    utilize the futures market at this point, and so that means
    your alternative is to sell it to--if you are a producer, to
    sell it to a grain company and have no further flexibility in
    managing your risk. And then that also introduces you to a
    different counterparty risk.
        So these are very dire circumstances, as Mr. Tofteland
    said, from November--or from October 28th, the last day he
    could have placed a trade with MF Global, until Wednesday of
    this last week--I am not sure the size of his farm, but if he
    had 2,000 acres of corn with an average yield of 170 bushels an
    acre, he had the price go down a quarter of a million dollars
    on his farm. And that is just catastrophic in the results of
    his risk management for his operation.
        Senator Roberts. Mr. Hupfer, I apologize to you. Something
    is wrong with our sound system, but I think it has been fixed,
    and you came through loud and clear, Mr. Hainline.
        Mr. Tofteland, thank you for personal statement. I know
    this has been pretty rough on you. Would you like to respond?
        Mr. Tofteland. Well, I just wanted to say that this is not
    about myself. There are thousands and thousands of other
    farmers and end users and individuals, traders, people I know,
    somebody out there with their live savings that was taken
    there. And they are probably looking at their next meal and how
    they are going to make their payments next week.
        I think the bigger issue is not just confidence in this
    market. This market is the basic market of--it goes back over a
    hundred years. The basic trading began with the cash trading on
    the Board of Treasury and the Minneapolis Grain Exchange, where
    they used to trade cash at the exchanges or trade rail cars,
    and then it moved to the futures. The historical basis of this
    is the foundation of all of our exchanges going--all of our
    transactions. So the confidence here really relates to the
    confidence in a lot of other markets, and that is why it is so
    important to get it right here.
        Senator Roberts. Mr. Blew.
        Mr. Blew. I really do not have anything further. I think
    the panel has covered it well.
        Senator Roberts. Okay. For the entire panel, have any of
    you had any conversations with your bankers about changing the
    operation of your risk management accounts as a result of this
    bankruptcy? You have told the Committee what you plan to do.
    Any whispering in your ear by your banker?
        Mr. Hupfer. I can respond. Now it is working. Our banker
    called us right after the bankruptcy became public, and he
    wanted to know what the situation was, and we explained to him
    what was happening, what was going on, that we were
    transferring--getting our trades transferred. And since then he
    said just keep him abreast of what is happening, and they have
    confidence in us that we know what we are doing and that we can
    make good decisions.
        Senator Roberts. Mr. Hainline.
        Mr. Hainline. I have not heard specifically, but if I put
    my banker's hat and I was loaning money to Roberts Elevator, I
    do not think I would loan him as much money as I did before
    because I do not know your money is safe there.
        Chairwoman Stabenow. And I would ask the other two folks to
    answer quickly, please.
        Mr. Tofteland. Okay. Just briefly, I know with my bank--and
    he has talked to me about it. For every dollar that we have, we
    can borrow about 40 cents. If my bank was borrowing me 30 times
    over, I suppose he would be a little more concerned. At this
    time he has got confidence that we will get things figured out.
        Mr. Blew. Well, obviously the confidence in the system has
    been compromised, and so they are going to be unwilling to loan
    as much as they would have. I think the challenge in the future
    for me, especially for my cooperative to be able to finance my
    grain when I want to forward price it, is going to be
    imperative, and I know that has been put at risk.
        Senator Roberts. Well, I would just say who at the end of
    the day ends up footing the bill for these additional costs,
    and I think we all know that. Thank you, Madam Chairman.
        Chairwoman Stabenow. Thank you.
        Senator Klobuchar?
        Senator Klobuchar. Thank you very much, Madam Chair. Thank
    you to all of the witnesses. I thought your testimony was
    really helpful in making people understand what this really
    meant to the individual farmer or elevator owner, and I
    especially wanted to thank you, Mr. Tofteland, for your direct
    testimony and honesty, so thank you for that.
        I think a lot of people have a hard time understanding how
    all of this works. It gets so complicated. But I think from
    your perspective, one of the things that you focused on was
    that for you this was not just an investment where you were
    trying to make a profit. You were actually not speculating. You
    wanted to be able to secure yourself against risk. Could you
    just talk a little bit about some of the risks you faced with
    the cost of feed, weather, prices, and why you would get
    involved in doing this to begin with?
        Mr. Tofteland. Thank you. A lot of farmers, what we will is
    we will lock in--like any of us, you lock in your cost of seed
    and chemical fertilizer many months ahead. So when you do that,
    you have price risk. But then during the grain season you also
    have production risk. So it is not unlike an end user that
    purchases flour. They need to buy wheat, and to lock in the
    prices, they will go to the exchange and lock in prices and
    pass the locked-in production on to their customers.
        So basically we are not unlike an end user in that fashion
    where we just lock in the prices and use it for reducing the
    risk.
        Senator Klobuchar. You also mentioned that you were forced
    to liquidate your open positions after they were transferred,
    and I think it is important to note that even if 100 percent of
    the customer funds are found and returned, you will still take
    a loss. Can you explain how that works for people who are not
    familiar with your situation?
        Mr. Tofteland. In the case that we would take a loss?
        Senator Klobuchar. Yes. I think the issue is that even if
    it is returned, you still will have a loss because of what you
    explained earlier.
        Mr. Tofteland. I see. Absolutely. When you are not able to
    lock in your price risk, you have risk to the market. Markets
    move and in my cases and in many farmers' cases, if they have
    locked in their seed and chemical fertilizer and their inputs,
    if they cannot hedge that or sell to lock in that profit, they
    are at risk for the market going down. In my case, the market
    worked adversely against us.
        Senator Klobuchar. You know, you talked about how other
    people have been affected by this, and I know you are from
    Luverne. Not everyone in this room is probably familiar with
    Luverne. It was actually one of the four towns featured in the
    Ken Burns movie about World War II because so many people were
    lost from this small town of 4,000 people. Could you talk about
    other people that may have been affected by this that you know
    in this small town and the surrounding areas?
        Mr. Tofteland. I do know, I just ran across Mike and Brad
    Mouw, a three-generation feed and grain operation that I used
    to buy my feed for my pigs from, and they are affected by this.
    There is also a former banker that I used to work with that
    finances and works with hog producers. I know a lot of
    livestock producers personally that have been affected. They
    are hooked both ways because they hedge their hogs and also
    they hedge their feed. So there is kind of a double-barrel
    effect there.
        Senator Klobuchar. For 25 years you have been farming, Mr.
    Tofteland, and you said that now you cannot use the futures
    market right now, you have not been able to use it since your
    accounts have been frozen. But, personally, what will it take
    to restore your confidence in the market and the safety of
    segregated customs funds so that you would use this market
    again.
        Mr. Tofteland. I believe we are going to need 100 percent
    confidence that these funds are safe, and going forward, I
    think we are going to have to see some--we are going to have to
    see some results on--if there was some wrongdoing, we have to
    see that we--I will put it a simple way. If the cows are out,
    instead of building a bigger fence, we have got to make sure
    the fence holes are fixed and that the--you know, maybe we have
    got to put a little charge in the fence so next time the cow
    sticks its head through the fence, he will remember the shock
    and will not do it again.
        Senator Klobuchar. I will not go there with the electric
    fence and the commodities market, but what you are saying is
    that you think we have to have some rules fixed so this does
    not happen, as well as getting your money back. Is that right?
        Mr. Tofteland. That is right.
        Senator Klobuchar. Mr. Blew, Minnesota has more farm co-ops
    than any State in the country, and Senator Thune and I co-chair
    the Congressional Farmer Cooperative Caucus, and I know from
    farmers all the time the central role that co-ops play in
    managing risk, and I would really ask you the same question
    that I asked of Mr. Tofteland. What do you think is necessary
    to restore confidence in this market?
        Mr. Blew. Well, I just think that we need to ensure the
    rules that are in place are enforced. We have got rules there.
    Let us just make sure that we enforce them.
        Senator Klobuchar. Okay. Very good. Does anyone want to add
    anything to that from the panel?
        [No response.]
        Senator Klobuchar. All right. Very good. Thank you very
    much, Madam Chair.
        Chairwoman Stabenow. Thank you very much.
        Senator Lugar?
        Senator Lugar. Well, thank you very much, Madam Chairman. I
    would like to ask you, Mr. Tofteland, you mentioned that there
    has to be 100 percent confidence that your funds are safe, and
    I am just curious as to how in this business we are talking
    about today or in any business you can have 100 percent
    confidence that your funds will be safe. Specifically, if you
    have to rely upon some other firm, why would you or those you
    are associated with have come together with MF Global?
        Mr. Tofteland. I think what you are relating to is, you
    know, MF Global, did I have any idea that this was going to
    occur or anything, you mean? The 100 percent confidence relates
    to--I mean, when we came to MF Global, we actually were
    transferred there from a different firm. I think a couple
    different firms had--a lot of companies change and they
    purchase each other, and we came in a transaction from, I
    think, ING before. But I think the bottom line is what you are
    saying is a lot of companies will fail, and it happens all the
    time on Main Street. The difference is in this case there was
    customer money that was affected and that was taken. So it is
    really about the money. It is not about--a lot of bankruptcies
    happen, but the way this bankruptcy has been going forward, it
    does not make sense because customer money should be the first
    disbursed, and then we would not have this issue with customers
    being affected.
        Senator Lugar. Yes, well, I would agree with that, and I
    think everyone here does. But the fact is that in business of
    any sort there are risks taken when you are transferring some
    responsibility for a service, in this case the futures market,
    to somebody. Perhaps you may feel this is too complex to
    understand who you are dealing with and who they may be dealing
    with, but then the panel would come back to us and say, but, by
    golly, there has got to be 100 percent certainty. And I do not
    think there is such a thing in this world.
        What I am curious about is, is anybody on the panel aware
    that you were dealing with MF Global at all and have any idea
    about the nature of that firm and the sort of operations that
    they were involved in?
        Mr. Hupfer. No. I do not think we had any idea at all that
    they were of the scope--that they were involved in some of the
    investments, some of the things that they were doing. We just
    cleared our trades through there, working with Mr. Hainline's
    firm, and we had no clue as to any of that.
        Senator Lugar. Mr. Hainline, since Mr. Hupfer had some
    confidence in your firm and, therefore, you may have more of a
    front line with this situation, why were you dealing with MF
    Global?
        Mr. Hainline. We trusted the system, Senator. The Board of
    Trade goes to lengths to explain how nobody has ever lost money
    in this situation. You know, it is their standard line that
    they give, and it is a line you could have been proud of up
    until the last 6 weeks.
        Your point about 100 percent is right on. There is nothing
    that is 100 percent. So how can you have confidence in our
    system? If we knew that the lenders that finance FCMs got no
    dollar one until segregated funds were all covered, then you
    could be confident that the lenders, if they were doing their
    due diligence, would, in effect, be looking out for the
    segregated funds. I think that is really the key issue that I
    would like to leave you with. If we had the lenders in between
    the segregated funds and the customers, I think we could have
    much more confidence that you have got due diligence that a
    farmer, a local cooperative cannot perform. The lenders have
    covenants they can put on the FCMs that borrow money from them,
    and that could help lead to a lot more confidence. Maybe not
    100 percent, but a lot more than what we have today, and maybe
    more than we can get from regulators.
        Senator Lugar. Well, these covenants that you would place
    on the FCMs, as you say, does not, once again, offer 100
    percent confidence. But the thing that disturbs me is I had
    conversations in New York a week ago Monday with investment
    bankers in various ways. I was surprised but pleased in a sense
    that they had been conducting what they called ``war games,''
    and essentially this was with regard to the European markets
    and the financial problems there. What would happen if various
    systems failed in Europe or the whole system failed or the euro
    failed or what have you? What are the implications back and
    forth with regard to their institutions?
        Well, obviously, they are very severe. This is the world in
    which we are living. And you would have no way to know that in
    this case FC Global was engaging in buying bonds in some
    European country that is not turning out very well, or maybe
    you would have. I do not know how close the ties are here. But
    I would just say at this particular time, whether it is in the
    future market for agriculture or for anything, this is a very
    precarious period.
        So I think, you know, we are all of a mind to want to know
    how the CFTC or the U.S. Government in any way can provide
    greater security for farmers and ranchers and so forth. But one
    of the purposes of this panel this morning, I would think, is
    these are folks like yourselves engaged right on the front
    lines who have some idea of what is going on in the rest of the
    world, although you may not want to know that much about it.
    And in this particular case, the ramifications have come home.
        Thank you, Madam Chair.
        Chairwoman Stabenow. Thank you very much.
        Senator Bennet. Thank you, Madam Chair, and I would like to
    thank you and the Ranking Member for holding this hearing.
        Mr. Hainline, in your testimony you said that--to
    paraphrase what you said, you said if we cannot have confidence
    in the futures market, it is going to mean lower prices for
    farmers and higher prices for consumers. I wonder, since most
    Americans do not know how the futures market works, if you
    could describe for the Committee in the simplest terms possible
    how it works and why the result that you describe is the
    outcome of a lack of confidence in the futures market.
        Mr. Hainline. I think I will go back to Mr. Tofteland's
    example. He buys his seed and fertilizer many months ahead of
    when he is going to harvest his grain. He probably should have
    been buying it already for the crop he is going to harvest in
    October of 2012. He then has risk of falling prices because he
    has locked in his input. If he does not use the futures market
    or an options on a futures market, he either stays long his
    price risk or he sells it to a third party--a local grain
    company, an international grain company--and at that point he
    has now entered a counterparty risk with whoever that entity
    is, and he also has no further upside potential if markets
    would rally. And if his crop is hurt because of weather,
    adverse weather, how does he protect himself if he has made a
    forward cash sale? He cannot.
        And so he becomes much less efficient in his ability to
    adjust his operation to the changing nature in our global
    environment. Mother Nature just does not give him a phone call
    and say when it is going to be good or bad. He has to make
    these plans far in advance. So as he is unable to be flexible
    in that, that loss of flexibility means less revenue to him as
    a farmer.
        On the other hand, whoever is selling his product to the
    flour mill or the ethanol plant or the export company or the
    chicken feeder, whoever is selling that is uncertain when they
    are going to buy it from Mr. Tofteland, because he cannot make
    a decision either. And so all of us that buy food or gasoline
    are going to have a larger price to pay because of the
    uncertainty on when he can sell his product.
        So it makes us inefficient. The seller has no idea what his
    real price can be because he cannot manage his risk, and the
    buyer has the same on the opposite side. So it totally breaks
    down what is the most efficient part, I believe, what really
    makes agriculture such a wonderful system in the United States.
    It just goes to the heart of what those efficiencies are.
        Senator Bennet. And just to be clear for everybody who is
    watching, this market is not a recent creation, this futures
    market. This has been part of American agriculture from the
    beginning.
        Mr. Hainline. Yes. You know, what is it? Since the Civil
    War we have traded futures contracts in Chicago, and it is a
    system that has evolved, and it is just miraculous now. We do
    not flash fingers as much as we did before. It is electronic
    trading. That brings it a lot closer to our farmers. Again,
    another efficiency that I think has been good for most people.
    But you have got to have trust, and this whole situation has
    shot that.
        Senator Bennet. Well, that brings me to my second question,
    and I would be happy to have the rest of the panel answer this
    as well. You have described well the economics of this for our
    farmers, the consequence of it, but it also has a profound
    psychological effect. And I wonder if the panelists would mind
    talking a little it about what the scale of this has meant to
    all of you, to your communities. How large an impact has this
    been on your work?
        Mr. Hupfer. Well, personally in our situation, we do not
    have a tremendous amount of capital at risk, but it has just
    shaken the confidence for commercial grain firms in the system.
    The system has worked for a long time. It has been very
    efficient.
        I think, you know, trust goes a long way. Without the
    ability to lock in prices, I think--how do we go out and, like
    Mr. Tofteland was mentioning, lock in his inputs? How do we
    offer him a price for 2012 and beyond where he can deliver--he
    can lock in a price and deliver his grain at a future time. As
    we buy grain in the commercial companies, commercial sectors,
    we cannot find a cash buyer immediately. We have to hedge. We
    have to pool our inventories. It is very efficient in how the
    system works.
        So I guess locally, talking to some of the other firms, it
    has just really shaken the confidence, and everybody is just
    kind of wondering what is going to come out of this.
        Senator Bennet. Mr. Blew, do you have a view?
        Mr. Blew. Yes, my comment was just going to be that farming
    is a risky business today, and it is a margin business. We have
    to be able to manage it, and we have to have the confidence in
    the system that we have the capability to manage it.
        Senator Bennet. Mr. Tofteland, if you have got anything
    else. You have been the star witness.
        Mr. Tofteland. Just real briefly, because I think a lot of
    this is transparent back on the farm. What happens, it has just
    been assumed you can transfer your risk or you could call your
    elevator and make a verbal sale to the elevator, and the
    elevator will turn around and hedge their position immediately,
    and then later they will follow up with the paperwork. But they
    will actually make a verbal committed sale by picking your
    phone up and saying, yes, I will sell 10,000 bushels of corn,
    and he writes it down and makes a transaction based on our
    word. It is just a handshake agreement until you follow it up
    with paperwork.
        We have been sitting back, and I think we take it for
    granted because there is the SEC and the FTIC and FERA and even
    the CME is all involved in regulating the industry and watching
    all this for us. That is what we have these people for. They
    are experts in what they do. And I think we need to learn to--
    well, we need to fix what is going on here, but going forward,
    we do have a lot of people that are in the ball field working
    on this. So that will be a part of the confidence to get those
    structures right.
        Senator Bennet. Well, Madam Chair, in my State and many
    States, the farm country is actually leading this recovery as
    commodity prices have come back, and this could not, I think,
    have happened at a worse time, and at least for my part, I
    cannot imagine anything that would help restore that confidence
    than getting the money back to the people that wonder where it
    went. So thank you for holding this hearing.
        Chairwoman Stabenow. Thank you very much. I could not agree
    more.
        Senator Grassley?
        Senator Grassley. Madam Chairman, I am going to pass up
    asking questions of this panel because I want to get to the
    other panel, but I would say that the same concerns that have
    been expressed by all the other people, hearing their problems
    in their respective States, is also true of Iowa as well. So I
    thank our panel for coming here and giving testimony for
    farmers and their protectors throughout the country.
        Thank you.
        Chairwoman Stabenow. Thank you very much.
        Senator Thune?
        Senator Thune. Thank you, Madam Chairwoman and Senator
    Roberts, for holding this hearing. As Mr. Blew has said,
    farming is a risky business, and hedging is designed to help
    farmers and producers manage that risk. I cannot help but think
    in light of these recent developments surrounding MF Global
    that all of us have been made aware that a very critical and
    important tool used by production agriculture, and that is,
    futures markets and hedging, is not as safe as we once thought.
        I have, I guess, three specific questions that I hope get
    answered here, probably perhaps better answered by the folks
    from MF Global, the regulators, or the exchange. But, one, how
    was MF Global able to continue its risky operations to the
    point that it had no alternative but to declare bankruptcy?
    Secondly, how could the MF Global bankruptcy result in the loss
    of hundreds of millions of dollars in segregated accounts
    without any corrective action being taken prior to this
    happening? And then, finally, how can we be assured that this
    is not going to happen again?
        And, Madam Chairwoman, I would suggest that I believe we
    have got two very distinct responsibilities. One is to make
    sure that we make every conceivable effort that those who have
    lost money due to the failure of MF Global are made whole; and,
    secondly, that we do everything within our jurisdictional power
    to ensure that futures markets are safe for those who use them.
    And so I look forward to the testimony that we are going to
    receive later as well as I appreciate very much what we have
    heard from our panelists already this morning.
        But I do want to come back to some of the ways in which
    production agriculture uses the markets, and I want to ask the
    producers out there, Mr. Tofteland and Mr. Blew, about when did
    you start using futures contracts to hedge your crops?
        Mr. Tofteland. I remember back in college I would come
    home, and I had a course at the university about hedging, and
    this was back in 1998, during the drought, and I asked my dad
    about a call option to reduce the risk of the crops he had
    already forward contracted and, you know, with the dry weather
    and not getting the crop, and literally from back in those
    days, came back from school and started applying the principles
    of hedging from very early in my career.
        Senator Thune. Mr. Blew?
        Mr. Blew. Well, as I have stated, I did not personally use
    the futures markets, but I do indirectly through my
    cooperative. They help me manage my risk very well by helping
    me to lock in the margin. They are doing the input side, and
    they are also doing the grain side. But they have to be able to
    lay that risk off, and so I know that indirectly I am affected
    because they have to have that ability to do that.
        Senator Thune. And how would you say that hedging has
    affected your profitability?
        Mr. Blew. Well, if they do not have the confidence in the
    system to be able to offer me the service that they have by
    locking in that margin, then if I am unable to lock in that
    margin, I am at risk for a potential loss because I cannot lock
    in my profitability.
        Senator Thune. Let me ask you both this question: What will
    have the most impact on your profitability in the future--the
    passage of the next farm bill or the continued safe use of
    futures contracts?
        Mr. Blew. I can answer that one pretty quick. The continued
    safe use of futures contracts.
        Senator Thune. Do you share that view, Mr. Tofteland?
        Mr. Tofteland. Yes, I do share that view. I think a risk
    management package in both cases would be effective.
        Senator Thune. Let me ask you something about how this
    problem is impacting just kind of land prices and rents across
    agriculture. Do you believe that this is a problem that has
    been widespread enough now in your areas that cash rent land
    prices are going to be affected in 2013 and future years?
        Mr. Tofteland. I believe when you look forward, with the
    futures market we are able to pick a window, look through a
    window to see what the futures prices are a year or 2 years
    out. And so with a lot of cases, a couple years ago, you could
    not even market your crop through a local elevator more than
    maybe 3 months out because of the uncertainty in the markets
    and the potential risk and exposure. It is very possible that
    could potentially affect rents and land if you are not able to
    look through that window and see what the future is offering.
        Senator Thune. And that is the question. If this collapse
    results in a diminished use of futures to help hedge inputs and
    commodities in the future, does that impact cash rents? Mr.
    Blew, do you care to comment on that?
        Mr. Blew. That would be speculation on my part. I certainly
    can make the argument that it would have an effect at some
    point, yes.
        Senator Thune. I guess this is more of coming back to the
    impacts on your operation in the future, and some of you have
    talked about the importance, as you go in dealing with your
    lenders, too. What needs to be done, in your view, moving
    forward--and this question has been asked, I guess, in some
    different forms throughout the course of the day--so that you
    will have full faith in the morning that when you wake up, your
    account is not going to be frozen and money missing from that
    account? What would make you feel more comfortable and more
    confident in dealing with your banker with regard to what has
    happened and what needs to be done as we move forward.
        Mr. Tofteland. As we move forward--I guess I am not sure.
        Senator Thune. You need a safe system.
        Mr. Tofteland. Yes, a safe system, basically. That is
    correct, and confidence.
        Senator Thune. Clearly what has happened here has
    demonstrated that whatever--there are things that clearly can
    fall through the cracks. I guess we have learned that lesson.
        Anything, Mr. Blew, you can add to that?
        Mr. Blew. Well, with all due respect to members of the
    Committee and everybody in Washington, that is what we are here
    to figure out.
        Senator Thune. Okay. We appreciate your testimony and your
    willingness to share your personal examples of how this impacts
    you. It certainly has, I think, shined a spotlight on the
    importance of us getting this right so that something like this
    does not happen in the future.
        I think the story here, Madam Chairwoman, is to figure out
    what went wrong and to figure out how we fix it so it does not
    happen again. You have been very helpful in that regard. Thank
    you.
        Chairwoman Stabenow. Thank you very much.
        Senator Harkin?
        Senator Harkin. Thank you, Madam Chair. Nobody, I believe,
    is saying that MF Global or any other futures firm owes
    customers a guarantee against all losses. I have heard that.
    But I want to get a sense of whether customers who are trading
    futures realize that under the rules in place when this
    happened, a futures commission merchant could invest segregated
    customer funds not only in treasury securities and cash but in
    municipal bonds, securities of Government-sponsored
    enterprises, commercial paper, corporate notes, sovereign debt,
    money market funds, and even further, could use customer funds
    to trade in-house using what are called repurchase and reverse
    repurchase agreements. Moreover, any profits on these
    investments of customer funds accrue to the firm and not to the
    customer.
        Now, I was looking here at a timeline chart. Pre-2000, a
    futures commodity merchant could invest your customer's funds
    in treasuries, municipals, or obligations fully guaranteed by
    the U.S. Government. That is it.
        Now, look at the timeline from then to now. Now we got into
    corporate notes and sovereign debt and money market mutual
    funds. And then we got into in-house transactions and on and on
    and on.
        Welcome to the world of deregulation, folks. That is what
    you get. That is deregulation. And now we hear people say we
    have got to have even more deregulation. I wonder. My question
    to all of you is: Would a farmer, an elevator manager, or any
    other typical customer of futures commission merchant, such as
    MF Global, ordinarily know that customer funds were commonly
    invested in such a variety of instruments and securities,
    profits of which do not accrue to the customer but only to the
    house? Would a farmer or elevator manager know that? Would you
    know that, Mr. Tofteland?
        Mr. Tofteland. I had no idea.
        Senator Harkin. Did you know, Mr. Blew?
        Mr. Blew. No.
        Senator Harkin. Now, Mr. Hainline probably knew because you
    have a futures commission.
        Mr. Hainline. It is possible to know, but it is very
    difficult to find out what the specifics are, Senator.
        Senator Harkin. Well, do you believe it would affect the
    decisions of customers, Mr. Tofteland and Mr. Blew, if you knew
    how and with whom they do business if the futures customers
    knew that the merchants were able to invest and move around
    these customer funds? Would that maybe affect with whom you
    dealt?
        Mr. Tofteland. It certainly would if I knew that----
        Senator Harkin. Would transparency help?
        Mr. Tofteland. It would. If I had any idea that what was
    going on there----
        Senator Harkin. Well, let me ask one last question-- maybe
    not quite the last. I see a little more time left. Do you
    believe it would be better if customer funds could only be
    invested in treasury securities or cash, as I understand is
    required by the Securities and Exchange Commission as to
    securities brokers and dealers? I am just asking. I am saying,
    Should we go back to where we were pre-2000?
        Mr. Tofteland. Well, those investments seem a lot more
    secure than the latter.
        Senator Harkin. I will read them to you: treasuries,
    municipals, and obligations fully guaranteed by the U.S. Would
    that give you a little bit more----
        Mr. Tofteland. I understand those,
        Senator Harkin. You understand those, sure. We understand
    those. I am not certain I understand what in-house transactions
    are and purchase and repurchase agreements and how they shuffle
    this money back and forth. And I think that is part of this
    whole deregulation effort, was to put a cloud in there. It is a
    cloudy kind of thing. No one really knows what is going on and
    how these monies are being used. Quite frankly, these merchant
    houses are using the money to make a profit. I cannot say I
    blame them. They got a bunch of money, and they see some unique
    investments they can make, why not go ahead and do it? Because
    their argument to us--believe me, I have been involved in this
    since they first came and wanted to get rid of the Glass-
    Steagall Act, which I was one of seven members to vote against.
    Ever since they got rid of Glass-Steagall, all we hear about
    is, well, if they can just use these funds and invest it in
    these things, they make a little profit and, therefore, they
    become more efficient in handling your money, you see. And that
    is the argument that has been used here for the last 12 years.
    And the Congress continually just says, okay, fine, just fine,
    just keep deregulating it.
        Well, I guess I would just ask: Doesn't the MF Global
    disaster illustrate the unavoidable conclusion that we must
    have strong, transparent regulations for the protections of
    customers and the public? Mr. Blew? Or do you want to just live
    with this nice big deregulation and take your chances, roll the
    dice?
        Mr. Blew. No, you know, I cannot speculate. I guess what I
    would--the only response I would have to that is I do believe
    that we have regulations in place, and I am not sure that they
    were enforced.
        Senator Harkin. Yes, we have regulations in place. They can
    invest in all these things. I am asking you, Should they be
    able to invest in all that stuff?
        Mr. Blew. I am going to let you figure that out, Senator.
        Senator Harkin. Well, no, I mean, you are at the bottom end
    of this. Mr. Tofteland, should they invest in all these things
    and not even let you know what they are investing in?
        Mr. Tofteland. Well, I do not agree that--I personally
    would not have invested in some of that, so if they took the
    funds that I entrusted there and did that, I do not think that
    should be the case. As far as the regulation goes, that would
    be something for the CFTC and your Committee to look at.
        Senator Harkin. Mr. Hainline, any view?
        Mr. Hainline. I tend to agree with you, Senator. If I
    wanted to make those kind of investments, I would either buy
    them myself or invest in the company's--the stock of a company.
    If I have got segregated funds that I need to have secure, that
    is not the purpose.
        Senator Harkin. Very good. I agree with you.
        Mr. Hupfer?
        Mr. Hupfer. Senator, I agree that they should be segregated
    funds and only safe investments, there would be more
    disclosure. We were not aware that our money was being invested
    in these transfers or any of this type of thing was going on. I
    guess that is how I feel.
        Senator Harkin. Thank you.
        Thank you, Madam Chair.
        Chairwoman Stabenow. Thank you very much.
        Senator Boozman?
        Senator Boozman. Thank you. We appreciate you all being
    here. You all are farmers, and you all are used to taking
    risks. I think you can argue as to what is appropriate or not,
    but I would like to follow up on Senator Harkin in the sense
    that, again, based on the materials that were presented to you
    as you were sold, you know, whether or not to do this, did
    you--I just want to be clear. You felt like you did not
    understand the risk that you were getting into. Is that
    correct? You did not realize that the funds could be
    segregated, that you could lose your money in this manner?
        Mr. Tofteland. That is correct. I was just assuming that
    would be--it is something that has been done and trusted for
    100 years.
        Senator Boozman. I have got the CME, Clearing Financial
    Safeguards, you know, and this is a lot of information. But
    when you read through it, it does appear that things are pretty
    secure. So that is a fair statement, because, again, we can
    argue as to what is appropriate and what we need to do in the
    future. But at the very least, you know, you need to be aware
    as you get into a deal, you know, what is at stake, what the
    risks are, and it seems very apparent that was not the case.
        Again, thank you very much for being here.
        Chairwoman Stabenow. Thank you very much.
        Senator Brown?
        Senator Brown. Thank you, Madam Chair. Thank you for
    holding this hearing, and I appreciate especially the comments
    from all of you. I just arrived, but I saw your testimony and
    appreciate your comments about needing to build confidence. And
    Senator Harkin's comments especially were important. You know,
    it is not often we have an opportunity, I think, to see--to put
    a face on decisions made by people in this town, and that is
    particularly important in this hearing, especially the two
    gentlemen on the right. It is an important reminder that the
    actions of Congress and watchdogs like SEC, like CFTC, have
    real-world consequences.
        Like most States, Ohio is home to companies that have
    fallen victim again to the culture of recklessness and greed.
    In Upper Sandusky, a town about 40 miles west of where I grew
    up, a feed and pork producer, Kalmbach Feeds, uses a commodity
    broker who uses MF Global. When they heard that MF Global was
    experiencing difficulties due to risky bets on European debt,
    they tried to withdraw their funds and could not. A metal
    refinery in southeast Ohio, in Appalachia, Ohio Precious
    Metals, was told their money was safe. Now both these companies
    are stuck in limbo as the CFTC and CME search for $1.2 billion.
    They are the latest of the victims of Wall Street fraud and
    greed and whatever other adjectives we want to use.
        Let me, before my question, put a little bit of historical
    context. In 2000, the CFTC relaxed its Rule 1.25 restricting
    how companies can invest client funds, a giant change that
    helped create the conditions for MF Global's failure. That same
    year, Congress passed a law preventing regulation of over-the-
    counter derivatives, which then grew to a $464 trillion market
    in the first half of 2008. Last year, the SEC brought charges
    against Goldman Sachs for selling its clients' mortgage bonds
    that it knew were doomed to fail, then betting against those
    very bonds, as you have read by now.
        One of these misguided policies hurt investors; another
    caused a catastrophe for our Nation's economy; the third did
    both.
        These episodes demonstrate that rules and accountability
    must keep pace with developments in the markets. Last year,
    Dodd-Frank included what is the now famous Volcker Rule to ban
    banks from making risky proprietary trades for their own
    accounts, just like those made by MF Global. We passed this
    provision because these bets are dangerous and because they pit
    banks against their own customers. And when that happens, the
    customer always loses. Unfortunately, efforts like the Volcker
    Rule are met with powerful opposition from powerful special
    interest lobbyists in this town.
        Wall Street and its allies in Washington are seeking to
    prevent implementation of the important reforms we passed last
    year. They are seeking to defund not only they wanted to weaken
    regulations further, as Senator Harkin said; they are seeking
    to defund agencies that watch over financial markets. So as Mr.
    Blew--as you both said, we are not able--you know, that these
    rules may have been on the books. They were not carried out
    partly because Wall Street allies in this town and in this
    Senate want to defund these agencies so that even if the rules
    are in place, there is not the money to enforce them.
        Finally, these same interests blocked the appointment just
    last week of the Director of the new Consumer Financial
    Protection Bureau, somebody I have known for 20 years from
    Ohio, Richard Cordray, whose sole mission was to protect Main
    Street against these kinds of Wall Street abuses. And unlike
    ever in Senate history, he was blocked not because he was not
    qualified but because more than 40 Senators here, allied with
    Wall Street, did something they had never done before. They
    blocked a nominee because they did not like the agency, even
    though the agency had been created by an act of Congress with
    more than 60 votes, a supermajority, 2 years later.
        Markets require transparency and clear rules of the road
    for all participants and accountability when those rules are
    broken. Watchdog agencies need adequate resources to prevent
    unscrupulous Wall Street actors from again taking advantage of
    farmers and small manufacturers in my State and across the
    country. It puts companies in States like mine at risk that
    rely upon these markets to deal with business predictability to
    smooth out the busts and the booms.
        So here is my question for each of the four of you,
    starting with Mr. Blew on the right: What would you say to
    those who, one, want to defund the regulators; two, want to
    weaken the regulations; three, fail to confirm somebody that
    would be a consumer watchdog--pardon my mixed metaphor but
    would be a cop on the beat for consumers? What do you say to
    those politicians and regulators that seem so little interested
    in protecting Main Street? Mr. Blew?
        Mr. Blew. Well, I cannot--again, I cannot speculate whether
    or not we need to regulate, deregulate, overregulate, whatever
    we need to do. I just know that we need confidence in the
    system to be able to manage risk, and so however we achieve
    that, that is fine. But whatever rules we do have in place or
    have in place in the future, we need to ensure that they are
    enforced.
        Senator Brown. Okay. Mr. Tofteland?
        Mr. Tofteland. I do not know if it is an issue so much here
    whether it is left or right. It is really an issue of what is
    right or wrong. And I think we can go ahead and build a bigger
    fence. But if we have--and as long as we have the guy that
    builds the fences or people that build the fences show the cows
    where the holes are at, you could build the biggest fence in
    the world and it will not work. So I think we have maybe a
    problem with some big cows.
        Senator Brown. Well put.
        Mr. Hainline. I think your point on efficient transparency
    is very important. I think oversight is really key. The reason
    we are here today is this Committee has oversight over this
    area, and so I think oversight in anything the Government gets
    involved in is key. And so with respect to your question, I am
    not sure what the oversight of those other positions are.
        Senator Brown. Mr. Hupfer?
        Mr. Hupfer. I guess I feel we need to enforce the
    regulations that are in place. I think Mr. Harkin made some
    good points about what can be invested, where the money can be
    invested, whether it is safe investments, and transparency is a
    huge issue. I think this body--like I said, as we move forward,
    that is why we are here, to get some answers and to try to come
    to some kind of a resolution on this.
        Senator Brown. Thank you.
        Thank you, Madam Chair.
        Chairwoman Stabenow. Thank you.
        Senator Chambliss?
        Senator Chambliss. Thanks, Madam Chair.
        I understand that, gentlemen, you all have testified that
    you were not aware of the use by MF Global--whether they did so
    or not, but you were not aware of the use by them of your funds
    to carry out proprietary trades. Is that a fair statement from
    all four of you?
        [No response.]
        Senator Chambliss. So my question is: What would you have
    done if you had known that? What do you think your recourse
    rights are? And what would you have done if you had somehow
    been advised that they were using your funds for proprietary
    trades? Mr. Hupfer, let us start with you.
        Mr. Hupfer. Well, I guess Mr. Lugar made the point that it
    is a risky world. I think that any good businessman would
    spread his risk, probably open an account at another clearing
    firm, maybe more than one account, and kind of divide your
    capital or spread your risk in that manner.
        Senator Chambliss. Okay.
        Mr. Hainline. If the degree of leverage had been known, as
    has come out subsequent, I am sure we would not have been
    clearing MF Global.
        Mr. Tofteland. I just want to say that businesses are going
    to continue to fail, and when a business fails, customer assets
    have to be preserved and have to be--this has happened before
    in this industry. Companies have failed. Customer assets have
    transferred the next day, and we went on his business. In this
    case something else happened, and that is what we ought to look
    into.
        Mr. Blew. Well, without a doubt we would have spread the
    risk to other futures commission merchants,
        Senator Chambliss. My point in asking that is that as we
    move forward, I wonder if there ought not to be some measure by
    which a customer like the four of you would be made aware of
    such a transaction. And it is easy to look back and see now
    what you would have done, but I think I hear all of you saying
    you would not have been happy with the fact that there were
    proprietary trades using your money.
        Lastly, and if this has been asked, I apologize, but I come
    from ag country, too. I know how hard it is in these times to
    get funding for your operating loans, and this is that time of
    year when farmers are negotiating for operating loans. What
    kind of impact has this had in your respective parts of the
    country with your customers? Again, Mr. Hupfer, let us start
    with you.
        Mr. Hupfer. Well, at this point in time, in terms of us
    being a commercial agribusiness, in terms of financing for
    farmers, I do not think that is really--I do not think we have
    the real true answer on that yet. I do not think we are far
    enough along with this. I have talked to some of the lending
    institutions, and I think everybody is just trying to see how
    this plays out. I guess I would defer maybe over to Mr. Blew
    and Mr. Tofteland on that.
        Mr. Tofteland. Well, I have yet to speak with my banker in
    detail. After this hearing when we get back, we will talk some
    more. He has assured me that he is with us 100 percent and
    wants to work with us in the future. You know, in my case we
    will have to borrow more money.
        Mr. Blew. Well, I think grain as a lender was always seen
    as a secure bet, and I believe that if we do not restore the
    confidence in the system, that could come into question. It is
    fairly simple math right now. Our lenders puts working capital
    requirements on us of seven times the number, and so you take
    the number that we have lost and take it times seven, and that
    is what we are out as far as what we can borrow.
        Senator Chambliss. Thanks, Madam Chair.
        Chairwoman Stabenow. Thank you very much.
        Senator Gillibrand?
        Senator Gillibrand. Thank you, Madam Chairwoman, for
    holding this hearing. Thank you, Mr. Ranking Member. Thank you
    all for giving us your testimony.
        The questions that I had have been asked, and I appreciate
    the time you have taken to brief this Committee, and I will
    reserve the remainder of my questions for the next panel.
        Thank you very much.
        Chairwoman Stabenow. Thank you very much.
        Senator Hoeven?
        Senator Hoeven. Thank you, Madam Chairman.
        I know this line of questioning has been asked. I would
    like to go into it for just a minute. But, again, it goes to if
    the company was not dipping into customer accounts, segregated
    accounts, how could the customer account or the segregated
    account come up short, in your opinion? Is there any way those
    accounts could have been short unless that was happening? And I
    would start with Mr. Hupfer and also ask Mr. Hainline to
    respond to that as well.
        Mr. Hupfer. Could you--I guess your question is how could
    we have known that they were----
        Senator Hoeven. No, no.
        Mr. Hupfer. I am sorry.
        Senator Hoeven. In your opinion, if MF Global was not
    taking dollars out of those custodial accounts or dipping into
    those custodial accounts for company purposes, how would
    customer accounts come up short? In your opinion, is there some
    other way other than the company going into those accounts?
        Mr. Hupfer. I guess I do not see how there would be any
    other way.
        Senator Hoeven. That is my question.
        Mr. Hainline. It is either sloppy recordkeeping or it is
    theft.
        Senator Hoeven. And was there any indication at any time to
    you that customer accounts were being used for company
    purposes, any indication, any reporting to you at any time?
        Mr. Hupfer. No.
        Mr. Hainline. No.
        Senator Hoeven. Did you try to withdraw dollars at any time
    when you realized MF Global was having trouble? Or at what
    point did you try to withdraw dollars, and what was the
    reaction? Were you stopped, not stopped? What was the
    communication?
        Mr. Hainline. Towards the last of the week that they were
    trading, lots of smoke in the situation. To transfer positions,
    normally the positions transfer one day and the money transfers
    the next day. If you are an FCM that would be accepting these
    new positions, your risk is you get these new positions in a
    transfer and the funds are frozen the following day, and that
    chilled many FCMs from accepting transfers at the end of this.
    So it was another result of this problem.
        Senator Hoeven. So by the time you were made aware of the
    problem or the magnitude of the problem, you really did not
    have an ability to withdraw customer funds?
        Mr. Hainline. Well, that is the reason there are so many
    bounced checks out here.
        Senator Hoeven. Mr. Hupfer, anything?
        Mr. Hupfer. I would say that is correct. We had no
    knowledge, we would not have that ability. There was no
    opportunity to do that.
        Senator Hoeven. To Mr. Tofteland and Mr. Blew, is your
    understanding still that you will receive 72 percent of your
    account, either directly or transferred to another company?
        Mr. Tofteland. That is my understanding.
        Senator Hoeven. And you have not had any communication
    beyond that?
        Mr. Tofteland. Not beyond that. Just that they are looking
    at--or the trustee and the judge have worked to get it to 72
    percent. Beyond that I am not sure what will happen. I want to
    make sure--I do not want to see that our customer funds are
    thrown into the pool with the creditors because if there is $40
    billion at the holding company level and they liquidate the
    FMCI down here or MF Global, Inc., you know, there should be
    funds available. We should be made whole immediately. We would
    not be here if that was the case.
        Senator Hoeven. Absolutely, and I absolutely understand how
    important that is. So at this point the indication to you from
    the trustee is 72 percent of your funds would come back to you.
    Any indication of timeline and any further indication on this
    issue of whether customer funds have a priority versus bond or
    equity holders?
        Mr. Tofteland. I wish there was more transparency in that
    process. I wish that we could look at--I wish the trustee would
    released where the money is at that he has found already so we
    could at least find out if it is at JPMorgan Chase or if it
    is--I mean, where it is at. It would be nice to see some
    transparency in that process. You know, maybe it just an issue
    of understanding. I hope is not a conflict because it is kind
    of confusing how this all works, but in any bankruptcy, when
    you have customer funds, in any business, it has got to be kept
    separate. It is like if I bring my pickup to the car dealership
    to get the oil changed and over the weekend they close the
    doors, the bank comes in, and the next day they put my pickup
    on the lot with the cars that are going to be foreclosed on,
    and, you know, my pickup is my pickup. So it is customers. So
    it really should not be an issue.
        Senator Hoeven. Well, transparency, understanding how they
    are going to approach this issue, and then also timeline,
    knowing when you are going to have use of your dollars, all
    these are important.
        Mr. Tofteland. Exactly. I have no idea. Maybe 3 weeks,
    maybe 4 weeks, but no idea for sure on my particular case.
        Senator Hoeven. And that is important information for you
    and for other producers.
        Mr. Blew, same questions.
        Mr. Blew. Well, I would be the same way. We have not heard
    anything officially. We know that is what has been proposed,
    but nothing official as of yet.
        Senator Hoeven. And how is that communication being
    provided to you?
        Mr. Tofteland. In my case, working with the Commodity
    Customer Coalition, and they represent 8,000-some customers
    now, farmers, ranchers, elevators, and individual people, so
    that is where I get my information recently, and working with
    them.
        Senator Hoeven. And, Mr. Hupfer and Mr. Hainline,
    communication to you and your ability to communicate with your
    customers, could you just touch on that?
        Mr. Hupfer. Communication-wise and working with Advanced
    Trading, Mr. Hainline's company, has been great. They have kept
    us abreast of the situation so we have some kind of an idea
    what to tell our customers. Right from the get-go, they were on
    top of this, and I give them high marks for that.
        Mr. Hainline. The trustee's website has a lot of
    information. The CME has done a good job of putting out
    information. There has been a number of media reports. So, you
    know, those are the areas that we are able to get information
    from.
        Senator Hoeven. With customer dollars tied up, though, for
    your farmers and ranchers, what are they doing? How are they
    operating without those dollars?
        Mr. Hainline. They are probably having to ration their risk
    management activities. They are performing less risk management
    than they would have otherwise. So they are taking more risk
    because they do not have the assets there that are tied up.
        Senator Hoeven. Mr. Hupfer.
        Mr. Hupfer. I would agree with what Mr. Hainline said.
        Senator Hoeven. Thank you, gentlemen, for coming in. We
    appreciate it very much.
        Chairwoman Stabenow. Thank you very much.
        Senator Conrad, did you have questions?
        Senator Conrad. You know, in the interest of time, given
    the lateness of the hour, let me just say what an excellent
    panel this has been. We very much appreciate your willingness
    to come forward and state publicly what has happened to you.
    You certainly have our sympathy. We are hopeful that before
    this is over there will be 100 percent recovery. Certainly that
    is what you deserve. And I think this Committee will be very
    focused on trying to make certain that you get every dime back
    that you put in customer accounts that should not have been at
    risk.
        I thank the Chair.
        Chairwoman Stabenow. Thank you very much. I think everyone
    on this Committee absolutely agrees with that statement.
        I notice that Senator Nelson has just joined us. Senator, I
    do not know if you have questions as we are wrapping up this
    panel.
        Senator Nelson. No. I think most of the questions have been
    asked. I will wait for the next panel. Thank you, though, Madam
    Chair.
        Chairwoman Stabenow. Thank you very much.
        Thank you again to each of you for traveling here to be a
    part of this, and I want you to know that we are laser-focused
    on doing everything in our powers to make sure you get your
    money back. So thank you very, very much, and we would excuse
    you and ask our next panel to come forward. We will take a
    moment as we change panels. Thank you.
        [Pause.]
        Chairwoman Stabenow. Thank you very much for joining us for
    this very important hearing. Let me introduce our witnesses.
        First, our first witness is Mr. Jon Corzine. Mr. Corzine is
    the former Chairman and CEO of MF Global Holdings. Before
    becoming CEO of MF Global, Mr. Corzine was the Governor of New
    Jersey from 2006 to 2010. Prior to serving as Governor, Mr.
    Corzine served as a Senator from New Jersey. From 1975 to 1999,
    he worked for Goldman Sachs as a bond trader, eventually
    becoming chairman and CEO.
        Next we have Mr. Bradley Abelow, president and chief
    operating officer at MF Global. Prior to joining MF Global, Mr.
    Abelow was a founding partner of New World Capital Group.
    Before co-founding New World, he was chief of staff to Governor
    Corzine.
        Lastly, we have Mr. Henri Steenkamp, chief financial
    officer for MF Global. Before joining MF Global, Mr. Steenkamp
    spent 8 years with PricewaterhouseCoopers, including four years
    in the New York office as part of its transaction services
    group where he managed a variety of capital-raising
    transactions on a global basis for multinational companies. Mr.
    Steenkamp is also a chartered accountant.
        As with our previous panel, we would ask that you rise so I
    could administer an oath and ask that you raise your right
    hand. Do you swear that the testimony you are about to present
    is the truth, the whole truth, and nothing but the truth, so
    help you God?
        Mr. Corzine. I do.
        Mr. Abelow. I do.
        Mr. Steenkamp. I do.
        Chairwoman Stabenow. Thank you very much.
        At this point we will welcome Mr. Corzine.

