MF's Corzine said to know of customer-backed loan

WASHINGTON Tue Dec 13, 2011 6:10pm EST

Former MF Global CEO Jon Corzine testifies about the firm's bankruptcy during a hearing before the U.S. House Agriculture Committee on Capitol Hill in Washington, December 8, 2011. REUTERS/Jonathan Ernst

Former MF Global CEO Jon Corzine testifies about the firm's bankruptcy during a hearing before the U.S. House Agriculture Committee on Capitol Hill in Washington, December 8, 2011.

Credit: Reuters/Jonathan Ernst

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WASHINGTON (Reuters) - An MF Global employee told regulators that former chief Jon Corzine knew that the now-bankrupt brokerage firm used customer money to lend to a European affiliate, a CME Group executive said on Tuesday.

CME Executive Chairman Terrence Duffy said his company has provided this information to the Justice Department and the Commodity Futures Trading Commission, which are investigating the matter.

Duffy, testifying to the Senate Agriculture Committee, said a CME auditor participated in a phone call during which an MF Global employee indicated that Corzine knew of the loan.

The CME is a front-line regulator for MF Global.

The loans was for roughly $175 million and was likely made in the last couple of days prior to MF Global's October 31 bankruptcy, Duffy said.

"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 had been made from the customer segregated accounts," Duffy said.

A spokesman for Corzine and his lawyer, Andrew Levander, declined comment.

The search for hundreds of millions of dollars in missing customer funds at the futures brokerage has sent reverberations through the farm belt and trading floors, and has attracted the attention of the FBI and federal prosecutors.

Investigators are trying to determine whether the customer funds were diverted to firm accounts to counter a liquidity crisis, a major violation of industry rules.

Corzine, who resigned days after the firm's collapse, has steadfastly denied knowing what happened to the missing money.

But he has also said that while he "never intended" to break rules, an employee may have misinterpreted instructions to try to save the firm, a comment he sought to clarify on Tuesday.

"I want to be clear, I never gave any instructions to misuse customer funds, I never intended anyone at MF Global to misuse customer funds."

MF Global filed for bankruptcy after it was forced to reveal it had bet $6.3 billion on European sovereign debt. That disclosure caused ratings downgrades and saw nervous investors and customers begin to flee the firm.

Also testifying to the Senate panel on Tuesday were two top-ranking Mf Global executives, Chief Operating Officer Bradley Abelow and Chief Financial Officer Henri Steenkamp, who said they too lacked answers about the money.

Senator Pat Roberts, the top Republican on the committee, asked the executives and Corzine whether MF Global leadership asked for and received "an actual plan that would break the glass and tap into your customers' segregated accounts, perhaps described as a loan."

Corzine admitted there were contingency plans that "fall under the rubric" that Roberts was talking about, but he said it did not involving raiding customer money.

"To my knowledge and understanding of that report it was not ever the intent to recommend tapping into segregated customer funds."

Abelow said he had not reviewed the specific document.

According to a copy of MF Global's contingency plan reviewed by Reuters, the document did not contain explicit recommendations to tap customer funds.

It did, however, lay out emergency methods for drawing down bank loans and for exiting complex investments.

The document, which was undated but appeared to be drafted before October 20, estimated that under tested scenarios, "there is sufficient liquidity to manage through one month under a severe stress event."

(Reporting by Alexandra Alper, Aruna Viswanatha, Christopher Doering and Lily Kuo; Writing by Karey Wutkowski; Editing by Tim Dobbyn)

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