Throughout more than two hours of congressional testimony, Jon S. Corzine was careful to invoke the idea of intent when asked how his failed brokerage, MF Global Holdings Ltd., came to lose track of as much as $1.2 billion in its clients’ money.
“I certainly would never intend to direct or have segregated funds moved,” Corzine said yesterday during his appearance before the House Agriculture Committee, testifying he didn’t know what happened to the missing money. “I am comfortable that certainly on my part there was no intention to violate segregation rules,” he told lawmakers at another point.
Corzine, responding to the first of three subpoenas from congressional committees investigating the collapse of his firm and the missing funds, defied the expectations of some analysts when he decided to answer questions and not resort to his right against self-incrimination. Lawyers said it was no surprise that he repeatedly focused on intent in his testimony.
The language Corzine used “is certainly an attempt to defuse any criminal responsibility,” said Stephen Braga, an attorney with Ropes & Gray LLP in Washington.
“Most crimes require a wrongful intent, and accordingly mistake is a defense to most crimes,” Braga said. “This testimony suggests an unintentional, mistaken occurrence, which would not be criminal. Whether that suggestion fits the facts or not remains to be seen.”
The 64-year-old former New Jersey governor and U.S senator, who hasn’t been accused of wrongdoing, spoke publicly for the first time since he resigned as chairman and chief executive officer of MF Global, which filed the eighth-largest U.S. bankruptcy Oct. 31.
With the Commodity Futures Trading Commission, Securities and Exchange Commission and Justice Department probing the missing funds, Corzine faced the dilemma of how to present his version of events without opening himself to potential charges or further litigation. Several lawsuits have been filed by customers and former employees since the Oct. 31 bankruptcy, including one yesterday against Corzine and four other former MF Global executives in federal court in Chicago by a group of commodity traders whose accounts were frozen.
Testifying under oath, Corzine said he didn’t knowingly authorize any movement of funds out of client accounts, and that any transfers of money could have been a misunderstanding or misinterpretation of his intent.
“I’m not in a position, given the number of transactions, to know anything specifically about the movement of any specific funds,” Corzine said.
‘Pin You Down’
After one exchange, Representative K. Michael Conaway, a Texas Republican, said: “I understand why you keep using ‘intent.’ I’m not trying to pin you down, we’re not the prosecution.”
Corzine also repeatedly said that he didn’t “direct” anyone to move funds. That was also a careful choice of words, according to Seth Taube, head of the trial section in the New York office of law firm Baker Botts LLP.
“The issue is what safeguards were in place with respect to segregated funds,” Taube said, noting that the responsibility of top executives is to put systems in place to prevent mistakes. “So in a sense Governor Corzine’s answer misses the point. It’s not about directing someone to take the funds, it’s about locking the door so no one else can open it and help themselves.”
Corzine said he wasn’t an expert in payment, clearing and settlement systems and didn’t view reports daily on the segregation of client funds. Instead, he said he was “stunned” to learn of the shortfall and repeatedly described a state of “chaos” at the firm in the last days before its bankruptcy.
James W. Giddens, the trustee overseeing the liquidation of MF Global, has estimated that $1.2 billion is missing. If that’s because of internal errors at MF Global, Corzine may have breached responsibilities under Sarbanes-Oxley rules, according to Daniel Collins, a professor of accounting at the University of Iowa’s Tippie College of Business.
Under the 2002 law -- for which Corzine voted as senator -- top executives must certify the accuracy of financial statements and assess whether they have sufficient safeguards to catch fraud and bookkeeping errors. Corzine signed off on MF Global’s quarterly reports prior to the bankruptcy.
“Whether these are operational errors or not is a serious matter,” Collins said in a phone interview. “If effective controls for monitoring the flow of the funds from the clients through the different investments are not in place, then that would be a breach of the Sarbanes-Oxley responsibilities of top management.”
Two More Subpoenas
President George W. Bush signed Sarbanes-Oxley into law after accounting scandals at Enron Corp. and WorldCom Inc. eroded investor confidence. Executives must also have internal controls certified by an outside auditor under the law.
Yesterday’s testimony came before a committee of 46 lawmakers with oversight of the CFTC. Corzine is scheduled to face two more congressional panels -- the Senate Agriculture Committee and House Financial Services oversight and investigations subcommittee -- that voted to subpoena his testimony for hearings next week.
Corzine had requested to appear in January so he could gain access to his e-mails, notes and other documents at the firm.
Corzine said that on the evening of Oct. 30, the night before MF Global filed for bankruptcy, he was informed of the shortfall in client accounts and told employees, “We’ve got to fix this,” and “We’ve got to find the money.” He speculated that someone “could misinterpret” such remarks.
“In every witness’s day in the congressional dock, there are probably phrases he wished he hadn’t uttered,” Stephen Ryan, head of the government strategies practice at McDermott Will & Emery LLP in Washington. “A decisive figure like a former senator and governor and senior Goldman Sachs official says things clearly, precisely and is not subject to misinterpretation.”
At the hearing, lawmakers began probing who at MF Global, if not Corzine, was responsible for the daily accounts. They’ve already pledged to hold additional hearings to investigate the company.
“He was responsible for the people and systems he put in place,” Representative Frank D. Lucas, chairman of the House Agriculture panel, said in an interview after the hearing. “This is far from over.”