      STATEMENT OF HON. JON S. CORZINE, FORMER CHAIRMAN AND CHIEF
     EXECUTIVE OFFICER, MF GLOBAL HOLDINGS LTD., NEW YORK, NEW YORK

        Mr. Corzine. Thank you, Chairwoman Stabenow, Ranking Member
    Roberts, and distinguished members of the Committee. The
    statements of the previous panel pretty powerfully confirm the
    harsh fact that MF Global's bankruptcy has devastated people's
    lives and undermined confidence in markets. I recognize that my
    concerns about their anguish and loss of confidence does not
    provide solace for those losses or hardships, and that is true
    whether those hurt are customers, employees, or investors.
        As the chief executive officer of MF Global--and I say this
    with all sincerity--I truly apologize to all those affected.
        As you know, I have provided a written statement to the
    Committee, and I testified before the House Committee on
    Agriculture last week. I am here to answer your questions as
    well. Before I do, I wish to make a few additional points in
    light of my earlier testimony.
        Several of the questions last week concerned whether I was
    aware of any money that belonged to customers being used
    improperly. I tried to answer those questions to the best of my
    ability, but I want to be clear. I never gave any instruction
    to misuse customer funds. I never intended anyone at MF Global
    to misuse customer funds.
        I also want to address the missing money. Again, as I said,
    I was stunned to learn that hundreds of millions of dollars of
    funds were unreconciled on Sunday evening, October 30th. And
    while people worked very hard into Monday morning to reconcile
    the accounts, ultimately their efforts were unsuccessful.
        I note that in response to questions about the whereabouts
    of the missing funds, both CFTC Commissioner Sommers and the
    SIPC trustee explained that, to trace missing funds, it will be
    necessary to analyze and reconcile multiple hundreds of pages
    of daily transactions, multiple bank statements from many
    countries, and to review account records of more than 38,000
    customers. In the ordinary course of business while I was at MF
    Global, I would not have seen those records, and I have no
    access to them now.
        What I do know is that over the last days at MF Global I
    was focusing on selling the company and liquidating assets so
    that there would be adequate cash and resources to handle what
    ultimately became a run on the bank.
        For example, on Thursday I directed the sale of
    approximately $1.3 billion in commercial paper in order to meet
    anticipated customer demands. I also directed the sale of
    hundreds of millions of dollars of MF Global proprietary
    assets. On Friday I directed sales of other assets, including
    approximately $4.5 billion of Government agency bonds and
    attempted to sell other securities.
        As I sit here today, I do not know whether all of these and
    many other transactions were properly recorded and effectuated,
    or whether banks and other counterparties involved in such
    transactions properly credited the right accounts for these
    sales, or are holding money that is rightfully due to either MF
    Global or its customers. Nor do I know whether the back-office
    professionals at the firm or at other institutions made errors
    or miscalculations under the extraordinary stress.
        Questions have also been raised about the compliance and
    risk systems at MF Global and the controls on segregated funds.
    During my tenure we employed, including many new hires, dozens
    and dozens of highly regarded and trained professionals in the
    areas of risk, finance, compliance, legal, internal audit, and
    back-office operations. We also retained prominent outside
    auditors, consultants, and lawyers to make sure MF Global
    operated lawfully. Indeed, until Sunday night before the
    bankruptcy, I believed that the people and systems at MF Global
    were properly protecting client funds.
        For example, on the Friday before the bankruptcy, JPMorgan
    Chase contacted me and others at the firm about certain
    overdrafts and whether funds had been transferred in compliance
    with CFTC rules. I had no personal knowledge about the issues,
    so I asked people, senior people in the back-office in Chicago
    and Legal Department to become directly involved in resolving
    these issues. So even in the midst of the chaotic last days of
    business, I had confidence in our people and systems.
        So before I respond to your questions, I want to say again,
    I apologize to our customers, the farmers and ranchers, the
    gentlemen that we saw here today, and the people they represent
    in the real world, our employees and our investors. My pain,
    and my embarrassment, do not blind me to the fact that they
    bear the brunt of the impact of the firm's bankruptcy.
        I am willing to respond to the Committee's questions.
        [The prepared statement of Mr. Corzine can be found on page
    101 in the appendix.]
        Chairwoman Stabenow. Thank you very much.
        Mr. Abelow?

