The Plot Thickens: The House Financial Services Committee MF Global Hearing

On Thursday, December 15, lawmakers held the third in a series of hearings on the collapse of MF Global. I advised the members of the House Financial Services Committee - in advance in a column in American Banker - to cut to the chase with their questions.

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  1. CME Group's Duffy said in the hearing that his organization was told to stop their internal investigation and was precluded from supporting the regulators' investigations. This surprised and confused lawmakers. I guess this lawsuit is why.  CME Group directors have a conflict as fiduciaries of a public company and directors of an exchange that acts as a designated self regulating organization for FCMs like MF Global.  How to separate the interests of CME Group the public company, its loss of a major customer in MF Global, its regulatory responsibility, and the personal financial interests of some of its officers and directors?  Mamma mia!
  2. This is damning evidence of the disdain the banks and auditor PwC have for the concept of segregation of customer funds.  PwC was cited recently for the same offense at JP Morgan UK.  JP Morgan is MF Global's chief banker and major creditor. 
  3. My understanting is that there will be another hearing in January with the ratings agencies and PwC giving testimony.
  4. Some pundits try to ply the same schtick for every new fraud or scandal. One size does not fit all.  Look at new facts fresh and, in this case, follow the money.
  5. My question was asked verbatim by Rep. Capuano: Did MF Global have sufficient internal controls over financial reporting given the breach of segregated funds that occurred subsequent to the Sarbanes-Oxley certifications signed for the fiscal year ended March 31 and the quarters ended June 30 and Sept. 30?Were you and MF Global CFO Steenkamp being truthful with your auditor, PricewaterhouseCoopers, when you signed the Sarbanes-Oxley certifications and assured investors and regulators of the adequacy of internal controls over financial reporting?
  6. I posed questions for all of those testifying and one who did not - PricewaterhouseCoopers, MF Global's auditor.
  7. I did not know there was such a thing as the Congressional CPA Caucus.  Must look into that.  I wonder what their parties are like?

    Many are confusing  terms "auditor" and "regulator" in this case.  
  8. A securities lawyer from Chicago, Andrew Stoltmann, was on Bloomberg in the morning and kept calling the CME Group the "auditor" of MF Global.  This kind of misinformation only serves to let PwC, the real statutory auditor, off the hook and to confuse the true role and responsibilities of the CME Group.  

    MF Global is a publicly traded company. They are responsible to the SEC in that regard and must file audited financial statements each quarter and year end. 
  9. My compliance friends are following the strong-weak Chief Risk Officer  angle.  Because all you need is a great Chief Risk Officer and no harm will come to you. 

    It seems MF Global's Corzine fired the previous risk officer, Michael Roseman, because he kept pushing back on the repo-to-maturity trade backed by sovereign debt.  Too risky he said.  (I hope he's breathing a big sigh of relief and getting high fives from all his risk officer friends.)
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