Sen. John R. Thune (R.-S.D.)
In an exclusive Human Events interview, the senior Republican on the Senate’s Agriculture Committee’s Jobs, Rural Economic Growth and Energy Innovation subcommittee discusses his take on the MF Global bankruptcy scandal.
“I have heard from several South Dakotans who were affected by the apparent fraud that occurred in the final days of MF Global before its collapse,” said Sen. John R. Thune (R-S.D.), who worked in the Small Business Administration under President Ronald W. Reagan.
[Video of Thune’s December 13 questioning Corzine is at the bottom of the article.]
The firm’s Halloween bankruptcy was followed by the November 4 resignation of its chairman and chief executive officer, former Democratic New Jersey senator and governor Jon S. Corzine. In addition to the confusion surrounding the bankruptcy filing, the company cannot account for $1.2 billion in client funds.
Always clinging to Corzine is the ghost of his reputation as a leading captain of Wall Street and an adamant supporter of government regulations, exemplified by his roles in crafting and sponsoring the 2002 Sarbanes-Oxley financial regulation bill that sought to make corporate officers more responsible for the misconduct at their companies.
When he joined MF Global in May 2010, his contract including a “key man” insurance policy to make the firm whole in the case of Corzine accepting a position in the Obama administration.
Thune said he and other senators are more than aware of bizarre circumstance of such a celebrated financier and civic leader would be at the center of this scandal.
“Jon Corzine is someone the Obama administration has consistently looked to for financial advice,” he said. “In fact, President Obama called Corzine ‘Our Wall Street guy’ and Vice President Biden called Corzine the ‘Smartest guy I know in terms of the economy and on finance.’”
The senator said, “Jon Corzine is a key insider in the Democrat party and the reliance and trust placed in him by this White House raises questions.”
Thune said the co-mingling and other shady practices hurt innocent clients, who did not realize they were at risk. “Customer funds should never be at risk in the event of a bankruptcy such as MF Global’s and their accounts must be made whole.”
In addition to hearings in front of Thune and other senators on the Agriculture Committee, Corzine has appeared before House hearings. The Senate Agriculture Committee has oversight over the Commodity Futures Trading Committee, the regulatory agency for commodities brokers, such as MF Global.
Thune said some of his constituents have been surprised and hurt by the firm’s collapse.
“Farmer co-ops to individual producers have significant amounts of money frozen on account of MF Global mismanagement,” he said.
“In some cases, if the customers do not recover their funds, their ability to stay in business is in serious jeopardy,” he said.
“Crop and livestock producers in South Dakota and throughout the country rely on futures contracts to hedge against losses due to volatility in the market place,” he said.
“Many producers and agricultural businesses lost not only their investments, but also their trust in the futures market. I will continue to work diligently in the Senate Agriculture Committee to investigate this calamity,” he said.
“I had the opportunity to ask Corzine and other MF Global executives to provide a situation in which $1.2 billion of customer funds could disappear without any laws or regulations being violated and I received nearly 11 seconds of silence from the panel,” he said.
“I think Corzine’s silence was telling. While we do not yet know with certainty that any laws were broken, up to $1.2 billion simply does not just disappear from customer accounts overnight,” he said. “I am confident that the ongoing FBI and CFTC investigations and future congressional oversight hearings will get the answers that MF Global customers deserve.”
New regulations are not the answer, he said.
“We do not need more regulations; rather, existing regulations must be enforced to ensure that businesses entrusted with customer funds are playing by the rules,” he said.
“It is unlikely that any Dodd-Frank regulation would have prevented the customer money from disappearing in the event that MF Global improperly used customer segregated funds to buy European sovereign debt, as many have speculated,” he said.
“Customer funds at futures commission merchants have been regulated since the 1930s and the U.S. has never seen a bankruptcy at this scale with up to $1.2 billion in missing customer money,” he said.
The senator said the role of CFTC Chairman Gary Gensler in the scandal feeds his skepticism in relying on regulations, since the chairman’s friendship with Corzine may have given MF Global private considerations.
“Chairman Gensler and Mr. Corzine have known each other for several years. I am concerned that Chairman Gensler recused himself of the investigation on account of this relationship, but did not take a similar action when Mr. Corzine lobbied the CFTC on a rulemaking provision to tighten restrictions on how customer funds could be invested,” he said.
“Ongoing investigations must also focus on any preferential treatment that MF Global may have received from the CFTC,” he said.
“I will continue to ask tough questions to ensure that both regulators and those directly responsible for MF Global’s collapse are held accountable,” he said.