      STATEMENT OF BRADLEY ABELOW, PRESIDENT AND CHIEF OPERATING
          OFFICER, MF GLOBAL HOLDINGS LTD., NEW YORK, NEW YORK

        Mr. Abelow. Madam Chairwoman, Ranking Member Roberts,
    members of the Committee, thank you for having me here today.
        The bankruptcy of MF Global was a tragedy for our
    customers, our employees, and our shareholders. For many of our
    customers, including many of your constituents who have still
    been unable to retrieve funds that are rightfully theirs, it
    has imposed extreme financial hardship. More than 2,500
    employees have either already lost or will soon lose their jobs
    through no fault of their own. Shareholders have seen the value
    of their investments reduced to almost nothing overnight.
        As the president and chief operating officer of MF Global,
    I am deeply sorry for the hardship they have all endured. While
    I know that nothing I say can ease their pain, I hope that
    through my testimony today I can help this Committee understand
    what happened at MF Global and how we are attempting to unwind
    the company in a manner that provides maximum value for all
    parties.
        I joined MF Global in September 2010 as chief operating
    officer. I was given the additional title of president in March
    2011 and served in that capacity through the bankruptcy filing
    this October. After the filing, the firm's board asked me to
    remain in my position to work with the various trustees and
    administrators to close the firm's operations, which I have
    attempted to do over the last 6 weeks.
        From my perspective, based on what I was able to observe at
    the time, there were a number of factors that led to MF
    Global's demise. First, it appeared that in mid-October of this
    year the market had become increasingly concerned with the
    firm's exposure to European sovereign debt. Second, beginning
    in late October, the ratings agencies rapidly and repeatedly
    downgraded the firm's credit rating. Third, the company
    reported disappointing earnings on October 25. The combination
    of those three events-- increased concern about exposure to
    European sovereign debt, a series of ratings downgrades, and
    disappointing earnings-- created an extremely negative
    perception in the market resulting in a large number of the
    firm's trading and financing counterparts pulling away from MF,
    dramatically reducing the firm's liquidity. That reduction in
    liquidity--a classic run on the bank--led MF Global to attempt
    to sell all or part of the firm in order to provide liquidity
    and protect the interests of our employees, shareholders,
    creditors, and customers. When those efforts failed, MF Global
    filed for bankruptcy on October 31st.
        I know this Committee is interested in finding out what
    amount of segregated client funds went missing in the final
    days, how it happened, where those funds are, and what might
    eventually be returned to the firm's clients. I am deeply
    troubled by the fact that customer funds are missing, and I can
    assure you that I share your interest, and the public's
    interest, in finding out exactly what happened. At this time,
    however, I do not know the answers to those questions. They are
    being investigated by the trustees, who have taken over
    management of MF Global and have control over its records and
    accounts, and a host of regulatory and investigative agencies.
    While I do not know what they have found, I do know that all of
    the parties are working hard to find answers, and I hope they
    are able to get to the bottom of the issue as soon as possible.
        Since the company filed for bankruptcy, I have focused
    every day on minimizing the effect on customers and employees.
    There is no way to turn back time and undo all of the damage
    caused by the collapse of MF Global, but in the last 6 weeks, I
    have worked day and night to reduce costs and maximize the
    remaining value in the business.
        Because MF Global was a global firm, with operations on
    exchanges in more than 70 countries, there are separate
    entities with separate systems and books around the world, and
    I have worked to foster cooperation and communication among
    those entities. There are a number of different parties now
    responsible for unwinding the firm's operations, and it has
    been an enormous effort to coordinate with them to generate the
    maximum possible recovery of assets.
        While it is only a small measure given the number of people
    who have lost their jobs, I am doing whatever I can to help
    former employees find new employment.
        I believe it is important to examine the issues that led to
    MF Global's demise, and the firm has attempted to be as open
    and transparent as possible. I hope I can provide some
    assistance to the committee in its investigation today.
        As I said, there is no way to undo the damage that has been
    done by MF Global's bankruptcy. But it is my hope that efforts
    such as this one to gather facts and provide a clear picture of
    what occurred will assist policymakers, regulators, and
    participants in the financial services industry in avoiding
    such tragic events in the future.
        I look forward to answering your questions.
        [The prepared statement of Mr. Abelow can be found on page
    96 in the appendix.]
        Chairwoman Stabenow. Thank you very much.
        Mr. Steenkamp?

