Louis J. Freeh, the bankruptcy trustee for MF Global, is to offer his first public assessment of the case before a Senate panel on Tuesday. A Congressional panel is set to examine the collapse of MF Global and the firm’s misuse of customer money, as lawmakers seek to find ways to prevent a repeat of the financial debacle.
Against the backdrop of a continuing federal investigation into wrongdoing at MF Global, the Senate Banking Committee on Tuesday will hold the sixth Congressional hearing concerning the firm’s demise.
But unlike prior Capitol Hill inquiries that focused on exposing missteps by executives and regulators, this hearing is to center on new policies to protect customer money and improve regulatory oversight.
“As investigators seek to recover MF Global customer funds and hold accountable those responsible for any wrongdoing, this committee will focus our attention on preventing future abuses and the other critical public policy issues raised by the collapse of MF Global,” Senator Tim Johnson, a South Dakota Democrat who is chairman of the banking committee, is expected to say in an opening statement.
In the most anticipated aspect of the hearing, the bankruptcy trustee for MF Global, Louis J. Freeh, is to offer his first public assessment of the case. Mr. Freeh, a former director of the Federal Bureau of Investigation, has faced criticism over his handling of the bankruptcy process.
For instance, he initially declined to share certain internal documents with regulators and the trustee in charge of returning money to customers. Mr. Freeh is expected to defend the decision, saying in his prepared testimony that he “needed to implement a process to produce as quickly as we could documents requested as part of the investigations, but also in a manner that did not unnecessarily result in a broad waiver of any existing privilege.”
Noting in his prepared remarks that he ultimately waived the privilege, he said that to do so at a “very early stage potentially could have been contrary to my obligations as Chapter 11 Trustee.”
Mr. Freeh is also expected to address the uproar over his preliminary plans to award bonuses to MF Global executives who remained at the firm. While he is expected to acknowledge considering bonuses, no such plan was ever enacted.
“In conversations about retaining these individuals and the knowledge they possess, I’ve discussed at various times the possibility of establishing a retention program,” he said in the prepared testimony. “To be clear, no formal program was ever created for senior executives, nor was any motion ever filed with the court for approval in connection with any retention program for senior executives.”
The panel is also expected to hear testimony from a familiar cast of MF Global characters, many of whom have testified at earlier hearings. They include Robert W. Cook, director of trading and markets at the Securities and Exchange Commission; Richard G. Ketchum, head of the Financial Industry Regulatory Authority; and Terrence A. Duffy, chairman of the CME Group, MF Global’s front-line regulator. Jill E. Sommers, a commissioner at the Commodity Futures Trading Commission, is also expected to testify.
The regulators, who have faced criticism for not preventing the misuse of customer money, are expected to provide their feedback on a slate of new regulatory proposals under consideration. They are considering requiring firms to regularly report the whereabouts of customer money and creating an insurance fund to backstop losses in customer accounts.
James W. Giddens, the trustee in charge of returning money to customers, has his own ideas for change. He is expected to ask Congress to consider creating an insurance fund to protect customers from any losses sustained in the course of a bankruptcy. In addition, Mr. Giddens is set to bring up a loophole that allowed MF Global to legally use customer money during its final days. Mr. Giddens is expected to suggest closing the loophole, which allows a firm to use a less comprehensive method to calculate customer funds overseas.
As MF Global entered a tailspin, the brokerage used customer money to meet its own obligations, filing for bankruptcy on Oct. 31. Nearly six months later, farmers, hedge funds and other customers of MF Global are still owed an estimated $1.6 billion.
“The misuse of customer accounts by one of the world’s largest commodities and derivatives brokers has shaken confidence in our markets and deserves a thoughtful discussion of how to better protect farmers, ranchers and investors going forward,” Mr. Johnson is expected to say, while expressing “deep concern” that the money is still being withheld from its rightful owners. |
