WASHINGTON--Chicago's CME Group Executive Chairman Terry Duffy is telling Congress that contrary to MF Global Chairman and CEO Jon Corzine's testimony--Corzine knew CME customer funds were improperly tapped by the now bankrupt MF.
Duffy testifies Thursday afternoon before the House Financial Services Committee. On Tuesday, Duffy made a bombshell revelation at a hearing of the Senate Agriculture Committee on MF Global. During questioning Duffy said that Corzine knew that CME customer funds were transferred out of segregated accounts that MF was not supposed to touch.
Corzine--a former Senator and Goldman Sachs honcho--told Congress he had no idea how $1.2 billion in customer money disappeared. Duffy disagrees.
Duffy, in written testimony submitted in advance of the House Financial Services hearing, said the CME is cooperating with Justice Department and the Commodities Future Trading Commission investigations of Corzine.
CME sent in auditors to MFG's Chicago offices in the October days before MFG's bankruptcy as rumors swirled about the firm's losses and downgrades.
Duffy states in his House testimony Corzine knew what was going on: "A CME auditor also participated in a phone call with senior MF Global employees wherein one employee indicated that Mr. Corzine knew about loans that had been 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."
A scandal of this proportion often triggers calls for more crackdowns and regulations. Duffy is telling Congress they can put a lot of rules in place--but can't stop determined people from breaking those rules.
Said Duffy in his prepared testimony: "Some might conclude that the system failed because of this one instance when customers have been injured despite the prescribed system of segregation. Regulatory failures happen, unfortunately.
"Banks fail and the FDIC provides sometimes inadequate protection to depositors. The taxpayers get tapped. Securities firms fail and SIPC is irrelevant to any large account holders. The laws prohibit Ponzi schemes, yet hundreds are detected every year after the public has been robbed and the money evaporated. Insider trading happens every day. Enron explodes, Lehman fails. Insurance companies fail and policy holders lose.
"While it is clear that action is necessary to restore customer confidence and protect against future failures, the fact is that MFG broke rules by moving customer segregated funds out of an account over which it had control.
"A firm failed to comply with applicable rules, but that does not mean the segregation system is a failed system. To be clear, the customer segregation regime in the futures industry was not the cause of the losses that customers are suffering from today."
Read Duffy Thursday prepared testimony HERE