     STATEMENT OF HENRI J. STEENKAMP, CHIEF FINANCIAL OFFICER, MF
                GLOBAL HOLDINGS LTD., NEW YORK, NEW YORK

        Mr. Steenkamp. Chairwoman Stabenow, Ranking Member Roberts,
    and distinguished members of the Committee, thank you for this
    opportunity to make this brief statement. My name is Henri
    Steenkamp, and I am the chief financial officer of MF Global
    Holdings Limited, a position I have held since April of this
    year.
        Let me say at the outset that I am deeply saddened, upset,
    and frustrated that money belonging to MF Global Inc.'s
    customers has been frozen or is missing. I know, however, that
    my reactions cannot be compared to those of the people who are
    suffering with this issue. Along with certain other senior
    executives of MF Global Holdings Limited, I have remained at my
    post following the bankruptcy filing, and I am working
    diligently to do what I can to maximize the value of the firm
    for all interested parties. That said, because of the SIPC
    trustee's rules and policies, I unfortunately have not been
    able to participate in the current efforts to find the missing
    funds.
        While I am deeply distressed by the fact that customer
    monies have not yet been fully accounted for, I unfortunately
    have limited knowledge of the specific movement of funds at the
    U.S. broker-dealer subsidiary, MF Global Inc., during the last
    2 or 3 hectic business days prior to the bankruptcy filing.
    This is in part because of my global role and in part because,
    during those days, I was taken up with other serious matters.
        As the global CFO, I had many different functions, but
    principal among them was the effort to, one, ensure that the
    holding company's consolidated financial accounts complied with
    all U.S. accounting and reporting requirements; and, two, to
    work closely with our investors and our rating agencies.
        As its name suggests, MF Global Holdings Limited, my
    employer, is a global holding company with approximately 50
    domestic and foreign subsidiaries. Each of the regulated
    subsidiaries generally had its own or a regional chief
    executive officer, chief operating officer, chief financial
    officer, and others obligated to independently discharge the
    customary duties of those offices according to its home
    jurisdiction's regulatory requirements. All of these positions
    were filled by highly experienced professionals. Direct
    involvement with operational matters such as bank accounts or
    fund transfers has never been part of my duties.
        It is, of course, important to understand the way in which
    segregation issues were handled at MF Global Inc., the
    subsidiary that acted as a futures commission merchant in the
    ordinary course of business. To avoid confusion, where it is
    necessary to specifically refer to MF Global Inc., I will call
    it ``MFGI'' in my statement.
        MFGI held all U.S. FCM customer funds required by law to be
    segregated, and all segregation calculations were performed by
    experienced MFGI personnel in Chicago overseen by MFGI finance
    professionals. To my understanding, MFGI's segregation of
    client funds has been reviewed repeatedly by the firm's outside
    auditors and regulators over a long period of time.
        As a general matter, I was not involved with the details of
    the segregated funds in the course of my duties as global CFO,
    nor with the complex segregation calculations performed by MFGI
    in Chicago and reported to regulators on a daily basis.
        The week prior to the bankruptcy filing saw, among other
    things, multiple rating agency downgrades in quick succession,
    extraordinary liquidity stresses, and efforts to sell all or
    part of the firm. It was a time of constant pressure and little
    or no sleep, with a significant number of critical issues to
    resolve.
        As the CFO of the holding company, my attention was
    appropriately focused on crisis management and strategic issues
    relating to the sale of the company. On Monday, October 24th,
    Moody's announced it was downgrading MF Global's credit rating
    by one notch, leaving the firm with the lowest possible
    investment grade rating. This was followed by further
    downgrades throughout the week, the speed and severity of which
    were unprecedented in my experience and placed extraordinary
    pressure on the firm's liquidity.
        As the situation deteriorated, the sale of the FCM business
    and/or the firm was pursued. In between my dialogue with the
    rating agencies, I dedicated my time to the daunting task of
    facilitating the due diligence necessary for an acquisition or
    asset sale almost exclusively in the period commencing on the
    evening of October 27th and ending with the decision to file
    for bankruptcy on the morning of October 31st.
        On Sunday night, October 30th, when a deal for the
    acquisition of all or part of the company appeared to be close
    at hand, I first learned of a serious issue with MFGI's
    segregated fund calculations. Unfortunately, as the Committee
    is aware, the efforts to reconcile segregation calculation were
    not successful, and the deal fell through, and I along with
    others from MF Global promptly notified our regulators about
    the segregation issues.
        I understand that the Committee, MFGI's customers, and the
    public have many unanswered questions about the customer funds.
    I share many of these questions, and I am personally extremely
    frustrated and distressed that they remain outstanding and that
    client funds are missing.
        I would be pleased to answer the Committee's questions.
    Thank you.
        [The prepared statement of Mr. Steenkamp can be found on
    page 151 in the appendix.]
        Chairwoman Stabenow. Thank you very much.
        First, for the information of the members, we will be
    breaking, understanding there is business that will be done at
    the caucus lunches, so we will break about 1 o'clock and come
    back at 2:15 to continue. We have much to do today, but we will
    take that opportunity to break.
        First, Mr. Corzine and Mr. Steenkamp, on May 20, 2011, you
    both signed certificates required by Sarbanes-Oxley legislation
    assuring that MF Global's internal controls over financial
    reporting were accurate, and I have copies of that. And I am
    wondering, given what you know today and the $1.2 billion
    potentially in customer funds that are missing, would you sign
    this document again? Mr. Corzine?
        Mr. Corzine. Senator, given what we know today, you would
    not sign that document because you would not have had the
    assurances of the people, the systems, the procedures verified
    by all of those that were responsible for internal confirmation
    that the data was accurate. And, clearly, as has been repeated,
    there is certainly some amount--$1.2 billion or $600 million,
    different numbers--of dollars that are unreconciled with regard
    to segregation accounts.
        Chairwoman Stabenow. Mr. Steenkamp, would you sign this
    document again?
        Mr. Steenkamp. Senator, I think knowing what we know today,
    again, at this point in time, and knowing that there are
    missing customer funds from what we understand, I would not be
    able to sign that. But, you know, prior to this point, there
    were controls that, as far as I was aware, had not operated--
    that had not operated before this point in time.
        Chairwoman Stabenow. You know, it is very difficult
    listening to the chief financial officer or the CEO or the COO
    indicating surprise that there were not adequate controls on
    the management of the money. I guess what we heard on the first
    panel was very simple. Where is the money? I mean, how do you
    answer that? Where is the money from funds that were supposed
    to be kept separate, customer money?
        Mr. Steenkamp, as CFO, where is the money?
        Mr. Steenkamp. Senator, unfortunately, I do not know where
    the money is.
        Chairwoman Stabenow. Well, who does?
        Mr. Steenkamp. Well, Senator, part of my job was not to
    approve transfers of client funds. It was not to be involved in
    the process of client funds. Those operational aspects occurred
    at MF Global Inc. as well as at all the other regulated
    entities around the world, and we had experienced senior
    officers executing those operational controls.
        Chairwoman Stabenow. Mr. Corzine, where is the money?
        Mr. Corzine. Senator, enormous numbers of transactions were
    taking place in those very final days--I tried to put that in
    my statement--about the 38,000 customers, the many countries,
    and those need to be parsed through to arrive at an answer. We
    need the facts on that. It is not only from those of us who do
    not see those records, but even from the people who now have
    those records, it is a very, very difficult task.
        Many of us had reasons to believe when we signed statements
    like you presented that we had the people, the policies, and
    the procedures in place to give assurance. We would not have
    signed those on May 20th or other times while we were there if
    we did not feel those were secure. At the time that occurred on
    that Sunday evening, October 30th, it is clear that something
    was amiss, and that needs to be discovered what that was based
    through all of those transactions that I tried to outline.
        Chairwoman Stabenow. Okay. And, Mr. Abelow, for you as
    well, where is the money? We are looking at the top three
    people of the company who are responsible for the overall
    internal controls of this company. And so, Mr. Abelow, where is
    the money?
        Mr. Abelow. Senator, as I said in my statement, I do not
    know where the money is. As of the filing of bankruptcy on
    October 31, investigations were commenced by a number of
    investigative authorities under the direction, presumably, of
    the SIPC trustee who has been put in place, and we have not had
    access to the results of that investigation or any information
    about the status of that investigation.
        I am as anxious as you are to hear the results of that
    investigation and be able to answer the question.
        Chairwoman Stabenow. Well, let me ask, did any of you
    authorize, approve, or know of money transfers from customer
    segregated accounts to the firm's broker-dealer accounts in the
    final days or weeks of MF Global or before then? Mr. Corzine?
        Mr. Corzine. Senator, as I said in my opening remarks, I
    never directed anyone at MF Global to misuse customer funds. I
    never intended to, and as far as I am concerned, I never gave
    instructions that anybody could misconstrue.
        Chairwoman Stabenow. So you are saying you did not
    authorize, approve, or know of fund transfers?
        Mr. Corzine. Well, in a general sense, there are all kinds
    of fund transfers that are taking place. Anytime there is a
    sales of $1.3 billion worth of commercial paper, there will be
    fund transfers associated----
        Chairwoman Stabenow. I am talking about between broker-
    dealer accounts, though, and when we are looking at leading
    up--you know what I am asking in terms of the final weeks
        Mr. Corzine. That is why I am trying to be very direct in
    saying there is no direct authorization. I was not aware that
    the unreconciled accounts existed until that Sunday evening
    that we talked about.
        Chairwoman Stabenow. Mr. Abelow, did you authorize,
    approve, or know of money transfers from customer segregated
    accounts to the firm's broker-dealer accounts in the final days
    or weeks of MF Global?
        Mr. Abelow. Senator, to the best of my recollection, I do
    not recall participating in any conversation about the use of
    customer funds, customer segregated funds or assets for any
    purpose other than what they were intended to be used for.
        Chairwoman Stabenow. Mr. Steenkamp?
        Mr. Steenkamp. Senator, I did not authorize, approve, or
    know of any transfers of customer funds for any house or
    broker-dealer purposes.
        Chairwoman Stabenow. Thank you very much.
        Senator Roberts?
        Senator Roberts. Well, thank you, Madam Chairwoman.
        Mr. Abelow, as the COO, the employees responsible for
    executing transfers of money ultimately report to you and you
    report directly to Governor Corzine. Is that correct?
        Mr. Abelow. Senator, I am not sure if you--when you framed
    your question--if you could repeat it for me, I would
    appreciate it.
        Senator Roberts. Well, let me put it another way. Do
    treasury operations and security operations ultimately report
    to you?
        Mr. Abelow. Yes, they did through a chain of authority.
        Senator Roberts. All right. Mr. Steenkamp, as the CFO, did
    MF Global instill internal conduct controls for how and where
    money could be moved?
        Mr. Steenkamp. Yes, there were controls implemented in MF
    Global Inc. and all of our subsidiaries.
        Senator Roberts. Is it possible for those conduct controls
    to be overruled?
        Mr. Steenkamp. To the best of my knowledge, these controls
    were operated and the approvals were resident in the legal
    entities. So I do not believe so, no.
        Senator Roberts. You do not believe that. But is it
    possible?
        Mr. Steenkamp. I would not want to speculate, Senator.
        Senator Roberts. Mr. Abelow and Governor, is it correct
    that at the end of each trading day MF Global, like other FCMs,
    would receive margin calls?
        Mr. Corzine. There was twice-a-day settlements of margin
    calls, if I am aware of how the process goes.
        Senator Roberts. Mr. Abelow?
        Mr. Abelow. I believe it was typical that MF did receive
    margin calls.
        Senator Roberts. Did MF Global receive margin calls or
    other requests for liquidity on Friday, October 28th? For both
    of you, Mr. Abelow and Mr. Corzine--I am sorry. Governor
    Corzine.
        Mr. Corzine. Senator Roberts, I believe there were margin
    calls, as there are on almost every day.
        Senator Roberts. Well, you indicated publicly, I think,
    that $4.5 billion went out the door.
        Mr. Corzine. I have repeatedly said that there was $4.5
    billion worth of U.S. Government agencies sold on that day.
    That was a sale that was designed actually to produce margin
    coming back to the firm as opposed to margin going out the
    firm.
        Senator Roberts. We have heard a lot of 35-cent words being
    tossed around, something called ``rehypothecation.'' That is a
    big word even here in Washington, not to mention Dodge City. We
    may not understand the ins and outs of it, but two things we do
    understand are margin calls and chain of command. We know
    customer money was accounted for on Wednesday, the 26th.
    Friday, the 28th, the firm's cash flow situation was dire, and
    the demands for cash kept coming in.
        Mr. Abelow and Governor, is it the case that MF Global did
    not have enough cash on hand to cover the cash needs that came
    in late Friday?
        Mr. Corzine. Senator, from all reports that I had received,
    to my recollection, on that day we were able to meet our cash
    demands.
        Senator Roberts. Mr. Abelow?
        Mr. Abelow. I do not recall being made aware of our running
    out of cash on Friday, the 28th, of being unable to meet
    obligations.
        Senator Roberts. As a captain in the Marines--and,
    Governor, you were in the Marines--I knew that if a full-bird
    colonel told me to do something, I would probably do it. Now,
    if a two-star general gave me an order, I sure would not ask
    any questions. So could it be possible that one or more of your
    operational money movers who reported to you, Mr. Abelow, and
    you, Governor, was told to cover the liquidity needs or margin
    calls overwhelming the firm's cash flow by taking money out of
    the segregated customer accounts? Governor?
        Mr. Corzine. Senator, I do not believe that anyone would
    operate that way. We had no experience in the 19 months that I
    had been there that anyone had overridden those systems. And so
    I have no reason to believe that occurred in those last hours.
        Senator Roberts. Mr. Abelow?
        Mr. Abelow. Senator, I cannot speculate about conversations
    that I did not see or participate in. I can only tell you that
    I do not recall participating in any conversation about a use
    of customer funds or customer assets other than for their
    intended purposes.
        Senator Roberts. As I stated in my opening remarks, the CME
    knew on or before Wednesday, November 2, that MF Global was
    attempting to hide something. In fact, didn't MF Global
    leadership even go so far as to request and receive an actual
    plan that would break the glass and tap into your customer
    segregated accounts, perhaps described as a loan, if such a
    scenario arose?
        Mr. Corzine. Senator, there certainly were contingency
    plans that I think fall under the rubric that you were talking
    about, break the glass. To my knowledge and understanding of
    that report, it was not ever the intent to recommend tapping
    into segregated customer funds.
        Senator Roberts. Mr. Abelow?
        Mr. Abelow. Senator, I have not reviewed the specific
    document that you are referencing, but my recollection is that
    the key driver of liquidity, source of liquidity under that
    scenario, was the use of a revolving credit facility.
        Senator Roberts. You might want to take a look at it.
        By all accounts, on the Friday before bankruptcy, MF Global
    thought it had found a buyer to save you. It seems well within
    the realm of possibility that, as you put it, Mr. Abelow, a
    classic run on the bank overwhelmed your cash flow, and an
    executive could have communicated somehow an order to use your
    customer segregated funds to cover the firms liquidity crunch,
    thinking that, of course, by Monday morning everything would be
    fine, the company would be bought out, an infusion of money
    from the new owner could replace the missing customer funds.
        Is this plausible? Governor?
        Mr. Corzine. Senator, as in a number of the questions, I
    think I am being asked to speculate--and I really do not--I do
    not really think I should speculate. I had no reason to believe
    until the evening of October 30th that there was a misuse of
    customer funds.
        Senator Roberts. Mr. Abelow?
        Mr. Abelow. Senator, I was shocked to be informed on Sunday
    that there was a----
        Senator Roberts. But is this plausible?
        Mr. Abelow. --potential shortfall in customer funds. I
    cannot speculate beyond that, sir.
        Senator Roberts. Well, if this is not what happened, then
    what did happen? What is your speculation on that?
        Mr. Corzine. Senator, I think speculating is--should be
    done in the context of the facts that are being developed by
    the investigators. As in my oral statement and also in my
    written statement, I have put forward issues about whether
    money was returned properly that should be looked at. I put
    forward transactions that I think would be obvious that people
    should check all the details on. But how I would come to
    conclusion without records, without the ability to go through
    it, is speculative and I think would be inappropriate and could
    be misleading.
        Senator Roberts. Madam Chairman, I am over time, but I
    would like Mr. Abelow to respond. What did happen?
        Chairwoman Stabenow. I would ask you to respond briefly in
    this round.
        Mr. Abelow. Senator, I do not know what happened, and I am
    awaiting the results of the investigation to inform all of us.
        Senator Roberts. Thank you, Madam Chairwoman. I have
    additional questions. We will ask those on the second round.
        Chairwoman Stabenow. We will absolutely have a second
    round, yes.
        Senator Conrad?
        Senator Conrad. Thank you, Madam Chairman.
        You know, as this has unfolded, I have had contacts from my
    home State, several customers, several broker-dealers, one
    missing half a million dollars, and absolutely through no fault
    of their own. And as one tries to kind of pierce the veil here
    and figure out what happened, it is incredibly difficult to do.
        I had a chance to read the lengthy article in the New York
    Times which has some interesting tidbits in it. One is that--I
    have operated under the assumption that these European trades
    on European debt were losing money. The assertion in this
    article is that they made money. The second paragraph from the
    end, ``Ultimately, the bets Corzine placed wound up better than
    the firm itself. The European debt trades were profitable,
    though too late for MF Global.''
        Is that the case, Governor Corzine? Were they profitable
    trades?
        Mr. Corzine. Senator, at the time of the bankruptcy on
    October 30th, they were still positive trades, positive
    positions, but they clearly were a part of the ingredients that
    led to the loss of confidence in the firm. So there are really
    two different issues. I think Mr. Abelow talked about, as I
    think I did in my written testimony, the ingredients that led
    to that loss of confidence, and the foreign sovereign positions
    are certainly part of that process.
        Senator Conrad. Well, that really comports with this
    article. Basically this article says there was a loss of
    confidence. The Moody's downgrade was devastating because that
    affected the firm's liquidity. You have indicated there were
    margin calls, but that was not atypical that you would have
    margin calls in a firm like this. But was the level of margin
    call unusual at the end of that week? That is, were the demands
    on the company for cash at the end of that week extraordinary?
        Mr. Corzine. Senator, to the best of my recollection, there
    were increasing demands for margin in different places. The
    process slowed up in the clearing and movement of transactions,
    but specifics, I would really want to rely on being able to
    look at records to be able to answer with precision.
        Senator Conrad. This article, by the way, suggests that the
    day after the bankruptcy, you, Mr. Corzine, sifted through
    transactions in the hope of locating the missing money. Is that
    the case?
        Mr. Corzine. Senator, to the best of my recall, I sat with
    a group of internal folks who might be able to give me the kind
    of information that I think you would like to get from me today
    to see if we would be able to identify some sources of where
    these missing funds might be.
        Senator Conrad. Is it possible----
        Mr. Corzine. I was stunned, and the first of my knowledge
    of segregated funds being out of reconciliation was that
    evening, on the 30th.
        Senator Conrad. Because you believed that the funds were
    where they were supposed to be. But they were not. So something
    has happened here. I mean, I have heard speculation from people
    who are deeply knowledgeable in this area that money was
    transferred that came from client accounts by somebody's
    authority with the idea that those funds would be made whole
    the following week because the company was owed money that
    would normally come to it in the normal course of business,
    and, of course, when everything went south, funds did not
    transfer money to MF Global that were really due MF Global.
        Do you think it is possible at the end of the day that
    there will be a finding that, in fact, MF Global is owed money
    that will cover the shortfall here?
        Mr. Corzine. Senator, I would respond the way I did to
    Senator Roberts. I think it would be speculative on my account
    to opine about that. As I said in my written and oral
    statements, those are possibilities, but without having the
    ability--probably not even by myself, but by experts--to go
    through some of that, which is exactly what the trustee and
    other investigators are doing, it would be virtually impossible
    to speculate.
        Senator Conrad. Well, at the end of the day, what we know
    is customers are out funds that are due them. You have all
    expressed your regret at that and your sympathy for those who
    have been adversely affected and came across as sincere to me.
    But somehow customer funds were transferred in a way that is
    inappropriate. And in searching your memory now, is there any
    conversation that you were part of that could have been
    misinterpreted by someone to authorize the transfer of customer
    funds to cover margin calls or for any other purpose that was
    not appropriate?
        Mr. Corzine. Senator, I specifically put in my opening
    statement, because I want to be very clear on it, I never
    authorized the misuse of customer funds, I did not intend to
    authorize the misuse of customer funds, and I do not believe
    that it would be possible to construe anything that I said as
    an authorization.
        Senator Conrad. So searching your memory, Mr. Abelow,
    anything that--any conversation you were part of, any
    conversation you know about, any conversation where it could be
    misconstrued, what you said, that would have led somebody to
    believe they should transfer customer funds?
        Mr. Abelow. Senator, I do not recall participating in any
    conversation about the use of segregated funds other than for
    their intended purposes.
        Senator Conrad. You know, in searching your memory, there
    is--you know, you were in a chaotic crisis situation. You do
    not remember a conversation where somebody comes and said,
    ``Hey, we could transfer funds from customer accounts and cover
    these when we get the money back on Monday, anyway''?
        Mr. Abelow. Senator, I do not recall any conversation about
    customer funds being used for anything other than their
    intended purposes.
        Senator Conrad. All right.
        Chairwoman Stabenow. Thank you very much.
        Senator Lugar?
        Senator Lugar. Thank you, Madam Chairman.
        We have heard, at least according to my notes, that there
    were as many as 38,000 customers of MF Global, and we discussed
    with the previous panel, who were some of the customers of MF
    Global, or through affiliates were, why they retained this
    affiliation. I am simply curious, because we have heard at
    least some testimony that in April or May there already were
    hints, perhaps because of European bond transactions or other
    investments of MF Global, of anxiety on the part of rating
    agencies. But, in any event, before this crucial weekend in
    October, an actual declaration, apparently, of a downgrade in
    earnings of the firm.
        Our concentration today obviously has been on the
    customers. Many are our constituents who, for the time being,
    had the segregated funds and do not have the money. I raised
    with the previous panel sort of the business judgments which
    led people to want to be affiliated and a customer with your
    firm.
        Was there no early warning that might have led some of them
    to decide to do business with somebody else? It appears to me
    that throughout this period of time there was a considerable
    degree of anxiety in the financial markets about all of this.
        You have testified, Governor Corzine, that the actual
    European bond transactions at the time of the final bankruptcy
    were doing better than some of the other things that you had
    there, but that surely must not have been true throughout the
    entirety of the year. That was your business to try to
    determine how you were going to make money for MF Global. But I
    am just curious. Was any of this transparent? Would any of the
    38,000 customers have some idea about your portfolio, your
    transactions, your movement toward a loss of earnings? Was this
    entirely opaque as far as customers?
        Mr. Corzine. Well, Senator, I really would not be able to
    tell you what kind of credit work an individual customer would
    do or any particular customer. But most of our introducing
    brokers--I think you heard from one this morning, and there
    were many--it was not unique with Advanced--who represented and
    introduced clients to us, certainly they would have the
    capacity to read a 10-K or a 10-Q, the public filings,
    certainly they would have the ability to review credit rating
    agency comments. And as you know, probably know, most public
    companies, ourselves included, had quarterly presentations of
    our earnings--not earinings in our case, I guess our results,
    and those were open to general distribution and understanding
    of what we best understood at the point in time existed. And
    those are pieces of information that are in the public forum on
    a regular basis that certainly sophisticated investors and
    counterparties look to.
        Senator Lugar. Well, many sophisticated investors must have
    come to a conclusion that continuing on with MF Global was not
    a very good idea for themselves or for their customers. But
    perhaps they said even if MF Global goes into bankruptcy, still
    our segregated accounts will be safe, that is simply the law of
    the land and is almost bound to occur. In other words, I am
    just trying to gauge how we reached the situation in which we
    still had the 38,000 customers and we still had the farmers who
    were hoping to hedge and so forth tied up here, because clearly
    the distress today is the overall picture, but specifically
    with people who felt that somehow the law simply would not
    permit this loss, regardless of what happened to you and the
    management of MF Global.
        Now, you are saying essentially all these records were
    there, regular quarterly reports and various other reports, so
    that you were not hiding any transparency of the risks that
    were involved in these kinds of investments, if I hear you
    correctly. Is that your assumption?
        Mr. Corzine. My assumption, Senator, is that we were
    complying with the disclosure requirements, and those are
    reviewed by outside auditors, and they were certainly reviewed,
    I would presume, by the credit rating agencies.
        Senator Lugar. So if I were a broker that was guiding
    customers, farmers, and what have you, in MF Global, I must
    have been a company that really thought there was going to be
    some excitement in terms of the European bond market, and this
    was going to be a money maker, presumably, or certainly not a
    disaster. But I do not know anybody, reading through those
    markets through the last few months, that would have that
    degree of confidence, and the thought that you were so heavily
    involved in it would have led me to a lot of lack of
    confidence, the other way around. In other words, sort of in
    the afterthought, I am not certain why you made these
    investments or why MF Global was so managed but, likewise, how
    the other people were managed who were dealing with you and why
    they continued with you.
        Now, this may be beyond your comprehension likewise,
    although you probably valued having these customers and figured
    they might stick with you because they did not know any better
    or they were speculating along with you, and it turned out the
    speculation was wrong. But at the end of the day, I suppose we
    are at a point--does the Federal Government now have sufficient
    controls, regulations, and so forth on MF Global and firms like
    this or anybody else so that the regular farmer who is trying
    to hedge and sell and so forth is not out of pocket and at
    least has some security? Or maybe this is unobtainable. I am
    hopeful our hearings really lead to a situation where we think
    of what kind of legislation or what kind of administrative
    fixes are required really to remedy the situation.
        Thank you, Madam Chairman.
        Chairwoman Stabenow. Thank you very much.
        Just to let the members know, we will turn to Senator
    Klobuchar now, and then Senator Chambliss, and then we will
    break until 2:15. Senator Klobuchar?
        Senator Klobuchar. Thank you very much, Chairman Stabenow.
    Thank you all for being here.
        Thank you to Mr. Tofteland I was not here for the end of
    your testimony--for your work from Luverne, Minnesota.
        Mr. Corzine, it is being widely speculated that in the days
    before MF Global declared bankruptcy, your firm shifted funds
    from segregated accounts to the broker-dealer side of the
    business. In his testimony before the House last week and in
    his written testimony for today's hearing, Mr. Terrence Duffy,
    the executive chairman of CME Group, asserts that at about 2:00
    a.m. on Monday, October 31st, MF Global informed the CFTC and
    CME that customer money had, in fact, been transferred out of
    segregation to the firm's broker-dealer account. Do these
    details match your recollection of what was conveyed to the
    CFTC and CME early that Monday morning?
        Mr. Corzine. Senator, the general description that Mr.
    Duffy talked about on the issues of October 31st are
    consistent.
        Senator Klobuchar. Okay. To your knowledge, did MF Global
    shift any funds out of the segregated accounts to the broker-
    dealer side of your business or to pay any outstanding
    obligations?
        Mr. Corzine. Senator, as I have said in written testimony
    and here again this morning, until the evening-- late evening,
    actually--of October 30th, I was not aware of this unreconciled
    amount in the segregated accounts.
        Senator Klobuchar. Okay. Mr. Corzine, none of the foreign
    debt securities that MF Global used to engage in the repo-to-
    maturity transactions have defaulted. By your own admission,
    these positions played a major role in the loss of market
    confidence that led to the failure of the firm. In exploring
    the role these trades played in the collapse of MF Global, many
    have raised concerns over the accounting rules that allowed you
    to treat RTM positions in foreign sovereign debt as sales
    rather than financings, effectively removing them from the
    balance sheet.
        You said in your testimony that these positions were
    publicly disclosed but not on your balance sheet. Is that
    right?
        Mr. Corzine. That is correct, Senator.
        Senator Klobuchar. And do you believe that we should re-
    examine the accounting treatment of repo-to-maturity
    transactions?
        Mr. Corzine. Well, to the extent that people believe that
    the disclosures that we made were not adequate, and they
    believe that more disclosure is better, that certainly should
    be considered. I think I am probably not the one to speak to
    this. The issue of--I am certainly not an accounting expert.
    The issues of off-balance-sheet questions are very challenging
    for those who make rules in accounting, the accounting rules.
    And this is one of those that I think should be reviewed as
    should all----
        Senator Klobuchar. It just seems that more transparency
    here would have been a good thing, and we are always hearing
    about, no, this will hurt if we do this, if we do that. And in
    this case, you had something that was somewhere off in a
    footnote where I do not think Mr. Tofteland of Luverne could
    have found it. And so I am just trying to figure out how we
    make this better going forward in addition to finding this
    money.
        Mr. Corzine. It was in the 10-Ks, the disclosure with
    regard to this. It was discussed with analysts and, if my
    memory serves me correctly, is in some of the credit write ups
    from the rating agencies.
        Senator Klobuchar. Okay. Mr. Abelow, the role and
    responsibility of the COO can vary dramatically between
    businesses, so could you discuss for us your role at MF Global
    and who to your knowledge, to get to the specifics, had the
    authority at MF Global to move funds from segregated accounts?
        Mr. Abelow. Yes, Senator. My role as chief operating
    officer and president were to oversee the daily execution of
    the firm's strategy, to focus on various elements of the firm's
    strategic plan, and I had oversight responsibilities for a
    number of operating areas of the firm.
        I am sorry. As to the second part of your question----
        Senator Klobuchar. Who had the authority at the firm to
    move funds from the segregated accounts? I think it is a theme
    you are hearing here. We are trying to figure out where did the
    money go.
        Mr. Abelow. My apologies.
        Senator Klobuchar. No one seems to know.
        Mr. Abelow. And, again, Senator, I am not aware of any
    conversations about the movement of segregated funds other than
    for their intended purposes, and a number of people inside the
    firm--in operations, in treasury, in compliance, and other
    areas--were involved in the daily movement of funds on a
    regular basis.
        Senator Klobuchar. Well, in the days leading up to Sunday
    when it was discovered that the funds were missing, were you
    involved in discussions about actions being taken to ensure
    that your FCM business did not become under-segregated?
        Mr. Abelow. I do not recall specific conversations about
    actions for it to not become under-segregated. I do not recall
    a specific conversation about that.
        Senator Klobuchar. Okay. Mr. Steenkamp, I am assuming when
    you heard there was a shortfall in the funds, as CFO you
    immediately went looking for answers. What did you find?
        Mr. Steenkamp. Senator, the first time I found out about
    the segregation was on the Sunday, and we found out pretty late
    on the Sunday night. I was informed that there is an issue with
    the segregation calculation, that the assets are less than the
    liabilities. And as I mentioned in my statement, following that
    we informed the regulators very shortly thereafter. My initial
    reaction was absolute shock. As far as I am aware, we had never
    had issues with segregation in the past, and it was something
    that was completely unexpected.
        Senator Klobuchar. And so then what did you do? You went to
    try to find the money?
        Mr. Steenkamp. Well, it was late Sunday evening, and so at
    that point we were about to execute the deal for an acquisition
    of part of the firm. My first response was once we had taken a
    short while to see if we could try and reconcile it before our
    deadline late Sunday night, once we knew that we would not find
    an answer this evening, we notified the regulators.
        Senator Klobuchar. Very good. And did you see the testimony
    of Mr. Duffy with CME and what he was saying about the timing?
    I can read it to you again if you would like, where he said at
    about 2:00 a.m. on Monday, October 31st, MF Global informed the
    CFTC and CME that customer money had, in fact, been transferred
    out of segregation to the firm's broker-dealer account. And so
    is that your recollection of the timing of this?
        Mr. Steenkamp. Yes, from my recollection, it was very, very
    early Monday morning when we were on the phone with the
    regulators. That sounds consistent.
        Senator Klobuchar. All right. Thank you very much.
        Chairwoman Stabenow. Thank you.
        Senator Chambliss?
        Senator Chambliss. Thanks very much, Madam Chair.
        I have listened to your answers very carefully, and I want
    to make sure that I get a direct answer to this.
        Governor Corzine, did you understand that MF Global was
    using customer funds to carry out proprietary transactions on
    behalf of MF Global?
        Mr. Corzine. Senator, I was not aware of the misuse of
    customer funds, and I have said that, certainly did not
    authorize it, did not intend to have it happen, and until that
    Sunday evening, was not aware of it.
        Senator Chambliss. I understand that is what you said
    earlier, but my question is--well, let me frame it a little
    differently. Would the use of your customers' funds to engage
    in proprietary trades on behalf of MF Global have been illegal,
    as far as you are concerned?
        Mr. Corzine. Well, first of all, it is actually more
    complicated. It gets into this Rule 1.25 and the repurchase
    agreements between entities. As long as the securities that
    were a part of that repurchase agreement between the entities,
    that would be appropriate. It would not be a misuse of customer
    funds.
        For instance, if you had treasury bills and you did a repo
    to the FCM from the broker-dealer, that would be appropriate.
    If you did it for euro sovereigns, that would not be.
        Senator Chambliss. Okay. And that is a generally accepted
    practice in the industry, is it not, to----
        Mr. Corzine. The Rule 1.25, which I think I heard Senator
    Harkin actually read from, is very specific about what can be
    invested with segregated funds, and any of the repurchase
    agreements that could occur between the entities have to be in
    1.25-eligible securities. They cannot be in things that did not
    already meet that criteria.
        Senator Chambliss. Okay. But you knew customer funds were
    being used for that type of activity.
        Mr. Corzine. For Rule 1.25-eligible----
        Senator Chambliss. Right, yes. You know customer funds were
    being used for----
        Mr. Corzine. That--yes.
        Senator Chambliss. --what you thought was a correct use----
        Mr. Corzine. Correct use.
        Senator Chambliss. --of investing customer funds.
        So were you aware that margin calls were being made on a
    regular basis just prior to--or towards the middle or the end
    of October on the sovereign debt investments?
        Mr. Corzine. The sovereign debt investments are in the
    broker-dealer and were not a part of the FCM. And the answer to
    your question is yes.
        Senator Chambliss. So where did you think the money came
    from?
        Mr. Corzine. We run liquidity positions, and as I think I
    heard Mr. Abelow say, we also had access to draws against our
    liquidity lines with the banks.
        Senator Chambliss. Okay. Mr. Steenkamp, you as the CFO, I
    assume, review the financial condition of the company on a
    regular and daily basis?
        Mr. Steenkamp. As CFO of the Global Holding Company, I
    would review the consolidated financial statements and
    financial condition. And I think as I mentioned in my
    statement, we have various regulated subsidiaries around the
    world that have various rules and regulations under the
    specific jurisdictions that they operate in. And with regards
    to the financial condition and operations of those entities, I
    would receive exception reporting and escalation notification
    as issues arose from the finance and other offices in those
    entities.
        Senator Chambliss. So were you aware within the, let us
    say, 2 weeks leading up to October 31 that regular margin calls
    were being made against one of the subsidiaries for the foreign
    debt investments?
        Mr. Steenkamp. Senator, I was aware on occasions that there
    were margin calls made as variation margin, and at times
    initial margin changes occurred related to those positions.
        Senator Chambliss. Okay. And as the chief financial officer
    of the company, where did you think the money was coming from
    to meet those margin calls?
        Mr. Steenkamp. Well, Senator, as a global firm, we had some
    house money that we had raised over time that we could use for
    liquidity, and in addition, we also drew down, as Mr. Abelow
    and Mr. Corzine mentioned, on the revolving credit facility,
    which was a liquidity facility available to us to meet
    liquidity needs as they arose.
        Senator Chambliss. And did you not check to see where the
    significant dollar amount of margin calls was actually coming
    from, what account?
        Mr. Steenkamp. Senator, I would not have checked the exact
    account that it would be coming from, but with regards to
    clients, you know, whether it would be coming from the client
    side, there were controls, for example, back-end controls being
    individual segregation calculations, that had never indicated
    any issues. So there was no indication for me that it would be
    coming from client accounts.
        Senator Chambliss. Okay. Governor Corzine, if I understand
    it correctly, in order to reach into a customer's account and
    to meet the margin calls on the sovereign debt investments, you
    would have to actually go out of one company into another
    company?
        Mr. Corzine. Well, Senator, you would not meet margin calls
    for our broker-dealer by reaching into the FCM customer funds.
        Senator Chambliss. Well, then, my question is: How did that
    happen? How did somebody reach into the segregated accounts and
    transfer money out of those to do something with it that they
    should not have done?
        Mr. Corzine. Senator, I do not want to repeat, and I know
    that it is frustrating but it would be speculative on my part
    to say that. I did lay out some flows of transactions and kinds
    of occurrences that need to be established by the facts of
    looking through all of these records, and that is what I think
    the trustee and the other investigators are now doing.
        Senator Chambliss. So is that kind of the guts of where we
    are with MF Global right now, is trying to figure out who
    transferred the money and who authorized the transfer of that
    money out of the segregated accounts?
        Mr. Corzine. I think it is now in the fact discovery stage
    of where the flows of money took place, and when those then are
    established, then you can follow that back to, I presume, how
    it was authorized.
        Senator Chambliss. Madam Chair, I know I am over my time,
    but since I am last, can I ask one more question that I think
    will generate a quick answer.
        Chairwoman Stabenow. Please proceed.
        Senator Chambliss. So am I to understand--and I would like
    all three of you to answer this--did any of you know that this
    money was being transferred out of the segregated accounts?
        Mr. Corzine. Senator, as I said in all of my testimony,
    until that Sunday evening I was not aware that there was a
    misuse of customer funds.
        Senator Chambliss. Mr. Abelow?
        Mr. Abelow. Senator, I as well was shocked to learn on
    Sunday that we had the potential deficit in our segregated
    funds.
        Senator Chambliss. Mr. Steenkamp?
        Mr. Steenkamp. Senator, I had no knowledge that customer
    funds were transferred into the broker-dealer until that Sunday
    evening when we were notified.
        Senator Chambliss. Thank you.
        Chairwoman Stabenow. Thank you very much. We will reconvene
    at 1:15. I will indicate that we are going to do the third
    panel. We know this is a long day, but this is a very, very
    important subject, and we appreciate all of you remaining with
    us.
        With that, the Committee stands in recess until 2:15.
        [Whereupon, at 1:00 p.m., the Committee recessed, to
    reconvene at 2:15 p.m., this same day.]
        AFTERNOON SESSION [2:24 p.m.]
        Chairwoman Stabenow. The Committee will come to order. We
    thank you very much for continuing with us here in this very,
    very important time and hearing, and we will now turn to
    Senator Bennet for his questioning.
        Senator Bennet. Thank you, Madam Chair. Thank you for this
    holding, and thank you to the witnesses for being here today.
        At the risk of eliciting an answer we have had already,
    which is not going to help anybody here, I wanted to try to ask
    it this way: The testimony, Governor and gentlemen, has been
    that the controls were set up to segregate the funds and that
    you certified to such--I am sorry for putting words in your
    mouth, but in the interest of time--that nobody ever--none of
    the people on this panel ever authorized any misuse of that
    money or that it should not be segregated. Yet between $600
    million and $1.2 billion is somewhere missing.
        Is the impression that we should take that if somebody had
    checked 10 days before this happened that there would not have
    been commingling and that something happened during the weekend
    of all of that stress that may have resulted in this? Is that
    an impression we are supposed to have here?
        Mr. Corzine. Senator, I will take a first run at it. I
    think each of us have different perspectives.
        If that had been the case 10 days before, under the
    policies and procedures it would have been raised certainly to,
    I think, each of our offices, unless it was a minor--and $600
    million is not minor, $100 million would not be minor--element
    with regard to segregated funds. And that was not the case, and
    we have to report every day, I think both to the CFTC and the
    CME. So that would, I think, deal with the first part of your
    question.
        The second, I think you are going to hear speculation again
    on the multiplicity of transactions in accounts, at least that
    is what you will hear from me because I would not know what
    those transactions were, would have expected at the end of the
    day, if there was unreconciled segregated accounts, that it
    would get raised up again.
        Senator Bennet. Do either of you have anything you would
    like to add?
        Governor, just on that point, your testimony at the
    beginning of the hearing, as I understood it, was that some of
    the final trades that were made, the firm or your still have
    not seen the settlement, that we do not know at what price or
    how they were recorded? Or did I misunderstand what you were
    saying?
        Mr. Corzine. Senator, the prices were set. I do not recall
    those prices. I do not have records of them. But the particular
    transactions that I cited in my oral testimony--I think there
    are actually some more cited in my written--were the $1.3
    billion commercial paper, which was a transaction that was done
    for immediate settlement, cash settlement on Thursday, and then
    there were $4.5 billion worth of Federal Government agencies
    that were transacted for cash or immediate settlement on
    Friday. The prices of those are in the books and records, and
    while I do not know the ultimate disposition of those, they
    certainly are places one might want to check.
        Senator Bennet. Right. So I guess the point is that we do
    not ultimately--we do not yet know what the proceeds of some of
    those transactions were. Is that----
        Mr. Corzine. We had anticipations of what those proceeds
    would be based on the prices the securities were transacted at.
        Senator Bennet. Thank you. I wanted to shift gears a little
    bit and ask a question that was raised in both the New York
    Times and the Wall Street Journal, who reported that MF
    Global's former chief risk officer, Michael Roseman, sought to
    warn the company and its board about the firm's growing
    exposure to European sovereign debt, and the suggestion in the
    articles is that in January of this year, the firm let Mr.
    Roseman know that he was being replaced as the chief risk
    officer.
        Could you discuss from your point of view how the firm's
    audit committee process addressed concerns that its chief risk
    officer raised? And looking back on this, how would you have
    improved, if you feel it needed improvement, internal processes
    when you received these types of warnings from somebody like
    your chief risk officer?
        Mr. Corzine. Senator, the context and open discussion that
    Mr. Roseman had with the board--and I presume the audit
    committee, although I do not have my calendars to confirm that;
    we encouraged people to be able to speak their minds-- was in
    the context of asking for increased limits roughly this time a
    year ago, maybe in December. Again, without records, I cannot
    be precise with regard to those recollections. And there were
    full discussions with the board about the point of view that he
    would have expressed, and that was in the context of not just
    sovereigns but exposures that we had to those countries with
    clients that were involved in the limit structure, as well as
    investments that we might have in other parts of the global
    operations.
        Senator Bennet. A judgment is a judgment, but that is not
    what I am trying to litigate here. I just wonder whether, for
    the benefit of our oversight, there were other processes that
    could have been put in place or--just with the benefit of
    hindsight.
        Mr. Corzine. Well, clearly with the benefit of hindsight,
    there would not have been as much long-term reflection on the
    firm that came to pass in October if there were no euro
    sovereign positions. I am not trying to deny reality. On the
    other hand, first of all, the situation was entirely different
    from the perspective of the world certainly a year ago than it
    was at the end of October. And we encouraged the kind of
    discussion and debate at the board level, and it was my view
    that I should advocate for what I thought, based on the best
    analysis that I could make of what was the right direction for
    the firm to take on these issues that were different than Mr.
    Roseman's views.
        Senator Bennet. Thank you. I am out of time, but I
    appreciate your responding to the questions, and, Madam Chair,
    thanks again for holding this hearing.
        Chairwoman Stabenow. Thank you very much.
        Senator Johanns?
        Senator Johanns. Madam Chair, let me also say thanks for
    holding the hearing. It has been very informative.
        Mr. Steenkamp, let me start with you. You have been sitting
    through the testimony not called upon very much. You have heard
    the other two gentlemen testify. Is there anything in their
    testimony that you consider not accurate, first of all?
        Mr. Steenkamp. Senator, it is tough to recollect and
    comment on every single comment made here, but I would say in
    general it is accurate with my recollections of events as
    described, albeit, as I mentioned, I only became CFO in April
    of this year and so some of the events, you know, did precede
    that.
        Senator Johanns. Is there anything about their testimony
    that you feel is not a full disclosure and you feel a need to
    tell the Committee more fully what happened?
        Mr. Steenkamp. Nothing I guess specific to the best of my
    ability jumps out at the moment.
        Senator Johanns. Mr. Steenkamp, I was reviewing your bio in
    preparation for this hearing: post-graduate honors in finance,
    bachelor's degree. Were you top of your class?
        Mr. Steenkamp. I believe I was in the top three of my
    class.
        Senator Johanns. Suffice it to say you are a very bright
    guy. You started your career in audit practice. You assisted
    clients in the SEC registration process, listing on exchanges
    in the United States. We would all stipulate that is enormously
    complex work, work that most people could not perform. You were
    vice president of external reporting and accounting policy. You
    were senior vice president, chief accounting officer, global
    controller--a remarkable resume. Wouldn't you agree with me?
        Mr. Steenkamp. Well, I guess that is not for me to judge.
        Senator Johanns. What was your compensation package when
    you joined MF Global?
        Mr. Steenkamp. Off the top of my head--and I do not have
    that information with me--I believe my starting salary was
    somewhere in the region of 200 or 250.
        Senator Johanns. And I am assuming there were options or
    bonuses that plussed that up. Would that be correct?
        Mr. Steenkamp. No. When I joined the firm, it was not yet a
    public company.
        Senator Johanns. Okay. Last year, what was your
    compensation?
        Mr. Steenkamp. Again, off the top of my head, I believe my
    salary as of April when I became CFO was set at $500,000, and
    it is all public record.
        Senator Johanns. Now, during the time that you were there,
    did you keep a diary or take notes during these meetings or e-
    mail?
        Mr. Steenkamp. Generally in meetings I do not take copious
    notes although I do at times have notes that are on
    presentations or various materials if we are in a meeting and
    we are going through something specific with an agenda. But I
    would not say I have a standard way of doing it.
        Senator Johanns. Have you turned those notes or documents
    over to the Committee?
        Mr. Steenkamp. I am not sure what from a legal perspective
    has been turned over or not. I know that we have, you know,
    followed--the firm has ownership of all my work materials.
        Senator Johanns. Now, my understanding is that there would
    be separate accounts or a separate account maintained for
    consumer funds, segregated accounts. Is that correct?
        Mr. Steenkamp. It obviously differs depending upon which
    jurisdiction you are in, so, you know, each regulated entity,
    as I mentioned earlier in my statement, had very unique rules
    and regulations that governed how every facet of the business
    is run.
        With regards to MF Global Inc., there are segregated bank
    accounts, I believe, that are held. As I mentioned earlier,
    though, similar to all of the entities, this is managed by
    those senior officers in those entities from an operational
    perspective.
        Senator Johanns. Right. So you have got those separate
    accounts, all the poor people that were here that have been
    beat up by MF Global, thought they had their money in
    segregated accounts. How would that money--who had authority to
    say take money out of this account and put it at risk for
    whatever investment? Who in the organization by name would sign
    off on that? Would you sign off on that?
        Mr. Steenkamp. No, I would not sign off on client
    transfers.
        Senator Johanns. When did you first learn of that?
        Mr. Steenkamp. The first time I learned of it was on the
    Sunday, and as I mentioned, you know, as far as I am aware, we
    had never had any issues with segregation--any segregation
    issues of client balances. And so it came as an absolute shock
    to us that there would actually be an issue. These are also--
    this is also a process and controls that have been reviewed and
    assessed over many years by our regulators and our auditors,
    and at not point that I am aware of had there ever been any
    issues with regards to it.
        Senator Johanns. Now, having been the head of a very large
    organization myself, when I would have learned of something
    like that, I would have asked a question like: ``Who was the
    fool who did that?'' Did you ask that kind of question?
        Mr. Steenkamp. So, Senator, as you know, during those
    couple of days and the weekend, we were working around the
    clock on numerous different things. When we found out about it
    and were notified that there is an issue with the segregated
    monies, it was late on Sunday evening. At that point we--you
    know, it is such a shock that there might be an issue with it.
    The original thought was it has just got to be a reconciliation
    issue. And so we had a group immediately try and just reconcile
    the segregation calculation. The calculation is not actually,
