* Lawmakers attack Gensler over MF Global recusal
* Sen Johanns: Gensler "trying to avoid the heat"
* Gensler says CFTC reliant on self-regulatory groups
By Christopher Doering and Sarah N. Lynch
WASHINGTON, Dec 1 Republican lawmakers blasted
the chairman of the U.S. futures regulator on Thursday for his
agency's role in the collapse of MF Global and called his
recusal from the investigation a way to "avoid the heat."
The Commodity Futures Trading Commission and its chairman,
Gary Gensler, are under pressure because of the quick collapse
of the futures brokerage and for allegedly not policing the
firm's bookkeeping closely enough.
Investigators are searching for as much as $1.2 billion in
missing customer money, which regulators have said the firm may
have diverted for its own needs.
Gensler recused himself from the CFTC's probe into MF
Global after it filed for bankruptcy on Oct. 31. Gensler and
Jon Corzine, who resigned as chief executive of MF Global last
month, worked together at Goldman Sachs Group Inc in the
"It looks to me like you're trying to avoid the heat,"
Senator Mike Johanns, a Republican, said of Gensler's decision
to remove himself from the MF Global investigation. "You
certainly didn't recuse yourself all of the other weeks and
months and days while MF Global was doing what it was doing."
Gensler defended himself before the Senate Agriculture
Committee, saying that, while he did not recuse himself
immediately, he did so as soon as the CFTC prepared for
possible civil and criminal charges.
"Lawyers assured me there was no legal or ethical reasons,
but I thought it could be a distraction in the media and the
press," Gensler told lawmakers.
MF Global Holdings Ltd filed for bankruptcy in
late October, after $6.3 billion in risky bets on European
sovereign debt spooked investors and an effort to sell the firm
Thursday's hearing was the first in a series that will
examine whether regulators could have done more to prevent the
failure and protect investors, traders and farmers who may be
out hundreds of millions of dollars.
Before the collapse, MF Global had nearly a half dozen
regulators policing various parts of the firm, including the
CFTC, the Securities and Exchange Commission and industry
watchdogs such as the Chicago Mercantile Exchange . But
no single regulator was responsible for the whole company.
"We need to get to the bottom of exactly what happened with
MF Global," said Senator Pat Roberts, the top Republican on the
Senate Agriculture Committee. "Unfortunately, the manner in
which Mr. Gensler chose to step aside and recuse himself has
raised more questions than it has answers."
'CAN I REPEAT THAT?'
Committee Chairwoman Debbie Stabenow pressed Gensler and
SEC Chairman Mary Schapiro on why the firm had gotten clean
bills of health just months before its failure and the
revelation of its messy books.
The regulators said their ability to check the firm was
limited because they have few resources and are forced to rely
on industry watchdogs.
In the case of the CFTC, the agency does not examine any of
the futures commission merchants itself and instead is 100
percent reliant on self-regulatory organizations to oversee
them. Gensler said it is not an ideal system.
"We have 125 futures commission merchants and 40 or 50 of
them are large enough to be clearing members at the CME. We
don't examine any of them. Can I repeat that?" Gensler asked
"Please do, although it's very concerning," Stabenow
Following MF Global, the CFTC, along with the CME and the
National Futures Association, started reviewing FCMs to ensure
that customers' funds were being properly segregated from firm
money, in accordance with the Commodity Exchange Act and CFTC
The CFTC, which is examining about a dozen of the biggest
FCMs, expects to complete its review this month, said Gensler.
REFORMS IN THE WORKS?
Looking forward, Gensler said the agency is doing a
wholesale review to make sure there are enough protections for
He said the CFTC plans to vote on Monday on a rule that
would end a practice allowing a firm to use a customers' funds
to make "proprietary" trades for its own accounts, a complex
process where the firm basically gives a loan to itself. The
practice is legal today.
The agency also is looking at whether audits can be
"What we're doing at our agency is turning over every rock
in every corner as to the rules and what we can do better, and
being self-reflective because we know that this has to be
better," Gensler said.
Schapiro said her agency will do a "lessons-learned review"
on MF Global.
But she warned extra rules cannot always prevent bad acts.
"What broke down here was the framework for the protection
of customer assets based on the actions by this firm which ...
may well have been illegal," she added.