WASHINGTON, Dec 15 (Reuters) - Former MF Global chief Jon Corzine denied on Thursday a recent allegation that he knew customer funds were improperly used, while absorbing withering criticism from Republicans who chided the former Democratic senator for his role in the firm's failure.

Corzine, who was taunted for staying at the Ritz Carlton in Washington while hundreds of millions of dollars of customer money remains missing, sought to address allegations about a loan to a European unit of MF Global in the firm's final days.

"I don't know the source of the suggestion but let me be clear," Corzine told a House Financial Services oversight subcommittee on Thursday. "I did not instruct anyone to lend customer funds to MF Global or any of its affiliates, nor was I told that anyone had done so."

It was his third appearance in eight days before lawmakers probing MF Global's demise and perhaps the most hostile.

MF Global filed for bankruptcy on Oct. 31 after it was forced to reveal that it had made a $6.3 billion bet on European sovereign debt, spooking investors and customers. Corzine resigned as CEO days later.

A trustee liquidating the firm has estimated the customer funds shortfall could be as high as $1.2 billion. A diversion of customer funds for the benefit of the firm would be a violation of industry rules.

Neither MF Global nor any of its executives have been charged with wrongdoing.

But that failed to stop Bill Posey of Florida, a Republican, from trying to paint Corzine as a criminal, asking if his passport or assets had "been frozen." Corzine said they had not.

The search for missing customer money has sent reverberations through the farm belt and trading floors, and has attracted the attention of the FBI and federal prosecutors.

On Tuesday, CME Group Executive Chairman Terrence Duffy told a Senate committee that a CME auditor participated in a phone call during which an MF Global employee indicated that Corzine knew the firm used customer money to lend $175 million to its European affiliate.

Duffy told the Senate Agriculture Committee on Tuesday that CME, one of MF Global's regulators, has provided the information to the Justice Department and the Commodity Futures Trading Commission.

A CME timeline of MF Global's last days identified the CME auditor as Mike Procajlo, and said the call took place in the middle of the night, hours before the bankruptcy filing.

Duffy told Thursday's hearing that the CME was duped by MF Global.

"We were getting falsified segregation reports," Duffy said. "Our system has never failed in 75 years. In our opinion, someone has violated the law."

STEPPED IN AND OUT

Under questioning on Thursday about the loan allegation, a slightly exasperated looking Corzine said the final days of MF Global were hectic and he could not provide a blow-by-blow account of every part of the phone call in question.

"First of all we were operating very late in the day and after many, many days," Corzine told the committee. "I'd also say I stepped in and out of that meeting on a very regular basis to consult with counsel and also to speak to the board."

He added: "I did not in any way know about the use of customer funds on any loan or transfer."

Seeking to explain the confusion over the use of customer funds, Corzine said that Duffy may have been referring to a situation regarding overdrafts at JPMorgan Chase <JPM.N>.

Corzine said that on Oct. 28 JPMorgan contacted him and other MF Global employees about "certain overdrafts" and asked whether funds had been transferred in compliance with CFTC rules.

"The back office in Chicago explicitly confirmed to me that the funds were properly transferred," Corzine said. "I understood that JPMorgan Chase was satisfied because they executed billions. of dollars of trades with MF Global."

Corzine, a former Democratic senator, governor of New Jersey, and one-time leader of Goldman Sachs, once again apologized on Thursday for any harm MF Global's failure may have caused customers.

During a break in Thursday's hearing for a House vote, Corzine and MF Global Chief Operating Officer Bradley Abelow were served with legal papers.

"I haven't even looked at it yet," said Gary Naftalis, a lawyer who was accompanying Abelow. "Some kind of civil suit."

Among the widespread litigation to arise from MF Global's collapse is a lawsuit filed last week by Charles Carey and Joseph Niciforo, vice chairman and director, respectively, of CME. The plaintiffs, who are commodities traders and held private accounts with MF Global, accused Corzine and other current and former MF Global executives of negligently managing customer money.

"NO ONE KNOWS ANYTHING"

At points the hearing got personal, with New Mexico Republican Steve Pearce portraying Corzine and Abelow as fat cats who have done little to help the customers hurt by MF Global's failure.

Pearce pointed out that Corzine is staying at the Ritz Carlton in Washington. He then asked both men if they had spoken with any of MF Global's customers since the bankruptcy or started college scholarship funds for any of their families.

After both stiffly said no, Pearce sneered: "But we're so sorry, we're desperately sorry, we want to apologize."

Other lawmakers expressed frustration that neither Corzine nor Abelow were providing them with enough answers.

"No clarity," said Tennessee Republican Stephen Fincher. "No one knows anything."

The MF Global bankruptcy is In Re MF Global Holdings Ltd, in the U.S. Bankruptcy Court, Southern District of New York, No. 11-15059.

For MF Global: Kenneth Ziman of Skadden, Arps, Slate, Meagher & Flom.

For the trustee, James Giddens: James Kobak, Anson Frelinghuysen, Christopher Kiplok, Jeffrey Margolin and Sarah Loomis Cave of Hughes Hubbard & Reed.

(Reporting by Christopher Doering, Sarah N. Lynch, Philip Shishkin and Dave Clarke; additional reporting by Nick Brown and Tom Polansek in Chicago)

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