    you know, bank accounts in that it is an actual calculation
    which is very complex in nature and involves a lot of people
    which then determines whether assets exceed liabilities. We
    immediately had a team, a SWAT team, spend time on the
    calculation and try and see where the reconciliation was. That
    went on for a couple hours. And then it was, you know, at that
    point in time, not being able to resolve the segregation issue,
    we had to let the buyers as part of the acquisition know and
    inform the regulators immediately.
        Senator Johanns. Madam Chair, I have run out of time, but I
    will stick around for the second round.
        Chairwoman Stabenow. Thank you very much.
        Senator Nelson?
        Senator Nelson. Thank you, Madam Chair, for holding this
    hearing. I am going to read just a couple of lines from letters
    that I have gotten from Nebraskans.
        ``I operate a grain business in Nebraska, and part of my
    business is buying and selling grains from farmers that I hedge
    in the futures markets, principally at CME. Recently, a major
    FCM whom we use, MF Global, filed for bankruptcy.'' It goes on
    to say, ``How am I going to get my money back?''
        Another one: ``Dear Senator Nelson: I am an attorney in
    Nebraska. I represent a number of people and entities who have
    commodity trading accounts associated with MF Global.'' It goes
    on to talk about the money not being available. ``When will it
    come back?''
        Another one who says, ``My farm hedging account has been
    going through MF Global. When I heard that they were downgraded
    to junk, I asked for my $75,000 from my excess margin accounts.
    I received a check, deposited it, and then it was returned. In
    the meantime, they declared bankruptcy. Now I have a worthless
    check, and my account balance is short by $75,000.''
        I am sure that you have all heard similar sad stories of
    this kind. You are aware of what the consequences are for
    people if they are short on their accounts that they thought
    were secure, not expecting to have them have any-- those
    accounts have any risk other than what market risk they were
    taking, but they did not expect to have a disappearance risk.
        So when your team took over, the company was largely a
    brokerage firm, did not regulate trade in sovereign debt for
    its own profit, and at least not in the manner that ultimately
    you did.
        I guess my first question is: Why did you feel the need to
    enter into large trading positions that the company had
    previously never taken? And do you think that trading the
    firm's capital in this manner was appropriate and expected by
    shareholders? We are not talking about account holders. We are
    talking about shareholders in the first case.
        Mr. Corzine. Senator, just for a matter of clarification,
    we run a very--we ran a very global organization with one of
    our largest centers of operations in London which was an active
    participant in the euro sovereign markets before--maybe not
    before Mr. Steenkamp, but before I joined, and my colleague. In
    fact, I think in my written testimony I talked about there were
    positions larger than actually we ended up having. Now, they
    were not in the repo-to-maturity category, which we had
    actually had longstanding positions in our U.S. subsidiary with
    regard to U.S. treasuries, U.S. agencies, and U.S. corporate
    securities.
        The genesis of this transaction was our examining as a firm
    ideas that we thought were applicable, appropriate, prudent,
    and I became convinced and became the primary advocate of these
    positions. I do not want to dislodge any responsibility on
    that, but it was consistent with kinds of transactions we had
    taken on at other periods of time.
        I will repeat, though, these were in our broker-dealer
    operations, not in our FCM.
        Senator Nelson. Right. Now, Mr. Steenkamp, you have some
    knowledge, as you have indicated, of what the internal controls
    were. Were the internal controls adequate to deal with the
    transactions that were undertaken previously and most
    currently?
        Mr. Steenkamp. Well, Senator, the controls are obviously
    across various functions. As global----
        Senator Nelson. Excuse me. For each function, do you think
    the controls were adequate to deal with each different kind of
    transaction?
        Mr. Steenkamp. Senator, that is very broad in the sense
    that you would always in any organization have controls that
    there are deficiencies or items that come up from internal
    audit's reviews and other auditors, et cetera, that you then
    work on and you improve.
        I think, you know, with regards to the controls specific to
    the customer money--that is, within MF Global Inc., as I had
    mentioned--those controls had never in the past indicated any
    issue with regards to that, despite going through numerous
    reviews from the external and internal----
        Senator Nelson. Well, wouldn't you think--excuse me.
    Wouldn't you think that controls like that would be adequate to
    at least set off an alarm if somebody was now taking money out
    of those accounts? Not out of the company's accounts but out of
    those account holders' accounts?
        Mr. Steenkamp. Well, sort of the control that we had relied
    on as a back-end control was the segregation calculation.
        Senator Nelson. Yes.
        Mr. Steenkamp. Which normally was prepared on a Monday with
    regards to the Friday and provided to the regulators. That was
    a calculation which, you know, was escalated to me as we
    discussed with the other Senator on Sunday evening.
        Senator Nelson. Well, if the money is missing, it is not
    automatic that there was a violation of any law or that
    somebody is engaged in any criminal activity. On the other
    hand, the money is missing, and when it is missing, one does
    not know whether there is absconding with some money. But
    wouldn't the controls be such that you would be able to know
    whether it is just money missing or whether somebody has
    accessed the money?
        Mr. Steenkamp. Senator, it is difficult for me to answer
    that because, unfortunately, at the moment I do not yet as we
    sit here know what went wrong, so it is hard for me to be able
    to--I do not know which control went wrong. I do not know, you
    know, where, I guess, the apparent breakdown occurred to be
    able to answer.
        Senator Nelson. But it would have to be some of a breakdown
    if the controls are set in place so that this should not
    happen. Nothing is perfect, I understand, but if it breaks
    down, it is either because somebody intended to break it down
    or because it was inadequate. Is that accurate?
        Mr. Steenkamp. Senator, not knowing what happened, it--I
    apologize. It is hard for me to answer, you know, whether it
    was a breakdown, whether it was a willful action. It is hard
    for me to answer.
        Senator Nelson. In your opinion, will the investigation be
    able to determine ultimately which is the case?
        Mr. Steenkamp. I truly, truly hope so.
        Senator Nelson. Okay. Thank you, Madam Chairman.
        Chairwoman Stabenow. Thank you.
        Senator Hoeven?
        Senator Hoeven. Thank you, Madam Chairman.
        Mr. Corzine, how could the customer accounts be short if
    there were not transfers to the company accounts for the use of
    the company? How else could they be short?
        Mr. Corzine. Well, again, I want to stay away from as much
    speculation as I can, but we have customers also withdrawing
    funds from the firm. There are all kinds of transactions
    associated with that at this moment in time. There are
    possibilities in this repurchase agreement, the proper use of
    Rule 1.25 investments of repurchase agreements between the FCM
    and the broker-dealer that could have broken down.
        I think I indicated in my written testimony and again this
    morning the commercial paper. The $1.3 billion commercial paper
    that was sold on Thursday was Rule 1.25-eligible securities,
    properly available for offsetting segregated account monies.
    And when those are sold, then there is always the possibility
    of other failures to deliver, funds not crossing appropriately.
        Senator Hoeven. Aren't you required to have controls in
    place that prevent the use of customer funds by the firm for
    benefit of the firm and that properly account for these
    transactions you just described? Aren't you required to have a
    system and controls to cover those issues?
        Mr. Corzine. Senator, the short answer is yes, but I want
    to make clear that there are investments that can be made of
    customer segregated funds in the Rule 1.25-eligible securities.
    And when you transact in those, there is always a chance of
    operational breakdown. And I could not speculate whether that
    happened or did not happen unless I looked at the records.
        Senator Hoeven. But you are responsible to have controls in
    place to properly account for that, track that, and report
    that. As the CEO aren't you required to certify that you have
    those types of systems?
        Mr. Corzine. Senator, in all cases--I think Senator
    Stabenow brought forth our signatures on the verification with
    regard to Sarbanes-Oxley on the end of quarter of March--our
    fiscal fourth quarter in March 31, 2011, and those controls
    have to be verified both by internal auditors and on an annual
    report have to be certified by external auditors, so the answer
    is yes.
        Senator Hoeven. All right. And if those systems are in
    place and they are not adequate to do what they are designed to
    do, then when you are investing firm money in foreign bond
    currency transactions or bonds denominated in foreign currency,
    aren't you in essence speculating with customer dollars if
    those controls are not accurate and you do not make sure that
    those controls are accurate?
        Mr. Corzine. Senator, I do not have access to the records,
    so I cannot be absolutely certain, but none of us, I would
    think, would argue that we were using FCM, futures commission
    merchant, money for the purposes of investing in the foreign
    sovereigns. It was not an eligible security for client
    segregated funds. These positions had been in place many, many
    months through periods of time when we had gone through the
    process that you asked me to verify existed. And so I think
    there is reason to draw the conclusion that the foreign
    sovereigns that are talked about involved in the RTM situation
    were not in any identifiable way mixed up with FCM customer
    money.
        Senator Hoeven. You had a responsibility to maintain those
    systems so that customer dollars were not used in firm
    investments where you took a leveraged and, in fact,
    speculative position. You also had a responsibility to make
    sure that customer dollars were not transferred to or for use
    of the firm. But, clearly, one of those two happened, or the
    customer accounts would not be short.
        Mr. Corzine. I just want to say again what I said to
    Senator Chambliss before the break, that--and I think we can
    verify this from others. Rule 1.25-eligible investments of
    customer money is appropriate with regard to those segregated
    funds. And----
        Senator Hoeven. If they directed funds----
        Mr. Corzine. --euro sovereigns do not fit----
        Senator Hoeven. --be used in that way and--if they directed
    that the funds be used in that way, and if they did so, those
    are not the dollars they are short. The dollars they are short
    were either moved out of their account for benefit of the firm,
    or you have got an accounting error, and you have a
    responsibility to make sure you have an accounting system that
    properly segregates those dollars.
        Mr. Corzine. As I said in my oral statement, as I said in
    my written statement, there could have been breakdowns in those
    systems. We believed we had the people, the procedures, the
    policies in place to protect client segregated funds.
        Senator Hoeven. What is your responsibility to recover
    those lost customer funds?
        Mr. Corzine. My responsibility is to allow for the facts to
    be developed that find where that money has gone, just as it
    would be for any of us. I actually have no authority with
    regard to MF Global or the trustee today, but I believe that
    the trustee and the other investigations that are ongoing will
    be able to discover where that money went.
        Senator Hoeven. Is it your belief that we will recover the
    balance of those customer funds?
        Mr. Corzine. I am hopeful, Senator. I note the Friday
    activities that were in the bankruptcy court that, according to
    the representations I know about, get to 72-percent recovery
    for clients. I think I read that there are additional hundreds
    of millions of dollars held back and that there is identified
    customer money in London. So I am hopeful. I am not involved in
    that process. I think it was all of our expectations that we
    were not out of balance until we were all informed that Sunday
    evening that we were. And so I will repeat: I am hopeful that
    there will be full recovery very quickly.
        Senator Hoeven. And you would acknowledge you have a
    responsibility to cover those funds?
        Chairwoman Stabenow. We need to make this quick at this
    point. We will have another round, and so if you would like to
    quickly answer that.
        Mr. Corzine. Senator, I can only be hopeful, since I am not
    in--I now have no operating authority with regard to that. I am
    trying to cooperate, as I sit here today, as I have with other
    hearings.
        Chairwoman Stabenow. Thank you very much.
        Senator Grassley?
        Senator Grassley. Thank you. I have a short statement, and
    then I have a couple questions for Mr. Corzine.
        Now, you have all been asked repeatedly today about where
    the money went and whether you authorized the transfer of funds
    out of the segregated customer accounts. I share my colleagues'
    interest in finding answers to these questions.
        I am baffled that the top three executives of the company
    cannot answer basic questions about what happened to the
    customers' money. Your supposed lack of knowledge as to what
    happened inside the walls of MF Global is alarming. I want
    answers and Iowa farmers want answers on where the customers'
    money went.
        I am not going to belabor the point by asking where the
    money went. It is apparent that none of you are able or willing
    to offer an explanation today. I guess we will just have to see
    what we learn through the ongoing investigation and any
    subsequent proceedings.
        Now, Mr. Corzine, I have some questions regarding some of
    the interactions with regulators at the time of MF Global. It
    has been reported that you were not required to retake your
    Series 7 or Series 24 exams before assuming your role at MF
    Global. FINRA requires investment professionals to retake these
    tests if they have been out of the industry for 2 years.
    Despite the fact that you had been out of the financial
    services industry for 11 years, FINRA gave you a waiver, and
    you did not take these tests.
        Did you seek a waiver from FINRA so that you would not have
    to retake your Series 7 and Series 24 tests?
        Mr. Corzine. To my recollection, Senator, my legal counsel
    made that request.
        Senator Grassley. So through your----
        Mr. Corzine. General counsel.
        Senator Grassley. So through your legal counsel you were
    granted the waiver?
        Mr. Corzine. Yes, Senator.
        Senator Grassley. On this request to FINRA.
        Mr. Corzine. That is my understanding.
        Senator Grassley. Okay. Now, another question. Trying to
    figure out how much involvement Chairman Gensler had in the
    early stages of the MF Global problems, I have this question.
    Prior to October 31st, did you have any discussion with Gensler
    about the state of affairs at MF Global and whether MF Global
    was in trouble? And if you did have conversations, when were
    those conversations and what exactly did you discuss with
    Chairman Gensler?
        Mr. Corzine. Senator, Chairman Gensler may or may not have
    been on some of the joint regulatory calls where I gave updates
    to a broad set of regulators on the progress, or lack thereof,
    with regard to the sale of the firm, a posting on what our
    actions were in reducing the size of our balance sheet and
    generating liquidity. To the best of my knowledge, he was only
    on that 31st general call, but other than those postings to
    regulators, I am not aware of any conversations with him.
        Senator Grassley. Okay. So then at least, you are telling
    me for sure that you did not have a one-on-one conversation
    with Mr. Gensler at any time?
        Mr. Corzine. To my recollection, I have not with regard to
    the activities in the last 10 days. I have written in my
    written statement everything that I can recollect about any
    specific interactions--what was it? A July teleconference call,
    courtesy calls when I first took over at MF Global, and then--
    --
        Senator Grassley. But not during this period of time----
        Mr. Corzine. Not in that period of time.
        Senator Grassley. --of the last few days before bankruptcy
    that you had any one-on-one telephone conversation with
    Gensler.
        Mr. Corzine. Correct.
        Senator Grassley. Okay. Now, a last question for you, and
    then I have a question for Mr. Steenkamp. If none of you know
    what happened to the customers' money, could each of you give
    me or the Committee the name of some MF Global employee who can
    come and tell this Committee what happened to the segregated
    customer accounts? There has got to be somebody there that can
    tell this story. Just give us a name. Joe Blow? Mary Smith?
        Mr. Corzine. Senator, my view would--I would go to our
    treasury department and or treasury ops, as we talked about
    earlier, and the people who headed that were probably closest
    to the scene of the action.
        Senator Grassley. But that does not give us one name for
    sure that could answer our questions. You are saying somebody
    in that office, but you do not really know who it is.
        Mr. Corzine. The outline of the structure, I think Mr.
    Steenkamp presented, starts with certain people at the very top
    of it. I happen to know that the individual was on vacation
    that week, Christine Serwinski, and the CFO of the North
    American operations, that team of people--and it is quite
    large--would be one of those places that you might look.
        Senator Grassley. Okay. Then I would have this question for
    Mr. Steenkamp. Who specifically told you that Sunday that
    customer money was missing?
        Mr. Steenkamp. If I recall correctly, I was in a room with
    a large group of people as we were working on the acquisition,
    and one of our folks from finance had been notified that there
    was an issue and had just pulled me aside in the room and
    notified me.
        Senator Grassley. Okay. What is his name or her name?
        Mr. Steenkamp. It was our global product comptroller, Mike
    Bolan.
        Senator Grassley. Okay. Thank you, Madam Chairman.
        Chairwoman Stabenow. Thank you.
        Senator Thune?
        Senator Thune. Thank you, Madam Chairwoman.
        If I could just ask any of you to think of any way or
    provide an example of how $1.2 billion of customer funds could
    be transferred and disappear without any laws or regulations
    being violated, I mean, just--in other words, give us a
    hypothetical scenario of how that could happen without breaking
    any laws or existing regulations? Does anybody want to take a
    stab at that?
        Mr. Corzine. Senator, I think anything that any of us would
    do on that would potentially be misleading. It would certainly
    be speculative. In my oral and written remarks, I laid out some
    places where I thought there were possibilities of where the
    clearance and settlement system could break down.
        Senator Thune. Senator Corzine, there are reports I have
    seen that indicate that you were in contact with Chairman
    Gensler and the CFTC regarding a proposed rule restricting
    brokers from trading with client money or customer funds in
    sovereign debt. The rule, which is now being called the ``MF
    Global rule,'' was apparently delayed because of your
    opposition. The CFTC only approved it after MF Global had gone
    bankrupt.
        Why did you lobby against proposed changes to CFTC
    regulations that would have restricted futures commission
    merchants from investing customer funds in obligations of
    foreign governments?
        Mr. Corzine. Senator, to my recollection, I did not speak
    with Chairman Gensler about the foreign securities aspect,
    particularly on that conference call on July 20th. To the best
    of my recollection, I was speaking about the internal
    repurchase arrangements between a subsidiary and the FCM, as I
    have stated to the Senator from North Dakota and others, and
    whether that would continue to be available to FCMs at large or
    global organizations at large, but not with respect--to my
    recollection, foreign securities never came up in that
    discussion, and the only time that foreign securities were
    available to be invested in FCMs is if you took deposits from a
    client in foreign currencies.
        Senator Thune. You had said, Senator Corzine, during the
    House hearing that you did not intend to break any regulations.
    What did you mean by that?
        Mr. Corzine. I tried to clarify that in my opening
    statement here this morning. I never gave any instructions to
    misuse customer funds. I never intended to give any
    instructions or authority to use--misuse customer funds. And as
    I have said at least once here, I find it very hard to
    understand how anyone could misconstrue anything I said would
    authorize the misuse of customer funds.
        Senator Thune. From what you know now, can you assure this
    Committee that no regulations protecting consumer funds were
    violated in the days prior to the bankruptcy?
        Mr. Corzine. Senator, with whatever the range of estimates
    about the segregated funds not reconciling, I do not think I
    can give that assurance.
        Senator Thune. There is a New York Times story that
    indicated that some customer money may have been improperly
    transferred as early as October 21. Can you confirm that date?
        Mr. Corzine. Senator, I would be completely out on a limb
    speculating, no idea, and I would have to go back--I literally
    would have to go back through thousands of pages.
        Senator Thune. Okay. And if you cannot confirm the date, I
    assume then that you would not be able to give us an idea about
    when MF Global began transferring funds out of the customer
    account.
        Mr. Corzine. It would be speculative. I do not have the
    facts. I do think that the CME has testified that they did an
    85-or 90-percent check against the Wednesday--is that the 26th?
    And I think you can--and they suggested at least in that
    testimony with reasonable testing of bank accounts and flows
    that we were in excess. But I really think that is a question
    that the CME should answer.
        Senator Thune. All three of you have testified that, to the
    best of your recollection, none of you gave any instructions to
    anyone at MF Global to transfer funds from segregated accounts,
    yet it happened. Prior to October of this year, whether to
    cover margin calls or for any other reason, have there been any
    other incidents of improper or unauthorized funds transfers at
    MF Global? Or is this the first time any of you are aware of
    anything like this happening?
        Mr. Corzine. Senator, from my standpoint, if there had ever
    been anything like we found out on the evening of October 30th
    or if there had been--it would not have had to rise to the
    level, the dimension on that evening--I think any of us would
    have been notified if we had not then--the Senator from North
    Dakota would have been absolutely right. We clearly would not
    have had policies, procedures, and people in place. I am not
    aware of that, and we have had many audits by external
    regulators and external auditors.
        Senator Thune. Madam Chair, my time is up. Thank you.
        Chairwoman Stabenow. Thank you.
        Senator Boozman?
        Senator Boozman. Thank you, Madam Chair.
        Senator Corzine, can you help me understand? There has
    been, it seems like, a lot of ambiguity about Rule 1.25. Can
    you help me understand who would be--what the eligible
    investments would be that could take place under that?
        Mr. Corzine. Senator, I do not know whether you were here
    when Senator Harkin gave an introduction to his question to the
    first panel. I think he listed--and I do not want to be remiss
    in leaving something off that list, but I have a general idea.
        Senator Boozman. You had a trading strategy. Was there a
    specific time--Mr. Abelow, I think you said you are responsible
    for day to day. You know, we have had this-- evidently there
    was perhaps a change, you know, using Rule 1.25, using that
    ability. Was there a specific time when the firm changed their
    line of investing? We know that, you know, there are a number
    of different ways of doing it based on Rule 1.25, as the
    Senator explained.
        Mr. Abelow. Senator, I apologize. In my comments about
    overseeing day-to-day implementation of the strategy, my
    responsibilities did not include oversight of trading and
    position taking.
        Senator Boozman. Who was the person that was in charge of
    that particular----
        Mr. Abelow. I am not certain who----
        Senator Boozman. Who would you guess?
        Mr. Abelow. Senator, I think there are two separate
    questions. The 1.25 securities I believe were in a portfolio
    that was overseen by the treasury department, and then other
    types of trading activity had different oversight.
        Senator Boozman. In your firm, though, who was responsible
    for determining, you know, what--they had the latitude of the
    Rule 1.25. Who made the decisions as to what they were doing?
        Mr. Corzine. Senator, the treasury operations, treasury
    functions, along with our internal audits would work to assure
    that the investments that were held using the customer funds
    conformed to Rule 1.25, and as I think has been stated, at
    least until that evening on the 30th, there had not been any
    indication that had ever been not followed.
        Senator Boozman. Right. But we have got a problem. At some
    point something happened, and I guess--you know, treasury is
    involved in that process. I guess my question is: Who directly
    in the firm interfaces with treasury and makes those decisions?
        Mr. Corzine. The decisions about whether you move money is
    separate from what would be the investment decisions that you
    might take. The investment decisions that you would take
    against--I should not say ``against.'' The investment decisions
    that you would take had to conform to Rule 1.25, and nobody
    ever disputed that, nor am I aware of any time that those
    investments did not conform to that rule.
        Senator Boozman. But I am curious. Who--again, I understand
    what you are saying, but knowing that you have got, you know,
    this smorgasbord of kind of doing things in a certain way, who
    made the decisions as far as, you know, your strategy in the
    investments?
        Mr. Corzine. The strategy at the highest level was reviewed
    at the board, certainly reviewed by myself. But the actual
    implementation was done by our treasury personnel.
        Senator Boozman. So who is that?
        Mr. Corzine. There are a whole series of people that were
    involved in treasury, and at time different persons in the firm
    would----
        Senator Boozman. I guess--and I do not mean to interrupt. I
    guess my frustration--I think Senator Grassley expressed it,
    too. I mean, we have got this major problem, and you guys, you
    know, were pretty high in the organization, and yet, you know,
    when we try and dig and find out kind of what occurred and who
    did what, nobody can really remember or does not really know.
    And so it is a problem.
        So I guess what we would like for you to do--what I would
    like for you to do is help us, you know, understand who was
    involved specifically, and I think that, you know, certainly
    you should have been in a position to know that.
        I yield back the rest of my time. Thank you.
        Chairwoman Stabenow. Thank you very much.
        I believe we have completed our first round of questioning,
    so let me continue with our second round, and thank you all
    again for being here.
        Let me talk a little bit more about treasury operations
    because, Mr. Abelow, it is my understanding--first of all, our
    Committee staff has been having a number of conversations with
    people at the operations level to learn more and gather
    information and so on. And it is my understanding that the
    treasury operations actually report to you, that you oversee
    that department. Is that correct?
        Mr. Abelow. It is correct that I oversee operations, and
    the global head of operations reports directly to me, and
    treasury operations reports up through several chains to him.
        Chairwoman Stabenow. And so what is your responsibility in
    overseeing the operations of treasury?
        Mr. Abelow. Senator, my responsibilities I think with all
    of the areas that I oversee, including treasury, are to, first
    and foremost, ensure that we have appropriate professional
    personnel in place to oversee those functions and to ensure
    ongoing functioning of them.
        Chairwoman Stabenow. And do you think they were functioning
    appropriately?
        Mr. Abelow. Other than the normal course of occasional
    incidents that are reported through operational risk or through
    audit findings, prior to the period in question, there was no
    evidence of there being any problem. As I said earlier, the
    first that we learned about there being an issue with
    segregated funds was Sunday, October 30th.
        Chairwoman Stabenow. And I would like to clarify a little
    bit more. You have talked a lot, Mr. Abelow, about intended
    purposes, and this really goes to Rule 1.25, and so I just want
    to be clear. Do you consider the investments permitted under
    that rule to be the intended purposes for customer segregated
    funds? Because that is not what we heard on our first panel in
    terms of what the farmers' understanding was. Of course, as
    colleagues have asked about Rule 1.25, internal repo
    transactions and rehypothecation and loaning and borrowing
    customer collateral, could any of these transactions have led
    to the shortfall of customer funds?
        Mr. Abelow. Senator, my understanding, when I made
    reference to ``intended purposes,'' you are correct, that is
    that I never heard a conversation where anyone spoke about
    using customer funds or assets for any purpose other than
    investment in Rule 1.25-eligible securities.
        Chairwoman Stabenow. Are there any other kinds or any other
    uses of customer funds by MF Global that could have resulted in
    them being lost? And I am not talking about misuse or
    unintended purposes at this point, but was MF Global doing
    anything with customer funds that could have led to a
    shortfall?
        Mr. Abelow. Senator, I am not aware of any, and so it would
    be speculation on my part.
        Chairwoman Stabenow. Okay. Let follow up and ask all of our
    panelists a little bit more about rehypothecation, in effect,
    using customer assets as collateral to support financing for MF
    Global. This practice puts customers' assets at risk if MF
    Global were to default on its loans. How common was it for MF
    Global to be rehypothecate customer collateral? And, again,
    could this be where the missing funds went? Mr. Corzine?
        Mr. Corzine. Senator, I will start with I really do not
    have any knowledge about the term ``rehypothecation'' in this
    context, and so anything that I said here would be speculative.
    It is not a term that we used at the firm. I am not aware of
    that being something that took place.
        Chairwoman Stabenow. Okay. Mr. Abelow?
        Mr. Abelow. I am not aware either. I did not directly
    engage in financing activity on the part of the firm.
        Chairwoman Stabenow. Mr. Steenkamp?
        Mr. Steenkamp. Financing activity was not something that
    fell within finance, and, you know, in the context that I know
    rehypothecation, it is in a standard repo/reverse repo type
    financing context in the broker-dealer.
        Chairwoman Stabenow. I know I have a lot more questions
    about this particular practice that I want to make sure we get
    into, but I wonder if any of you would respond to why we should
    permit trades that potentially encourage excessive leverage and
    create risk. And are these trades, in effect, a legal way to
    violate a fundamental principle, which is to protect customer
    money? Mr. Corzine?
        Mr. Corzine. Senator, if the Rule 1.25 investments of
    segregated funds was followed, then those securities, based on
    the judgment of those who set that rule, should be available in
    a period when customers want their money back, and that is the
    intent of establishing that security positions can be taken far
    more conservative than what would occur in the broker-dealer or
    for house investments. And those investments should be just
    exactly inside those kinds of constraints. And if that were the
    case, then those monies should be available for clients,
    protection of client funds.
        Chairwoman Stabenow. Which is why we are here, because they
    are not, right? I mean, the concern is that funds were not kept
    segregated. At least at this point we are not going to be able
    to identify 100 percent of the funds that were customer funds,
    which is one of the reasons why we are here.
        Finally, Mr. Steenkamp, you spent a lot of years in
    accounting and financial reporting, obviously very
    accomplished. I guess I would say--and I think this is a
    fundamental question. How is it that large sums of money could
    be moved from customer accounts without being elevated to
    senior levels of management? As the chief financial officer,
    how could this happen within MF Global?
        Mr. Steenkamp. I mean, Senator, not knowing, and not being
    able to investigate myself, I am asking the exact same
    question.
        Chairwoman Stabenow. But as a general practice. As a
    general practice, did large sums of money move without senior
    management being involved or being aware?
        Mr. Steenkamp. As a general practice, something like that
    should be elevated, escalated, any movement of client funds for
    a broker-dealer activity should be elevated and escalated as
    general practice. And as I mentioned, the first time we found
    out about it was on the Sunday, Sunday evening.
        Chairwoman Stabenow. Thank you.
        Senator Roberts?
        Senator Roberts. Thank you, Madam Chairwoman. I think I am
    going to paraphrase from you and just simply say what we are
    trying to get straight here is your firm that the three of you
    were in charge of, amid the eighth largest bankruptcy in the
    history of the United States, has somehow lost $1.2 billion of
    your customers' money, and none of you know where it went. And
    that is what is causing a lot of questions around here.
        I want to go back to Mr. Abelow. Earlier today you
    confirmed that the treasury operations--and apparently we need
    the treasury operations person here. Her name is Christy Vavra,
    by the way. She was the head of treasury ops. She could sit
    down there in that empty chair, I am sure. She was under your
    area of responsibility.
        Then you went on to say--but if somebody gave an order to
    move the money, would Christy know it? That would be my
    question to you. But then you went on to say, well, she would
    report to the person in charge of global operations. Now, who
    is that?
        Mr. Abelow. Senator, I do not know
        Senator Roberts. You do not know.
        Mr. Abelow. No, no. I apologize. I----
        Senator Roberts. So you do not know who is in charge of
    global operations, which comes under your area of
    responsibility. I just told you the name, which I doubt you
    knew, of the treasury ops person. Maybe you did not--or did. If
    someone gave an order to move the money around, which Christy
    Vavra know it?
        Mr. Abelow. Senator, I apologize. What I was intended to
    say was I did not know if she reported directly to the head of
    operations or whether she reported to someone who reported to
    the head of operations. I do know the name of the head of
    operations.
        Senator Roberts. How many heads of operations--how many
    heads do we have to have around here before we finally drill
    down and find somebody's name that knows what the heck is going
    on?
        Mr. Abelow. Senator, I understand your frustration and the
    frustration of everyone in the room, and as I expressed in my
    testimony at the beginning, I, too, would like to know exactly
    what happened to the customer funds.
        Senator Roberts. Why don't you together a PowerPoint or a
    TO chart or something so we could put everybody's name and
    finally we would probably get down to the custodian.
        Earlier you said the Break the Glass plan that was
    presented to the firm's leadership was dependent upon the use
    of your revolving credit line. Now, the credit line was already
    there. It does not sound like a contingency. What was the Break
    the Glass plan if you exhausted the credit line?
        Mr. Abelow. Senator, I have not looked at the so-called
    Break the Glass scenario in more than 6 weeks, and so I do not
    recall exactly what was in it. It was a scenario that was
    designed to simulate----
        Senator Roberts. So it is not a contingency. Now it is a
    scenario, right?
        Mr. Abelow. It was designed to simulate what might occur if
    there were a loss of liquidity at the firm.
        Senator Roberts. So was it a plan? Was it a contingency? It
    was just--what?
        Mr. Abelow. It was a--I believe that initially it was done
    literally as that, to simulate what would happen and what would
    the liquidity impact on the firm be under----
        Senator Roberts. Well, it sounds like----
        Mr. Abelow. --a certain stress scenario.
        Senator Roberts. It sounds like somebody made a decision,
    either top or somewhere in your heads of operation here, that
    it became operational.
        Mr. Abelow. The intention was that the next step in that
    plan would have been to develop an operational plan. I do not
    believe one was ever developed from that.
        Senator Roberts. Okay. Let me return to a point made
    earlier. You state in your testimony that the final days at MF
    Global were a classic run on the bank, yet Governor Corzine
    told us today that you all had enough cash to cover demand on
    Friday, the 28th? Was there a run on the bank, or did you have
    enough cash? It is either one or the other.
        Mr. Abelow. Senator, I believe that at the end of every day
    that week that we believed that, to the best of my
    recollection, we were advised that we did have liquidity on
    hand. But it was a run on the bank in the sense that liquidity
    sources were evaporating.
        Senator Roberts. Well, the classic question is: If you had
    enough cash to cover the run, why did you fall into bankruptcy?
        Mr. Abelow. Senator, I believe that after we had failed to
    engage in a transaction to sell the firm, after we had
    discovered that there was an apparent gap in our segregated
    funds, we no longer thought we were in a position to continue
    operating.
        Senator Roberts. Okay. Governor, in your testimony, you
    state that during the week of October 24 you reduced the MF
    Global match book by $10 billion. You further state that you
    took extraordinary steps to ensure that you were able to honor
    customer requests to withdraw funds or collateral. Is this
    correct?
        Mr. Corzine. It is, sir.
        Senator Roberts. Okay. Thank you. You said you drew down
    your line of credit from JPMorgan. That was about $1.2 billion,
    I think. On October 27, you stated, you sold $1.3 billion in
    commercial paper, over $300 million in corporate securities.
    Friday you sold $4.5 billion in U.S. treasuries. Is that about
    correct?
        Mr. Corzine. I think that is what my written statement----
        Senator Roberts. In addition, you said that during the week
    you unwound hundreds of millions worth of RTM and sold the
    underlying debt instruments. How much was that? I think I
    understand it is about $900 million.
        Mr. Corzine. I think that is the number, sir.
        Senator Roberts. So we have $1.2 billion from JPMorgan,
    $1.3 billion in commercial paper, $0.3 billion in corporate
    securities, $4.5 billion in treasuries, and $0.9 billion in
    RTMs for a grand total of $8.2 billion. By my math, $10 billion
    minus $8.2 billion is $1.8 billion. Where did this unaccounted
    for $1.8 billion come from? And could it be ``loans'' from your
    customer segregated accounts according to the Breaking the
    Glass plan? I am speculating.
        Mr. Corzine. Senator, I would have--my math may be poor,
    but my addition to that would be $10 billion of reduction in
    assets by reducing the match book. It would be reducing $4.5
    billion on the asset side by the sale of the agencies, $1.3
    billion on the commercial paper. As you know, the RTMs were
    derecognized, so that would not have been a reduction of the
    balance sheet and whatever the corporate securities were.
        There would be liabilities that are reduced at the same
    time, both on--on every one of those assets. And the purpose of
    that whole process, except for the $1.3 billion in commercial
    paper, was to produce less in margin calls from--or less margin
    postings that would actually be returned to the firm in each of
    those transactions. The commercial paper was Rule 1.25-
    eligible, and that was sold for purposes of having cash, so
    when the kind of people who were here on the first panel were
    asking for their money, we would have the cash immediately for
    that purpose.
        Senator Roberts. Madam Chairwoman, I am out of time, and I
    will await the third round. Thank you so much.
        Chairman Stabenow. Thank you.
        Senator Conrad?
        Senator Conrad. Thank you, Mr. Chairman.
        You know, what flummoxes us is how there can be $1 billion
    or thereabouts missing and nobody seems to know where it has
    gone. I think you would agree it is a curious thing. I think
    somebody watching on television from home would say, ``Wait a
    minute. These are the guys running the company and a billion
    dollars goes missing. How is it that they do not have any
    idea?''
        You know, I have heard speculation--I referenced it in my
    first round--that in those chaotic days when Moody's had
    downgraded and all of a sudden the stock price plunges and you
    then have to contemplate bankruptcy, and, therefore, firms
    probably are not sending you money that owe you money, so you
    are in a liquidity crunch even if those trades on European debt
    were actually profitable trades, which everything I see now--
    all the reading I have done suggests, boy, these guys made a
    bunch of risky trades and lost money on them and, therefore,
    there is the problem. Everything I read is those trades are
    actually profitable trades, profitable positions, at least
    until the roof starting coming in. But then you are downgraded,
    so there is a liquidity crunch.
        Do any of you know of an attempt in those final hours to
    get London to send you back $170 million that was loaned to
    them?
        Mr. Corzine. Senator, I have no input on that.
        Senator Conrad. You have not heard that there was a call
    that went from MF Global, your headquarters in either Chicago
    or New York, to London saying, hey, that $170 million we sent
    you in a loan, we need that back?
        Mr. Corzine. Senator, the only thing that I know about with
    regard to this is that there were overdrafts in London, which I
    talked about in my oral statement.
        Senator Conrad. Overdrafts on their accounts by them?
        Mr. Corzine. Overdrafts to JPMorgan in London accounts.
        Senator Conrad. In London accounts. And to your knowledge,
    was $170 million sent to London as a loan?
        Mr. Corzine. Senator, I do not know the amounts,
    transactions. Those are the kind of things that you would want
    to see from records.
        Senator Conrad. Would it surprise you that there was money
    sent to them and then an attempt to get the money brought back
    to headquarters?
        Mr. Corzine. In the normal course of any day's
    transactions--and now I am speculating--only that--and I am not
    speculating about the close. But on any business day, lots of
    transactions back and forth between London and New York.
        Senator Conrad. Mr. Abelow, were you advised that there had
    been a loan extended to London of $170 million and then a
    subsequent attempt to get that money repaid?
        Mr. Abelow. Senator, I do not recall any specific
    conversation about a loan to London. What I do recall--and,
    forgive me, my memory is--this was a hectic time. Monday
    morning, October 31, and so this is post-discovering that there
    is an apparent gap in client segregated funds, I recall a
    series of conversations of asking people to identify all cash
    and assets that may be outside of the control of the FCM and
    returning them to the FCM. That was in response to this
    surprise to us on Sunday night that there is now a problem. But
    I do not recall a specific loan or any specific amount or
    account being a part of that conversation.
        Senator Conrad. Let me ask you, were the three of you
    talking during this period? I assume you were.
        Mr. Corzine. Of course, although we were all focused on
    different activities of emphasis, as I have said in my remarks,
    I focused on selling assets, bringing the balance sheet down,
    had little less impact on selling of the firm, although I was
    active in those dialogues with investment bankers and also
    working our trading floors around the globe to make sure that
    people were reducing positions, preparing myself for postings
    with regulatory agencies, trying to gather information. I think
    other people were working on other functions. That did not mean
    we did not check in with each other, but it was not that we
    were standing next to each on an hour-or minute-to-minute
    basis.
        Senator Conrad. Well, let me ask you this, if I can,
    because, you know, we have an obligation to try to learn what
    happened here. We have got constituents that have been
    adversely affected. When you learned--or when you were told
    that there was this--I think it was at the time a $950 million
    shortage, what did you say to each other? Was there a theory? I
    mean, I would think, if it were me and I heard there was this
    shortage, the first thing that would come to my mind is, ``How
    in the hell did this happen?''
        Mr. Abelow and Mr. Corzine, did the two of you talk and
    say, ``What in God's name happened here?'' And did you have a
    theory?
        Mr. Corzine. Senator, that is probably a polite way for a
    response.
        Senator Conrad. I am Scandinavian, so we try to be polite.
        Mr. Corzine. The reaction is marshal all the resources--I
    think you heard Mr. Steenkamp talk about it--and find out where
    this money is and why we are out of reconciliation, and then
    step back and let the people who know how to read those
    records, those thousands of pages of records, get on with the
    business. Concerned about our clients, concerned about the
    available ability to deal with a rising sun and an opening of
    markets.
        Senator Conrad. Okay.
        Chairwoman Stabenow. Thank you very much
        Senator Chambliss?
        Senator Chambliss. I will pass this round.
        Chairwoman Stabenow. All right. Thank you.
        Next, Senator--I think Senator Boozman has left. Senator
    Johanns?
        Senator Johanns. Mr. Abelow, you and Mr. Corzine have been
    close through the years, haven't you?
        Mr. Abelow. We have worked together for a number of years,
    sir.
        Senator Johanns. You were his chief of staff.
        Mr. Abelow. I was his chief of staff when he was Governor
    of New Jersey.
        Senator Johanns. Mr. Steenkamp, I have been watching your
    body language during this hearing, and you just seem like the
    odd man out. You seem very uncomfortable about what is going
    on, and mostly you have been quiet. How long did you stay at
    this company after you knew that client money was missing?
        Mr. Steenkamp. Senator, I am still at MF Global Holdings--
    --
        Senator Johanns. You are still there today----
        Mr. Steenkamp. --as I mentioned in my statement, and I am
    still trying to do any efforts that I can to help the trustee
    of the holdings company to maximize value.
        Senator Johanns. Okay. So you have access to the records.
        Mr. Steenkamp. No. I have access to MF Global Holdings
    information, the holding company, but I do not have access to
    either the personnel or the records of MF Global Holdings,
    Inc., for the most part because, as I mentioned, you know, on
    October 31st when the SIPC trustee was appointed, there were
    very clear boundaries put up.
        Senator Johanns. What day did the clients' missing first
    start missing?
        Mr. Steenkamp. Well, on the Sunday when we found out, it
    was reported to me that there is a segregation issue on both
    the Thursday calculation as well as the Friday calculation. And
    my understanding was that the Thursday calculation had
    originally not shown a deficit, but that subsequently there was
    a reconciliation issue which proved that to be wrong.
        Senator Johanns. Now, $1.2 billion, I think by everybody's
    definition, especially somebody else's money, is a massive
    amount of money. As I understand it, never in the history--
    never in the history--has client money ever gone missing.
    Wouldn't there be some process or some person who had
    sufficient integrity in this organization to say, ``Oh, my
    Lord, clients' money is disappearing. I need to talk to the
    boss''? And are you aware of anybody in the organization in
    that Thursday, Friday, Saturday who said, ``Something very,
    very serious is happening,'' or something like that and drew it
    to somebody's attention? And who is that person, and whose
    attention was it drawn to?
        Mr. Steenkamp. Senator, I am not aware of anyone until I
    was notified of it on the Sunday.
        Senator Johanns. So it did not come to your desk before you
    were notified on Sunday.
        Mr. Steenkamp. Correct.
        Senator Johanns. So in this entire organization, although
    there must have been many, many people who knew that money was
    being drained out of client accounts, being transferred, did
    not step up and say to top management or at least to you,
    ``There is a problem here''?
        Mr. Steenkamp. Senator, apologies for repeating myself, but
    there had been no one--I mean, there had been no idea of this
    until that Sunday. I mean, it was utter shock, I think as we
    have said, when we found out about it for the first time, which
    was Sunday.
        Senator Johanns. Mr. Steenkamp, do you realize how
    incredible your testimony, and the other two gentlemen, how
    incredible that sounds to this Committee that $1.2 billion, the
    first time in history this had ever happened, could get drained
    away from customers and it does not come to your attention or
    somebody does not seek your authorization or at least say,
    ``Geez, by the way, what is going on here?'' Doesn't that
    strike you as incredible?
        Mr. Steenkamp. Senator, I wish I could--you know, I mean,
    we found out about it on Sunday, and there were no issues that
    we were--that I was aware of with regards to client assets
    being used in the broker-dealer up to that point, at any point
    as far back as I can remember. And our procedures, as I
    mentioned, were reviewed in detail by external and internal
    parties.
        Senator Johanns. How would you get money out of a client
    account in this organization? Did somebody have to authorize
    it? I mean, somebody in this organization had to have the
    ability to say light screen, take the money?
        Mr. Steenkamp. Senator, so, again, as global CFO, you know,
    we--you know, my involvement was not in approval of client
    balance movements or involvement in client balance movements.
        Senator Johanns. Who would have that authority?
        Mr. Steenkamp. We delegate those responsibilities to the
    senior finance professionals, the experts that do this on a
    day-to-day basis in finance, treasury, and treasury operations.
        Senator Johanns. And who were they?
        Mr. Steenkamp. Every entity would obviously be different
    depending upon the rules and regulations that existed in the
    entity and in the country and the jurisdiction it operated in.
        Senator Johanns. I am just interested in the United States.
    Who----
        Mr. Steenkamp. In MF Global Inc., my understanding is that
    there were numerous controls in place that covered treasury and
    treasury operations.
        Senator Johanns. You have said that. I want names. Who
    would authorize, who would have the oversight, who would have
    the ability to say take money out of client accounts?
        Mr. Steenkamp. Senator, I do not think anyone would have
    the authorization to take money out of client accounts to use
    for firm purposes.
        Senator Johanns. Well, who has oversight--you know, you are
    dancing around with me. Who would have the oversight of those
    accounts where that money has gone? And I want a name.
        Mr. Steenkamp. Senator, I honestly am not trying to dance
    around the issue. I am just not--I am not 100 percent sure who
    the exact person--I think there are numerous people, as I
    mentioned. I think some of the names have already been
    mentioned around the treasury and the treasury operations
    people. I am not sure who had----
        Senator Johanns. I am out of time, and I want to be
    respectful of the other Senators, but as part of your
    testimony, I am requesting that those names be provided to the
    Committee, because I would like those people sitting where you
    are sitting so we can ask them: How did it come to be that $1.2
    billion, the first time in history, was taken out of customer
    accounts? Will you do that?
        Mr. Steenkamp. I will try my best, Senator.
        Senator Johanns. Thank you, Madam Chair.
        Chairwoman Stabenow. Thank you very much, and let me just
    say also to your last question, Senator Johanns, our Committee
    staff are interviewing numerous people, are having
    conversations at various levels of MF Global, and we are asking
    for an accounting of the checks and balances and who was in
    charge so that we, in fact, can answer those questions. So
    thank you very much and----
        Senator Roberts. Madam Chairman, would you yield just for a
    comment?
        Chairwoman Stabenow. Yes, Senator Roberts.
        Senator Roberts. In regards to Mr. Steenkamp's observation,
    I think I know where he is coming from, but I do not care what
    business you are in; you do not delegate responsibility. You
    may delegate authority, but you do not delegate responsibility.
    And every time you say that you are responsible for X, Y, Z,
    you are responsible for that. And that is why Senator Johanns I
    think is so keen on this. I said give us a PowerPoint, give us
    names, give us something. The only one we have come up with is
    Christy Vavra. I do not know if Christy would say, ``Well, I
    delegated responsibility, so I do not know.'' And we have to go
    down one layer. After a while this gets to be ridiculous. It is
    you three sitting here.
        I am sorry to take more time.
        Chairwoman Stabenow. Thank you. I very much appreciate the
    comments, and it is important that we get as specific
    information as we can. So we thank all of you for coming
    forward and speaking with us, and we look forward to continuing
    to ask these questions and get the answers as to where the
    money is and who, in fact, was responsible for the
    transactions. Thank you very much.
        We will ask our next panel to come forward, and we thank
    them for their patience.
        [Pause.]
        Chairman Stabenow. We will ask our third panel to come
    forward. We appreciate your patience. It has been a long day,
    but it is very important that we hear from all of you because
    the third panel is--all of you are extremely important in all
    this process, and so we want to make sure to lay out all the
    parameters today even though we know that it is a long hearing
    today. But we thank all of you for being here.
        Let me introduce our three panelists, and then we will ask,
    as you know, for an opening statement. Of course, we want
    whatever written information you would like to give us, and
    then we would ask for 5 minutes of verbal testimony, and then
    we will have our questioning.
        So our first panelist is the Honorable Jill Sommers. Jill
    Sommers is a Commissioner for the Commodity Futures Trading
    Commission. In 2005, she was the policy director and head of
    governmental affairs for the International Swaps and
    Derivatives Association. Prior to that, Ms. Sommers worked in
    the Governmental Affairs Office of the Chicago Mercantile
    Exchange where she was instrumental in overseeing regulatory
    and legislative affairs for the exchange. Welcome.
        Next we have Mr. James W. Giddens. Mr. Giddens is a trustee
    for the Securities Investor Protection Act liquidation of MF
    Global. He is also the co-chair of the Bankruptcy and Corporate
    Reorganization Group at Hughes Hubbard & Reed LLP. Welcome to
    you as well.
        Finally, we have Mr. Terrence Duffy. Mr. Duffy is the
    executive chairman for the CME Group based out of Chicago,
    Illinois. He has been a member of the board since 1995, was
    president of TDA Trading from 1981 until 2002, and has been a
    member of CME since 1981.
        So welcome to all of you, and before giving your testimony,
    I would ask you to rise and to raise your right hand. Do you
    swear that the testimony you are about to present is the truth,
    the whole truth, and nothing but the truth, so help you God?
        Ms. Sommers. I do.
        Mr. Giddens. I do.
        Mr. Duffy. I do.
        Chairman Stabenow. Thank you.
        Commissioner Sommers, we would ask you to start with your
    testimony.

      STATEMENT OF HON. JILL E. SOMMERS, COMMISSIONER, COMMODITY
               FUTURES TRADING COMMISSION, WASHINGTON, DC

        Ms. Sommers. Good afternoon, Chairwoman Stabenow, Ranking
    Member Roberts, and members of the Committee. Thank you for
    inviting me here today to discuss the MF Global bankruptcy. I
    understand the severe hardship this bankruptcy has caused for
    customers of MF Global. These customers correctly understood
    the risks associated with trading futures and options, but
    never anticipated that their segregated accounts were at risk
    of suffering losses not associated with trading. Many customers
    have reached out to me and my staff directly, and we are doing
    everything we can to get as much of their money back to them as
    quickly as possible. I have made this my number one priority.
        The Commission has dozens of staff members in New York,
    Chicago, and Washington working on these issues. I am unable to
    discuss matters that might compromise the ongoing enforcement
    investigation or parallel investigations by any other
    Government agency, so I will focus my comments on the
    bankruptcy cases pending in New York and on the legal
    requirements surrounding the segregation of customer funds held
    at futures commission merchants.
        As I understand the Securities Investor Protection Act of
    1970, the SEC has the authority to refer an entity registered
    as a broker-dealer to the Securities Investor Protection
    Corporation if there is reason to believe that the entity is in
    or is approaching financial difficulty. SIPC may initiate a
    liquidation proceeding to protect customers of an insolvent
    broker-dealer when statutory criteria are met.
        When a broker-dealer is also a registered FCM, as MF Global
    was, there is one dually registered entity and the entire
    entity gets placed into liquidation. Because there is one
    entity it is not possible to initiate a SIPA liquidation of the
    broker-dealer and a separate bankruptcy proceeding for the FCM.
    It is important to note that when a dually registered BD/FCM is
    placed into a SIPA liquidation, the relevant provisions and
    protections of the Bankruptcy Code, the Commodity Exchange Act,
    and the Commission's regulations apply to customer commodity
    accounts just as they would if the entity were solely an FCM
    and in a non-SIPA bankruptcy.
        The Commission is no stranger to FCM bankruptcies. Lehman
    Brothers and Refco are two of the most recent. While the Lehman
    Brothers bankruptcy was monumental in scale and the Refco
    bankruptcy involved serious fraud at the parent company,
    commodity customers did not lose their money at either firm. In
    both instances, commodity customer accounts were wholly intact;
    that is, they contained all the open positions and supporting
    collateral for those positions. That being the case, customer
    accounts were promptly transferred to healthy FCMs, with the
    commodity customers having no further involvement in the
    bankruptcy proceeding. Unfortunately, that is not what happened
    at MF Global because the customer accounts were not intact.
        In FCM bankruptcies, commodity customers have an exclusive
    right to customer property. This includes, without limitation,
    segregated property, property that was illegally removed from
    segregation and is still within the debtor's estate, and
    property that was illegally removed from segregation and is no
    longer within in the debtor's estate, but is clawed back into
    the debtor's estate by the Trustee. Commission regulations also
    allow other property of the debtor's estate to be classified as
    customer property to make up any shortfall.
        Within the first weeks of the MF Global bankruptcy, the
    trustee, with the encouragement and assistance of the CFTC,
    transferred nearly all positions of customers trading on U.S.
    commodity futures markets and transferred approximately $2
    billion of customer property.
        On December 9th, the bankruptcy court granted a motion to
    transfer an additional $2.1 billion back to customers. When
    this additional transfer goes forward, commodity customers
    should have received approximately 72 percent of their account
    values as reflected by the books and records of MF Global.
    These demonstrate that commodity customers are receiving the
    highest priority in claims to the bankruptcy estate. We
    understand that more must be done.
        An FCM is authorized to invest funds that are in customer
    segregated accounts. This authorization is found in Section 4d
    of the CEA and in Commission Regulation 1.25. The Commission
    finalized changes to Regulation 1.25 just last week. Those
    changes just reinforced the long-held view of the Commission
    that customer segregated funds must be invested in a manner
    that minimizes their exposure to credit, liquidity, and market
    risks to preserve their availability to customers and DCOs.
        All Regulation 1.25 investments are subject to a general
    prudential standard which requires that all permitted
    investments be consistent with the objectives of preserving
    principal and maintaining liquidity.
        While our current focus is on returning as much money as
    possible to customers, we are expending an enormous amount of
    effort to locate the missing customer funds and pursuing the
    enforcement investigation. All of the information we learn
    during these aspects of our work will be relevant to the
    Commission as we consider ``lessons learned'' and any policy
    responses or regulatory changes.
        Obviously, the Commission has a great deal of work to get
    customer funds back where they need to be, to determine what
    went wrong with segregated funds at MF Global, to determine
    whether to prosecute any violations of the Act, and to
    determine what needs to be done to prevent a similar
    circumstance in the future. Commission staff is coordinating on
    these issues with other regulators, both international and
    domestic. We are also working closely with the trustee to
    provide whatever support he needs to resolve issues with
    commodity customer accounts. I greatly appreciate the continued
    support of this Committee as we move forward with this
    important work.
        Thank you.
        [The prepared statement of Ms. Sommers can be found on page
    139 in the appendix.]
        Chairman Stabenow. Thank you very much.
        Mr. Giddens?

      STATEMENT OF JAMES W. GIDDENS, TRUSTEE, SECURITIES INVESTOR
      PROTECTION ACT LIQUIDATION OF MF GLOBAL INC., NEW YORK, NEW
                                  YORK

        Mr. Giddens. Chairwoman Stabenow, Ranking Member Roberts,
    and members of the Committee, thank you for inviting me to
    testify today about efforts to identify, preserve, and return
    assets to the former customers of MF Global Inc. I am the
    court-appointed trustee for the Securities Investor Protection
    Act liquidation of the failed broker-dealer, MF Global Inc. I
    appreciate the interest of this Committee and other Members of
    Congress, including the direct encouragement of Chairwoman
    Stabenow and Senator Roberts to expedite the returns to
    customers as quickly as we can.
        Along with my staff, I have been working closely and
    continuously with the Securities Investor Protection
    Corporation, Commissioner Jill Sommers, and the Commodity
    Futures Trading Commission, the Securities and Exchange
    Commission, and the Chicago Mercantile Exchange. By statute,
    the trustee is the customers' advocate. My staff includes legal
    experts, consultants, and forensic accountants. We take very
    seriously our obligation to protect customers of the failed
    brokerage. Our primary mission is to look our for the customer
    and credit interest. We are focused on returning assets to
    customers as quickly as possible in a manner that is fair and
    consistent with the applicable provisions of the Securities
    Investor Protection Act, the Bankruptcy Code, and the CFTC
    regulations.
        Every distribution we make must be approved by the
    bankruptcy court on notice to all customers and parties in
    interest. We are distributing as much as we can as soon as we
    can within the law. And while we work around the clock on
    identifying, preserving and distributing customer assets, my
    office has made every effort to keep customers informed. We
    have a website which had, I think, more than 10,000 inquiries.
    Information on the status of the proceeding is posted to the
    website daily. In addition, my staff is answering calls and e-
    mails and holding meetings with customer groups and their
    counsel. A call center and a website, as we indicated, are in
    operation. We also will be mailing to all 36,000 remaining
    customers statements of their last positions and reflecting as
    best we can the first two transfers to assist them in
    understanding where we are in the process and in completing
    claim forms.
        I am very pleased to report the distributions to nearly all
    36,000 former retail customers, whether farmers, day traders,
    or institutional investors, have been made within weeks of the
    bankruptcy filing. We are now in the process of implementing a
    third bulk distribution that will bring the total amount of
    customer distributions to more than $4 billion. The order
    approving that was entered by the bankruptcy court yesterday.
    The team worked over the weekend to put in place the mechanisms
    with the cooperation of the CFTC and the CME, and the first
    distributions are expected to begin to be made tomorrow and to
    be completed within 2 to 4 weeks. All of this requires
    transfers to new accepting FCMs and is a complicated process.
    This will mean that retail commodities customers with U.S.
    positions will receive approximately 72 percent of their
    property.
        The customer claims process is also up and running. Claim
    forms have been sent by mail, and forms are available on our
    website. Claims are being filed, reviewed, and as we meet here
    today, some claims have already been approved and allowed.
        As part of my statutorily mandated duty, I am also
    investigating the extent of and reasons for the apparent
    shortfall in customer funds. The investigation is ongoing. It
    is led by the Department of Justice, also with the CFTC, the
    SEC, and we are cooperating fully in their investigation.
        It is too early to make or draw definitive conclusions on
    many of the matters. At this time we do not know with certainty
    the extent of the potential segregation and compliance
    shortfalls, but I estimate the figure is not less than $1.2
    billion.
        For U.S. futures, foreign futures, and for securities
    customers, there are three categories of segregated assets at
    MF Global Inc. for the customers. First, for those with U.S.
    futures positions, which is primarily under the jurisdiction of
    the CME, but there are also U.S. clients with substantial
    foreign futures positions. There are also securities customers
    who had segregated funds. The full amount of the shortfall will
    not be known with certainty until the claims process is
    completed.
        I feel obligated to share these preliminary numbers and
    highlight the uncertainty that surrounds them. It is my hope
    that the shortfall number will come down.
        We have collected the available assets from depositories
    that appear to be on the books of the debtor. This is not
    simply a mathematical calculation, but is the actual control of
    dollars. We also have estimated the potential claims, and that
    is how we calculate the shortfall figure.
        No matter the final amount of the shortfall, it is an
    appalling situation. Its probable size is going to be
    significant, and this will substantially affect our ability to
    make a 100-percent distribution to former MF Global customers
    in the immediate term.
        Exhaustive efforts to collect funds from U.S. depositories
    continue. Assets located in foreign depositories for customers
    who traded in foreign futures are a more complicated matter.
    They are now under the control of foreign bankruptcy trustees
    or administrators. We will pursue these assets vigorously, but
    recovery may be more uncertain and may take more time.
        Thank you, Chairwoman Stabenow, Ranking Member Roberts, and
    other members of the Committee, for the opportunity to testify
    here today. You can be assured that amidst the unprecedented
    circumstances surrounding the failure of MF Global Inc., we are
    moving with speed and diligence to return customer property as
    quickly as possible in a fair and equitable manner that
    complies with the law.
        Thank you.
        [The prepared statement of Mr. Giddens can be found on page
    128 in the appendix.]
        Chairman Stabenow. Thank you very much.
        Mr. Duffy, welcome.

     STATEMENT OF TERRENCE A. DUFFY, EXECUTIVE CHAIRMAN, CME GROUP
                        INC., CHICAGO, ILLINOIS

        Mr. Duffy. Thank you, Chairwoman Stabenow, Ranking Member
    Roberts, and members of the Committee. I am Terry Duffy,
    executive chairman of CME Group.
        Let me start by saying the actions of Mr. Corzine's firm,
    MF Global, put a lot of market users in a tragic position. At
    CME Group, our efforts with respect to the unprecedented loss
    of customer segregated funds caused by MF Global have been to
    assist these customers in minimizing market disruptions. My
    testimony summarizes efforts from our staff, who were on site
    at MF Global, along with the CFTC, in the days immediately
    preceding its bankruptcy. My written testimony expands on this
    introductory statement and includes substantial background
    material.
        By the middle of the week of October 24th, MF Global had
    announced poor earnings and was downgraded by several credit
    rating firms, sparking rumors that it would sell its brokerage
    business. CME was the designated self-regulatory organization
    for MF Global with responsibility for auditing its futures
    business. On Thursday, October 27th, two of our auditors went
    to MF Global's Chicago offices to review MF Global's daily
    segregation report for the close of business on Wednesday,
    October 26th.
        Wednesday's segregation report, which is not available
    until Thursday, showed full compliance. Our auditors asked for
    the material necessary to check the numbers on the report
    against the general ledger and third-party sources and began
    the process of tying out the numbers for Wednesday's report.
        That substantial review process of the Wednesday
    segregation report continued on Thursday and Friday. MF
    Global's segregation report for Thursday, October 27th, which
    was delivered to CME on Friday, the 28th, also stated that MF
    Global remained in full compliance with segregation
    requirements. In fact, it showed that the firm held $200
    million in excess segregated funds.
        On Sunday, the CFTC informed us that they were aware of a
    draft segregation report for the close of business for Friday,
    October 28th, which showed more than a $900 million shortfall
    in required segregation. CFTC and CME staff and auditors
    returned to the firm on Sunday, October 30th, and were informed
    by MF Global employees that this discrepancy was caused by ``an
    accounting error.'' Our auditors, working with the CFTC,
    devoted the rest of the day and night Sunday to find the so-
    called accounting error. No such error was ever found. Instead,
    at about 2:00 a.m. Monday morning, October 31st, MF Global
    informed both the CFTC and CME at approximately the same time
    that the shortfall was real and that customer segregated funds
    had been transferred out of segregation to the firm's broker-
    dealer accounts.
        After receiving this information, CME remained at MF Global
    while MF Global attempted to identify funds that could be
    transferred into segregation to reduce or eliminate the
    discrepancy. A CME auditor also participated in a phone call
    with senior MF Global employees wherein one employee indicated
    that Mr. Corzine knew about the loans that it made from the
    customer segregated accounts. CME Group has provided this
    information and the names of these individuals to the
    Department of Justice and the CFTC, who are investigating these
    matters.
        On Monday, October 31st, the day the SIPC trustee took
    over, MF Global revised its segregation report for Thursday,
    October 27th, indicating that the alleged $200 million in
    excess segregated funds should have been reported as a
    deficiency of $200 million. This shortfall in segregation on
    Thursday, October 27th, was hidden by the inaccurate report, a
    telling sign to keep regulators in the dark. It remains to be
    seen whether this failure to disclose permitted additional
    segregated funds to be improperly transferred.
        Throughout this time, the firm and its employees were under
    the direction and control of MF Global management. Transfers of
    customer funds effectuated by MF Global management for the
    benefit of MF Global constitute very serious violations of our
    rules and of CFTC regulations. We met our obligations to all
    other clearing firms and their customers.
        Also, at all times we held $1 billion in excess of the
    required amount of customer segregated funds on behalf of MF
    Global's customers. All of CME Group's efforts have been
    directed toward speeding customer access to their trading
    accounts, transferring their positions, and providing the
    trustee with a $550 million guarantee from CME Group to
    encourage him to quickly release customer funds that were
    securely held at CME Clearing.
        The federally mandated customer segregation program has
    been in place since 1936. In the time prior to the MF Global
    failure, no customer has ever lost its segregated funds because
    of the failure of a clearing member of the CME. Moving forward,
    we intend to work with the Congress, regulators, and industry
    leaders to strengthen customer safeguards at the firm level.
        I thank you very much for your time and attention, and I
    look forward to your questions.
        [The prepared statement of Mr. Duffy can be found on page
    123 in the appendix.]
        Chairwoman Stabenow. Thank you very much.
        Let me start, Mr. Duffy, with your comments that you just
    indicated. You raised a serious allegation in your oral
    statement today regarding what Mr. Corzine may have known about
    customer accounts. You did not mention that in your written
    testimony, and you did not mention it in your testimony last
    week before the House Agriculture Committee.
        This leaves us wondering why you are sharing it now, what
    you think it means, and I trust that CME has, in fact, shared
    this information in a timely way with appropriate Federal
    officials. And I would urge again everyone to cooperate fully
    with the investigations that are going on because, of course,
    anyone who is engaged in wrongdoing must be held accountable.
    But would you want to respond further to that?
        Mr. Duffy. I would be happy to. Madam Chairwoman, I did not
    become--this information was not made available to me prior to
    my testimony last Thursday in the House. I received this
    information this past Saturday from an e-mail and a phone call
    from our lawyers, and they informed me of what they had found
    out in their investigations but did not share with me prior to
    the Thursday testimony.
        Chairwoman Stabenow. And do you have the names of the
    specific people involved in terms of--you were speaking of
    hearing--people referring to things that they heard, but do you
    have the specific names that you have given to the authorities?
        Mr. Duffy. The names of?
        Chairwoman Stabenow. Of those who were on the call and were
    involved in the conversation.
        Mr. Duffy. One of our folks from CME who is the one that
    reported this back to us was on a call, and you have to forgive
    me, I do not know this woman's name. If you do not mind, I will
    check with Legal.
        Chairwoman Stabenow. I just want to make sure that you are
    reporting specific names of people in the discussions.
        Mr. Duffy. Yes. There is a specific name, yes, ma'am.
        Chairwoman Stabenow. Okay. Mr. Duffy, in March of this year
    you testified before the Committee, pushing back on CFTC's
    effort to require more of exchanges and clearinghouses like CME
    when it comes to compliance and oversight. In fact, in March
    you said, ``There is no evidence that this will be beneficial
    to the public or the functioning of the markets.''
        I wonder if you still believe that is true.
        Mr. Duffy. I do not know what you are referring to, what
    issue it was, ma'am. There were many issues----
        Chairwoman Stabenow. Well, we were moving forward-- CFTC
    was moving--you pushed back on the CFTC moving away from
    principles-based regulation, and I wonder if you still hold
    that view today.
        Mr. Duffy. Principles-based regulation has worked
    flawlessly, ma'am, and we do believe, even in this instance,
    that segregation funds still worked. What happened here was
    somebody went in, violated the rules of the CME and violated
    the rules of the Government, and transferred out customer
    monies into the broker-dealer account. That has nothing to do
    with the principles-based regulation, I believe, of the firm or
    the segregation of the firm. Someone violated the rules, in my
    opinion.
        Chairwoman Stabenow. And so do you believe that CME has any
    responsibility as the front-line regulator----
        Mr. Duffy. If I did not think--what CME has done--and I was
    very much in favor of doing this--was to put up the guarantee
    of $550 million so that the trustee could then issue money much
    more quickly back to the ranchers and farmers. And if you would
    like, I would be happy to give you the notes of why I did that.
    I asked that specifically for the farmers and ranchers, not for
    Wall Street, not for hedge funds, or any other of our clients.
    I said the most important constituency here needs to be made--
    to get the money back quickly to them, are the farmers and
    ranchers. That is why the board of the CME Group put forth the
    $550 million to guarantee Mr. Giddens so he can allocate his
    revenues.
        Chairwoman Stabenow. As we go forward and looking to the
    future, this kind of thing--we all want to make sure that this
    kind of thing does not happen again in the future. Do you think
    the right kinds of questions are being asked of the futures
    commission merchants? Are we getting enough information to keep
    markets safe in order to be able to trade? And are you planning
    on reviewing your oversight systems in light of the MF Global
    bankruptcy?
        Mr. Duffy. Obviously, anytime something of this magnitude
    happens, which has never happened before--and I think Senator
    Roberts has pointed that out many times throughout the day--you
    want to look at different things. We are obviously open, as I
    said in my oral statement, to working with Congress and
    industry participants to see if there are any changes that need
    to be made for this not to happen. But I do think it is
    important that--you know, there is $158 billion of customer
    segregated funds in the United States of America. This
    potential violation has never happened since this has been put
    into place since 1936. So I do not think that the system is
    broke. I think someone violated the rules, ma'am.
        Chairwoman Stabenow. Thank you. And now for a moment let me
    talk about customer money, which brings us all here and is our
    concern. I want to thank you, Mr. Giddens, for your efforts and
    your team's efforts and encourage you to continue to move as
    quickly as possible to make people whole.
        I am concerned that we are hearing that there may be a
    shortfall in customer money. Even with this latest
    distribution, we know that people will not be yet getting 100
    percent of their funds. And with that in mind, I think it is
    important to talk about what happens next. And so I would like
    each of you to answer a couple of questions.
        Do you agree that any value left in MF Global should first
    go to customers until they are made whole? And to put it
    another way, creditors and investors should not get a single
    penny until MF Global's customers have been paid in full. And I
    am wondering if each of you would agree with that. Commissioner
    Sommers?
        Ms. Sommers. Thank you, Chairman Stabenow. I think that it
    becomes a little complicated when you are talking about the
    bankruptcy of MF Global Holdings, the parent company. If we
    have evidence to show that there is customer money at the
    holding company level, then absolutely we will do everything we
    can to make sure that money comes back to customers and to the
    estate. We will be working closely with the trustee to make
    sure that happens.
        Chairwoman Stabenow. Okay. Mr. Giddens, would you respond
    to that?
        Mr. Giddens. Yes, I agree that both the Commodities
    Exchange Act and the Securities Investor Protection Act give a
    priority to customers, securities customers and commodities
    customers, respectively, and if there is a shortfall, there are
    provisions in both statutes which say that other assets ought
    to be reached to cover those shortfalls. That may be deemed by
    some to be something of a conflict, and the positions of the
    CFTC and the SEC may disagree. But both statutes, if there are
    shortfalls in customer property in either category, commodities
    or securities, give a preference and have a mechanism for a
    trustee to seek to recover for an estate assets which should
    have been in segregated funds.
        Chairwoman Stabenow. Mr. Duffy?
        Mr. Duffy. I am not a trustee nor a regulator, but I
    believe that there is SIPC insurance on the broker-dealer side.
    There is what we call ``segregated funds'' on the FCM side. I
    do believe that the FCM clients should be first in line in
    front of all other participants, including bond holders and
    everybody else.
        Chairwoman Stabenow. Thank you. Thank you very much.
        Senator Roberts?
        Senator Roberts. Well, thank you Madam Chairwoman.
        Mr. Duffy, we have spent a lot of time here today. We
    probably should have had you on first. You have sort of tossed
    a bomb here right in the middle of who we are trying to find
    out who is responsible, who has the responsibility, who has the
    authority. So senior MF Global employees told one of your
    auditors--you were about ready to give us the name of that
    auditor. Why don't you just supply that to the Committee, if
    you might? I think you were going to turn to one of your
    attorneys, and we will leave it at that, unless that
    jeopardizes any ongoing investigation. We will let you decide
    that with law enforcement.
        October 31st, Governor Corzine was well aware of loans that
    MF Global had made to other MF Global affiliates. Is that
    correct?
        Mr. Duffy. Sir, I am reporting back to you everything that
    I know that was told to me. I was not there, sir, but in our
    interviews with our employees, our employee told us that they
    were on a phone conversation with this particular person at MF
    Global that Mr. Corzine was aware of the loans that were being
    made.
        Senator Roberts. Did that employee indicate with MF Global
    affiliates the MF Global customer segregated account funds were
    transferred to?
        Mr. Duffy. Not to my knowledge; I do not know that. I
    believe what they were trying--if I recall the e-mail, it was
    something of a $175 million loan that was made to a European
    affiliate of MF Global, if I am understanding it correctly, if
    I remember correctly.
        Senator Roberts. Did they indicate when those loans were
    made?
        Mr. Duffy. I do not recall when they were made. I believe
    it was in the last couple days prior to bankruptcy.
        Senator Roberts. Did this individual indicate when Governor
    Corzine became aware of those loans, or did he order them to
    occur?
        Mr. Duffy. All I was told was that Mr. Corzine was aware of
    the loans that were made.
        Senator Roberts. Did you provide this information to the
    appropriate authorities? The answer, of course, to that is yes.
        Mr. Duffy. Yes, sir.
        Senator Roberts. Is there anything else about this
    conversation you believe important for this Committee to know?
        Mr. Duffy. No, sir. I was just asked to raise my right hand
    and tell the whole truth, so I am telling you what I know.
        Senator Roberts. I appreciate that.
        Commissioner Sommers, it is my understanding that CFTC can
    create advisory boards composed of industry officials. Is that
    correct?
        Ms. Sommers. Yes, Senator.
        Senator Roberts. Has the CFTC considered setting up an
    advisory committee like this to focus on what happened with MF
    Global and to help make recommendations to ensure it does not
    happen again?
        Ms. Sommers. We have had a number of different
    conversations of what an appropriate forum would be moving
    forward so that we can hear from industry participants and get
    their feedback on lessons learned.
        Senator Roberts. Has anybody stopped you or recommended
    otherwise?
        Ms. Sommers. No. I do not think we have had discussions
    that have taken it to the Chairman's level. It has just been
    internally with my office and industry participants.
        Senator Roberts. Well, he is not participating. Is that not
    correct?
        Ms. Sommers. That is correct.
        Senator Roberts. Well, I would strongly encourage you to
    set that up, and I encourage you to make that recommendation to
    the Commission and to pursue it. And since Chairman Gensler is
    not participating and has stated before the Committee last week
    he does not know exactly what happened with MF Global, those
    recommendations should be given to you as the lead investigator
    and that you and the other Commissioners should make a
    determination on whether or not those recommendations should be
    pursued.
        Let me say that--let me get organized here. Mr. Duffy,
    again, beginning on Monday, October 24, the day of the Moody's
    downgrade, you have said that CME began heightened scrutiny of
    MF Global. What does this entail, very briefly?
        Mr. Duffy. Well, we were in there----
        Senator Roberts. Mic.
        Mr. Duffy. Sorry, sir. We were in there to make certain
    that the segregated reports were accurate. As I said in my oral
    testimony, we were--they were on daily segregated reporting I
    believe since they were--since Refco, since Refco went away and
    MF Global took them over. So we were in there just making
    certain that the monies were tying out, as I said, and we had
    got about 85 or 90 percent done through Friday through the week
    on tying out the customer segregated funds.
        Senator Roberts. Commissioner Sommers, did the CFTC
    participate or assist in this more intensive review?
        Ms. Sommers. The CFTC staff went into MF Global mid-week--I
    think the 26th was a Wednesday--under the same sort of review
    to make sure that the daily segregated reports were accurate.
        Senator Roberts. Under the heading of what you were looking
    for, wasn't the primary purpose of your intensive review to
    make sure that the segregated customer accounts were not
    dissipated or otherwise misused?
        Ms. Sommers. That is correct. We----
        Senator Roberts. Mr. Duffy?
        Mr. Duffy. Yes, sir.
        Ms. Sommers. We received daily segregated reports from MF
    Global, but in the normal course of business do not tie those
    back to bank records. So that is what we were in the process of
    doing.
        Senator Roberts. Did you suspect that the customer funds
    might go missing?
        Ms. Sommers. No, sir.
        Senator Roberts. I understand that you were not in charge
    of MF Global's investigation at this time, but you have since
    learned whether or not the CFTC participated in this review or
    otherwise confirmed the CME's conclusion that all the customer
    money was safe at the close of business on Wednesday, October
    26th. Is that correct?
        Ms. Sommers. That is correct.
        Senator Roberts. It is my understanding Chairman Gensler
    would have been the lead at that time on all MF Global-related
    issues because he did not become non-participating until 8 days
    later. Is this correct, as to your understanding?
        Ms. Sommers. That is correct. I took over on November 9th.
        Senator Roberts. I see. I think I am down to 37 seconds,
    and we have the Senator to my right who is waiting patiently.
    So I may ask a couple more questions, Madam Chairwoman, but I
    think I will yield back at this time.
        Chairwoman Stabenow. Thank you very much.
        Let me talk for a little bit more about customer funds and
    ask each of you another issue that I think, as we look at going
    forward, we are going to be asking a lot of questions about
    additional authority from Congress in terms of putting customer
    funds first in processes.
        It is possible during the days, perhaps even the weeks and
    months, that led up to the firm's collapse that there were
    third parties who saw it coming, and perhaps they were well
    within their legal rights to do so. But if third parties held
    back money or assets to keep them out of a lengthy and
    uncertain bankruptcy proceeding, should the court be able to
    reclaim that money for MF Global customers? Commissioner
    Sommers?
        Ms. Sommers. I guess my understanding of the way that would
    work is if that money belonged to customers or belonged in the
    4d account, then absolutely that would be able to come back to
    the debtor's estate. I am not aware of money with third parties
    or aware of whether or not that was money that belonged in the
    4d account.
        Chairwoman Stabenow. Mr. Giddens?
        Mr. Giddens. We are looking at all the transfers for
    several months out of the firm, and if there is a legal basis
    for recovering that, we will make a demand, and we will also
    engage in litigation if we have a sound basis for that.
        We are in the process of collecting from counterparties of
    MF Global Inc. who principally closed out all open transactions
    after the bankruptcy for an accounting of whether they lost
    money or made money; and if they owe money to the estate, we
    will pursue that.
        There is nothing to indicate, unfortunately, the amounts,
    based on our analysis of the books and record, are going to be
    astronomical or anywhere nearly sufficient to make up the
    shortfall. But part of my duty as a trustee is to pursue causes
    of action to recover assets for customers, and we intend to do
    that.
        Chairwoman Stabenow. Thank you.
        Mr. Duffy?
        Mr. Duffy. I would have nothing more to add than what
    Commissioner Sommers already said.
        Chairwoman Stabenow. Okay. Thank you.
        Mr. Duffy, some have suggested that CME should make whole
    the customers of MF Global right now and take over the claims.
    Would you consider that kind of an idea?
        Mr. Duffy. As I said, we have put up money to encourage the
    trustee to pay back. I also said there was $158 billion of
    customer segregated funds in the United States. Nobody can
    guarantee $158 billion. You know, that is why there are rules
    on the books, and that is why we have disclaimers to make
    certain of what FCM you are going to do business with because
    there is a risk. So, again, Madam Chairwoman, that would be
    something that would be an extreme moral hazard for the CME to
    try to make up $158 billion of customer segregated monies.
        Chairwoman Stabenow. You mentioned earlier on the
    securities side that there is SIPC, there is an insurance
    system. And it is a little early, I think, probably to spend
    too much time--we are not sure where all the recommendations
    are going to go, but one question that we have been asked a
    number of times is: Should there be an insurance system like
    that is on the commodity side for commodities customers? Do you
    have any thoughts on that?
        Mr. Duffy. I think you are talking about trying to have an
    insurance system that would be in the hundreds of trillions of
    dollars of notional value to insure. The premiums would be so
    astronomical it would never meet the payout of what it could
    be. So I do not know that is something that would be
    beneficial. There may be something you want to look at and,
    again, preliminary at best, smaller farmers, ranchers, pure
    hedgers of the product, they may want to look at different
    types of accounts for them that could be managed differently. I
    do not know.
        Chairwoman Stabenow. Okay. Thank you.
        Commissioner Sommers, Chairman Gensler testified at our
    last hearing that the CFTC did not examine a single futures
    commission merchant, referencing the duty of the front-line
    regulators like the CME. Can you confirm that information? And
    should the Commission audit or examine every futures commission
    merchant? If we are to go down that path, does the CFTC have
    enough resources to do that? I think I probably know the answer
    to that one, but is that a path that the CFTC is looking at or
    would look at?
        Ms. Sommers. So currently the way it works, we have
    authority over the DSROs. The FCMs are registered with us, but
    the DSROs are the front-line auditors. We do periodic reviews
    of the DSROs and look at the reviews or the audits that the
    DSROs do of FCMs. So we may go in and do spot audit checks of
    FCMs that a DSRO has already reviewed to see what our own
    results would be of that type of audit to make sure that the
    DSRO is doing their job. If we find any inadequacy in the job
    that the DSRO has done, we make recommendations to them to
    improve their systems.
        Chairwoman Stabenow. After this investigation is done, are
    you open to recommending new authorities or tightening up
    current protections to prevent a similar situation from
    occurring again?
        Ms. Sommers. Absolutely. I think there is no doubt that
    after the investigation is concluded and we look back to know
    exactly what happened, there will be a number of lessons
    learned and a number of different recommendations that we can
    bring to you for your consideration.
        Chairwoman Stabenow. Is it true that if a firm invests
    customer money right now and the investments decrease in value,
    the firm is responsible for the loss, not the customer?
        Ms. Sommers. That is right. If the firm is investing under
    Regulation 1.25 and there is a loss in value of those
    instruments, the FCM has to make up the loss of customer money.
        Chairwoman Stabenow. Thank you very much.
        Senator Roberts?
        Senator Roberts. I beg the indulgence of my colleagues. CME
    has said in the last few days, Mr. Duffy, of MF Global it saw
    several transactions that ``did not follow a straight path.''
    What did you mean by that?
        Mr. Duffy. I am not aware of that exact quote, ``did not
    follow a straight path.'' It may be in my written testimony,
    but I am assuming--no, it is not in my written testimony. I did
    not think it was. I do not recall hearing anything about
    following a straight path.
        Senator Roberts. I wonder where that came from.
        Mr. Duffy. The only thing I can say, sir, is I did say that
    they gave us a segregated report that showed $200 million to
    the good, and then they gave us the same segregated report 4
    days later, dated from the week before, that showed a $200
    million deficiency. So maybe that is where that language came
    from.
        Senator Roberts. Well, then you saw several transactions
    that followed a very rocky path.
        Mr. Duffy. Fair enough.
        Senator Roberts. On November 2 in a press release, you
    said, ``It now appears that the firm made subsequent transfers
    of customer segregated funds in a manner that may have been
    designated to avoid detection insofar as MF Global did not
    disclose or report such transfers to the CFTC or CME until
    early morning on Monday, October 31.'' How was this information
    disclosed to you by MF Global?
        Mr. Duffy. I will go back to what I said a moment ago,
    Senator. That press statement that we put out, a lot of it was
    based on the false segregated reports that we received and now
    we are aware of.
        Senator Roberts. What exactly did MF Global tell you?
        Mr. Duffy. I was not there, sir. Obviously, this was 2
    o'clock in the morning. I found out about it 8 o'clock the
    following morning. I was only told that they came to us and the
    CFTC saying, ``Stop looking for the so-called accounting error.
    There was $950 million transferred out of customer segregation
    to the broker-dealer account.'' That is what I was told from
    our--through our reports.
        Senator Roberts. Was this before or after the company had
    been placed into bankruptcy?
        Mr. Duffy. This was prior to. I think the company went into
    bankruptcy the following day--or actually it would have been
    the same day.
        Senator Roberts. Well, for the entire panel--I am sorry?
        Mr. Duffy. It would have been the same day because it
    happened in the middle of the night.
        Senator Roberts. It seems to me that to figure out where
    the money went, once you go back to the time when one knew for
    sure that the money was there, try to trace its path forward in
    time--it is time-consuming, it could be done. And that would
    take quite a number of people. I understand the Department of
    Justice is involved in the investigation, locating the money
    through the FBI and through the offices of two U.S. Attorneys.
    CME has its own auditors, of course, and the CFTC is directly
    involved.
        Mr. Giddens, as trustee you have got your own team. It
    seems to me there are a lot of cooks in the kitchen. Who is in
    charge of this posse that we have arranged here to find out the
    truth? Are there too many members of the posse that you have
    not been able to find the money? Or are you satisfied that you
    are all talking with one another and it is a pretty smooth
    operation?
        Mr. Giddens. I think it is a very cooperative operation.
    The potential law enforcement investigation is led by the
    Department of Justice and the U.S. Attorneys in New York and
    Chicago, and they are taking the lead on that.
        My principal investigation is really to look at the
    transfers and try to find potential sources of recoveries to
    bring back the monies for customers. I do not have a role in
    the law enforcement aspect of this. There are frequent
    meetings, and there is cooperation, full cooperation from us.
    No one is asserting privilege or withholding any kind of
    information. And I think it is working well with the CFTC.
        Now, the SEC also is interested in this because there were
    transfers and transactions relating to segregated securities
    accounts and the like. I think all of the independent
    regulators--I do not think bodies are stumbling over bodies or
    there are too many people to be there.
        I think in terms of a conclusion of what happened, it is a
    complicated analysis, and I think it is fair to say it is more
    than just looking at transactions in the last few days. I think
    it is looking, whether it is relevant or not, for transactions
    and transfers that went over several months and are really
    hundreds of thousands of reconstructions of things to do.
        As I indicate, there is no magic source of where the money
    is. There is no depository, there is no counterparty or anyone
    who is sitting with, you know, $600 million that we have
    identified. I do not think that is going to happen. I think we
    have collected the available assets, and we have already
    distributed nearly 80 percent of that with our--we have other
    constituencies. With the last transfer motion, there were more
    than 25 objections, including objections from the U.K.
    administrator, including from the creditors committee of the
    holding company who were opposed to our distribution on the
    grounds that we may be distributing assets which belong to
    other creditors or other parties.
        So as I say, I think the analysis of the business practices
    of the firm and whether they were solvent or insolvent is going
    to take some time. But I do not think it is going to magically
    come to a pot of gold at the end of the rainbow immediately.
        Senator Roberts. I appreciate your candor, and I think Mr.
    Duffy has something to add.
        Mr. Duffy. Senator, I just want to make it clear that the
    CME is obviously cooperating with the authorities, but also the
    CME has been instructed by both the CFTC and the Department of
    Justice not to conduct its own investigation. All the
    information I have given you is by interviews that we have
    conducted internally of our own employees. So I just want to
    make sure that was clear for the record.
        Senator Roberts. I appreciate that.
        I yield back, Madam Chairwoman.
        Chairwoman Stabenow. Thank you.
        Senator Klobuchar?
        Senator Klobuchar. Thank you very much, Madam Chairman.
    Thank you to all of you.
        Mr. Duffy, I was actually asking Mr. Corzine and MF Global
    witnesses about the statements that you had made and your
    understanding of what had happened. And in your testimony you
    give what I would consider the most detailed account I have
    heard to date as to when and how the customer funds were
    missing. From your testimony do I correctly understand that it
    is your belief that the customer funds were illegally
    transferred out of segregation on October 27th, Thursday, and
    Friday, October 28th?
        Mr. Duffy. We were told that the customer funds were
    transferred from the customer segregation to the broker-dealer,
    and those are not excess customer funds. That is a violation of
    the rules. So, yes, that is correct.
        Senator Klobuchar. And then this new information we got
    today, I just want to go over that. Was that one of those
    transfers or is that from another--this loan, $175 million loan
    to the European affiliate?
        Mr. Duffy. I am unaware of what it was other than what I
    was told over the weekend by our lawyers by an e-mail and a
    conversation afterwards that Mr. Corzine was aware, because our
    employee had heard this, talking to another--was on the phone
    with the European affiliate, and the European affiliate--they
    were telling them to send back the $175 million, and the woman
    said that Mr. Corzine is aware of these loans.
        Senator Klobuchar. And this was a woman at MF Global?
        Mr. Duffy. MF Global, yes.
        Senator Klobuchar. And who is this woman?
        Mr. Duffy. I do not have her exact name, and I do not want
    to----
        Senator Klobuchar. All right. And so----
        Mr. Duffy. I told Senator Roberts I will give it to the
    Committee afterwards.
        Senator Klobuchar. Okay. Very good. And so she told an
    auditor with CME about this?
        Mr. Duffy. Yes, the auditor of CME was in the room while
    she was on the phone.
        Senator Klobuchar. And it was a $175 million loan to what
    European affiliate?
        Mr. Duffy. I have no idea, ma'am.
        Senator Klobuchar. Okay. And then I know that Senator
    Roberts just asked you about that, but in your testimony, you
    said the transfer of segregated funds--this is a quote: ``The
    transfer of segregated funds out of the appropriate accounts
    was disguised from all regulators.'' And I actually engaged a
    little in the previous panel about disguising and what they are
    required to do with the disclosures and the repo disclosures
    and those kinds of things. Can you explain further why you
    chose to use the word ``disguised''?
        Mr. Duffy. Sure. Because as I said in my testimony and to
    Senator Roberts, we were tying out--which means that we were
    validating the segregated funds--from Wednesday's statement
    through Thursday and Friday; we had 80 to 90 percent of the
    tie-out done to show that segregated funds were basically
    intact. This is on Friday, but it is based off of Wednesday's
    report.
        Then they gave us another report. First, the report showed
    they had--their report showed $200 million in excess. And then
    they gave us another report 4 days later after bankruptcy with
    the same date prior that shows a $200 million deficit. So,
    clearly, they gave us two different reports from the same day
    with a $400 million swing, and we had tied out 80 to 90 percent
    of the funds being there on Friday from Wednesday's report.
        Senator Klobuchar. So this is a different issue then when I
    talked to him about the reporting to the SEC about where the
    funds went. This is during this weekend that you are talking
    about.
        Mr. Duffy. Yes. I am talking about this work was being done
    on Thursday or Friday off of Wednesday's report, and then the
    report that they gave us was revised on Monday.
        Senator Klobuchar. Okay. Mr. Duffy, in your testimony you
    stated that, according to the information you have, you believe
    that there might be a shortfall in segregated funds of between
    13 percent and 19 percent. Has that changed at all or is it
    more defined?
        Mr. Duffy. Well, I do not know about the percent. I am
    going off dollars, so I know.
        Senator Klobuchar. Yes, I wondered where that rested with
    the $1.2 billion figure that Mr. Giddens and his team----
        Mr. Duffy. We are estimating a shortfall of between $700
    million and $900 million.
        Senator Klobuchar. Okay. So that is less----
        Mr. Duffy. So that is, you know, $550 million is 10 cents,
    so you can do the math from there.
        Senator Klobuchar. Okay. Mr. Giddens, for this difference,
    what is this difference about between what Mr. Duffy----
        Mr. Giddens. There are three segregated funds. I think Mr.
    Duffy is referring only to the U.S. futures when he gives his
    figure of up to $900 million. I am also referring to the
    segregated accounts with foreign futures and also segregated
    securities accounts.
        Mr. Duffy. For the record, ma'am, I am referring to U.S.
        Senator Klobuchar. Got it. And then, Mr. Giddens, I know
    this was incredibly complicated and I guess there was some poor
    maintenance of the records in the last few days. Are you
    confident that at the end of the day you are going to be able
    to account for all the transactions in and out of segregation
    from start to finish?
        Mr. Giddens. Well, that is what we are trying to do over a
    several-month period, and I have very good folks working for me
    from Deloitte and Ernst & Young who are trying to reconstruct
    this.
        Senator Klobuchar. And so what I understood from reading
    your previous testimony, something like 72 percent of the money
    will go back to people like Mr. Tofteland for sure that are
    victims of this colossal collapse here.
        Mr. Giddens. Yes. The Commodity Exchange Act requires me to
    give the same pro rata distribution to every customer, and
    after this distribution, each customer should have received 72
    percent of the value in their account.
        Senator Klobuchar. All right. And how about above that?
    Under what circumstances could customers who had their funds in
    segregated accounts not be made whole?
        Mr. Giddens. If we continue to have a shortfall in total
    assets. It is my intention to make further distributions
    through the claims process as promptly as possible, and it
    depends on the total recovery of assets that we have. If we
    have only the assets we have at present, there will be a
    shortfall. And it is my goal or aspiration through litigation
    or otherwise, if possible, to make up that shortfall.
        Senator Klobuchar. With the clawback or finding some ways
    to find this money?
        Mr. Giddens. Yes.
        Senator Klobuchar. Okay. And so what do you see as the
    timetable now? You have got that distribution of the 72
    percent, and you have determined what the shortfall is. So what
    should we tell our farmers?
        Mr. Giddens. Well, the time for filing claims expires on
    January 31st, and by that time we should have a picture of all
    the claims. We have just an estimate.
        For example, a U.K. administrator had an account with MF
    Global U.S. of several hundred million dollars in an omnibus
    account. We have not distributed anything on that.
        There are also other subsidiaries around the world. There
    are also other potential creditors. And until the claims
    process is completed, we will not know with assurance what the
    claims are. But we have and we are very grateful for the CME
    guarantee because that has given us some assurance that we
    could proceed with fairly substantial distributions without
    knowing in reality what our total assets are and what the total
    claims will be allowed.
        Our intention is to do that as quickly as possible and to
    make further distributions as quickly as it appears comfortable
    to us, to the CFTC, and, of course, eventually we have to
    persuade the bankruptcy court to approve these transfers in the
    interest of all the parties in the bankruptcy.
        Senator Klobuchar. Thank you very much, and I know I have
    talked with you, Commissioner Sommers, before, and if we have
    any more questions, especially about that timetable, we will
    follow up in writing. I appreciate it.
        Thank you.
        Chairwoman Stabenow. Thank you very much.
        Senator Boozman?
        Senator Boozman. Thank you, Madam Chair.
        Mr. Duffy, did you get a chance to hear the testimony of
    Governor Corzine and his associates?
        Mr. Duffy. I did.
        Senator Boozman. Was the testimony that you heard
    consistent with the facts that you have uncovered in your
    investigation?
        Mr. Duffy. I am not a lawyer, sir. The only thing I can
    tell you is we were told by MF Global that they transferred
    money from customer segregated accounts to the broker-dealer,
    stop looking for the accounting error.
        I can also only tell you that one of our employees was on a
    call with one of their employees when they said Mr. Corzine was
    aware of the loans being made from segregated accounts.
        Senator Boozman. Okay. Very good.
        Ms. Sommers, again, it is remarkable. You mentioned Lehman
    Brothers and things like this. Is this unique, this sort of
    thing happening, certainly to this extent? But is it unique in
    itself
        Ms. Sommers. Yes, it is, sir, for the customer funds to be
    missing.
        Senator Boozman. Okay. You mentioned customers. How do we
    differentiate between what is and what is not customer dollars?
        Mr. Duffy. The customer funds on the FCM side would be put
    in a 4d segregated account, and those accounts would be tagged
    as 4d segregated accounts.
        Senator Boozman. And the money that they discovered
    outside?
        Ms. Sommers. There could be money in a lot of other
    accounts outside of 4d. There could be house proprietary
    accounts, broker-dealer accounts, the foreign future accounts,
    which we take at 30.7 accounts.
        Senator Boozman. Okay. Very good.
        Mr. Giddens, the $550 million guarantee, is that money--is
    it going to be used to make customers whole if we cannot find
    the shortfall?
        Mr. Giddens. That is not the nature of the guarantee. The
    guarantee, which we are grateful for, is not a sum of money or
    an additional sum of money. If we make the mistake and it turns
    out at the end of the day the proper pro rate distribution is
    75 percent and we have given out 80 percent to somebody or to
    others, the money could be used to cover that deficiency. So
    Mr. Duffy may----
        Mr. Duffy. That is not quite correct either. What is
    correct is CME has said to the trustee, Pay up to 75 cents for
    every dollar, and if you end up only having 60 cents or 65
    cents, we will make up to 10 cents. So we do not go above the
    75-cent number, as Mr. Giddens was referring to. Maybe we are
    saying the same thing in a different way.
        Mr. Giddens. I think we are.
        Mr. Duffy. But it is basically CME--if he pays up to 75
    cents, finds out he does not have 75 cents, has 70, then we pay
    $250 million to him. If he has 65, we pay another $250 million
    to him. If he has 60, he is on his own after that.
        Senator Boozman. I see. Okay. Thank you, Madam Chair.
        Chairwoman Stabenow. Thank you.
        Senator Hoeven?
        Senator Hoeven. Thank you, Madam Chairman.
        I would like to start with Mr. Duffy. Would you feel that
    it is fair to say that either customer money was moved from
    segregated accounts to the company accounts for use by the
    company or there is an accounting error here or we are going to
    find the dollars? Would you say it is fair that one of those
    three scenarios needs to--either is the case or will be the
    case?
        Mr. Duffy. I do not know if I could say that because I can
    only tell you what I have been told, sir. We were told--not me
    personally, but our staff was told there is no accounting
    error. So I have to take that off the table. I was told there
    was money moved from customer segregated funds to the broker-
    dealer account. That is what we were told.
        Senator Hoeven. You indicated $200 million?
        Mr. Duffy. No, sir; $950 million was moved out of customer
    segregated accounts to the broker-dealer. What I was referring
    to on the $200 million was a customer segregation report from
    the week prior that showed them having excess of customer
    monies, $200 million of their own monies in the segregated
    pool. And then that was revised down to be a $200 million
    deficit a week later or 5 days later.
        Senator Hoeven. So your auditors indicated that the dollars
    were transferred from the customer segregated accounts to the
    firm's accounts?
        Mr. Duffy. No, sir. Our auditors were told by MF Global
    that is what MF Global did, to stop looking for the accounting
    error.
        Senator Hoeven. What authority did they have to make those
    transfers?
        Mr. Duffy. I do not know if they were the ones that made
    the transfers or not, sir. All I am telling you is they told
    our auditors stop looking for an accounting error, they moved
    the money out of segregation.
        Senator Hoeven. And that was on what date?
        Mr. Duffy. October 31st, 2:00 a.m. in the morning.
        Senator Hoeven. So would it be your expectation that the
    investigation led by the DOJ in tandem with your help, the
    CFTC, the SEC, the trustee and everyone involved here, that
    they would then be able to determine the amount that was
    transferred, when it was transferred, who authorized the
    transfers?
        Mr. Duffy. We have given them pretty much all the
    information we had, sir. We were not part of the investigation.
    We have been asked not to be by both the CFTC and the
    Department of Justice.
        Senator Hoeven. Based on your earlier testimony, you felt
    that this was not a system failure but, rather, that somebody
    violated the system.
        Mr. Duffy. There is somewhere between $700 million and $1.2
    billion, to Mr. Giddens' recollection. It is literally 6 or 7
    weeks later. The money is not there yet. So the money appears
    to be missing.
        Senator Hoeven. Commissioner Sommers, would you give me
    your thoughts on the same issue, system failure versus somebody
    violating the rules, and then also your sense of how soon we
    will be able, through the investigative process, to determine
    what happened, who is accountable?
        Ms. Sommers. The first part of the question: I think it is
    a little bit premature for us to make determinations about
    whether the system failed until we know exactly what happened.
    After we have a chance to go over all the facts and
    circumstances of the case, obviously we can decide whether or
    not there were any parts of the system that failed in this
    instance.
        The second part of your question, how long it may take to
    follow the trail, just to assure the Committee that we will
    follow, you know, every single lead in this investigation, both
    the law enforcement side of the investigation as well as
    tracing where every penny of the money went, but it is
    complicated. And while you may know that a certain amount of
    money could have been transferred out of the FCM at one time,
    that money being transferred could have splintered into
    thousands of different accounts after it was transferred out of
    the FCM. And we have to trace to make sure which of those
    transfers were legitimate versus illegitimate transfers.
        If a customer on the FCM side had money that they asked to
    be transferred to the broker-dealer, that would be a legitimate
    transfer, and we would have to follow any supporting
    documentation that is with MF Global to know which of those
    transfers are legitimate versus illegitimate. So while we have
    a very good idea at this point about what had happened, it is
    painstakingly difficult and complex to follow every single
    transfer of this money.
        So, you know, we are working closely with the trustee and
    the forensic accountants to make sure we get every single
    detail unveiled.
        Senator Hoeven. Mr. Duffy?
        Mr. Duffy. You know, Senator, maybe I did not answer your
    question properly, but I believe I am the only one in two
    hearings now that is giving a timeline of sequence of events
    that we know. I do not believe it is a system failure only
    because of the timeline we have walked through.
        Then when the question was asked today to the earlier
    panel--I think Senator Boozman asked me a question, was I
    paying attention to the other panel. When the Senator from
    Minnesota asked was my statement correct that they were told
    that monies were transferred out of customer segregated into
    the broker-dealer account, nobody refuted that of the three
    participants that I saw.
        So we are the only ones that have shown a timeline. I do
    not believe there is a system failure here. So maybe I did not
    answer your question properly. I think something--I think there
    was a violation of the rules. Again, I am not a judge, jury, or
    lawyer. I am just telling you we gave a chronological order of
    events here, sir, to show that it is not a system failure.
        Senator Hoeven. I understand you are saying that you do not
    feel it was a system failure, which I think means that either
    transfers were made inappropriately or there is an accounting
    error. But you indicated that you were told it was not an
    anything error, that transfers were made.
        Mr. Duffy. That is exactly what I said, sir.
        Senator Hoeven. Mr. Duffy, in terms of the ability to
    recover--because some of the earlier testimony was, well, this
    may be an accounting error. And certainly there should be
    controls in place so you do not have this type of accounting
    error, which is, you know, properly part of the system. But
    whether it is accounting error or whether there were
    unauthorized transfers, Mr. Giddens, will that affect, in your
    opinion, the ability to get full recovery for the customers of
    MF Global?
        Mr. Giddens. If it were simply an accounting error, then
    presumably it could be corrected and you would have the funds.
    We are basing our analysis on what actual dollars are there
    against estimated claims, and there is a substantial shortfall.
    I should say while the technical investigation by the
    Department of Justice will be thorough, and by the regulators,
    it may take months, that is not going to deter us if we see a
    source of funds that we think should come back into the estate
    from pursuing that. In fact, we have already made demands of
    counterparties who closed out transactions for accountings
    into--and, in fact, we have recovered some small amount of
    money.
        So what I am saying is we will be proactive immediately,
    and even though the investigation in its formal sense may take
    many months before anybody can unravel the thousands if not
    hundreds of thousands of transactions--and we will be doing all
    we can as the members of this Committee have encouraged us to
    do to pursue dollars to make people whole--I am certain that
    the distribution will be more ultimately than 72 cents. How
    much I cannot really say at this point.
        Chairwoman Stabenow. I think that is a good place to end--
    yes?
        Senator Hoeven. I do have a follow-up question. I can wait
    or--but I would like to have a follow-up question.
        Chairwoman Stabenow. We do have--we are needing to bring
    the hearing to a close. I wonder if you might either do that
    quickly or put it in writing.
        Senator Hoeven. Just one more to follow up.
        Chairman Stabenow. Very quickly.
        Senator Hoeven. For Mr. Giddens, $1.2 billion is the
    shortfall. You anticipate--just take me through the math real
    quick so that we can communicate with folks who are out the
    money. The Senator from Minnesota talked with you about the
    timeline, but just take me through the number, the $1.2
    billion, you anticipate 72 percent recovery. How much of that
    is paid out? When do you expect more payout? And then are we
    talking about the difference of roughly $300 million is what
    you anticipate the shortfall to be at this point?
        Mr. Giddens. No, Senator. We will have distributed $4.2
    billion. The bankruptcy court entered the order on Monday, and
    with the CME and with the CFTC, we have put in place a
    mechanism to start making distributions, and actually the first
    distribution should go out tomorrow. That process will take,
    estimated with the CME, 2 to 4 weeks before all of the money is
    out.
        When that is completed, that distribution should give every
    person 72 percent of their claim. If their claim were for $1
    million, they should get $720,000. The shortfall, the $1.2
    billion, is an estimate, and that is based on what we see as
    estimated claims against three segregated pots: one for
    securities customers; one for the U.S. folks who transacted in
    foreign futures, such as on the London Metals Exchange; and
    then the largest pot of that, which is under the CME
    jurisdiction, are U.S. futures. The combination of those three
    pots of assets, what we actually have and what we have
    collected, is what leads us to the approximate $1.2 billion.
        Senator Hoeven. Thank you.
        Chairwoman Stabenow. Thank you very much, and we thank all
    of you for coming today. This has been a very, very important
    hearing, and we have received answers. Also, I have more
    questions. And so as I indicated in my opening statement, we
    have three goals as we continue to look into this situation:
    getting the customers' money back, and, Mr. Giddens, we are
    counting on you to stay laser-focused on that, as I am
    confident that you will; holding anyone accountable for any
    wrongdoing; and ensuring that proper customer protections are
    in place to make sure this does not happen again.
        I will just reiterate that any policy changes will come
    through this Committee, and we will continue to examine the
    collapse of MF Global. And we have heard today from customers
    who are very worried about using the futures markets, and that
    is, frankly, not acceptable. It is the duty of our Committee
    and all of you and the regulators to ensure that the markets
    are safe and sound and that there is, in fact, confidence in
    the system. And so we look forward to working with you to make
    sure that happens.
        Thank you very much. The meeting is adjourned.
        [Whereupon, at 5:03 p.m., the Committee was adjourned.]

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                                A P P E N D I X

                               DECEMBER 17, 2011

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                             QUESTIONS AND ANSWERS

                               DECEMBER 17, 2011

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