WASHINGTON, Feb 2 (Reuters) - The former chief risk
officer at MF Global who raised red flags about the firm's
aggressive trading bets told lawmakers that his warnings
contributed to the firm's decision to let him go in early 2011.
Michael Roseman, who was ousted in January 2011 from the
now-bankrupt futures brokerage, said he rang alarm bells about
the firm's exposure to European sovereign debt a year before the
firm collapsed in late October of 2011.
"My views on risk certainly played a factor in that
decision," Roseman told a House Financial Services subcommittee,
about why he was asked to leave the firm.
Before MF Global's collapse, then Chief Executive Jon
Corzine pushed the firm to take on a more aggressive trading
strategy, including a $6.3 billion dollar bet on European debt,
executed through repo-to-maturity transactions.
Corzine, once CEO at Goldman Sachs and a former New Jersey
governor and U.S. senator, also was pushing the futures
brokerage to evolve into something closer to an investment bank.
Roseman said such a strategy required a lot of capital and a
lot of liquidity, two things that ran out at the firm.
"I do think the strategy maybe exceeded the ability of the
resources," he said.
MF Global filed for bankruptcy after investors and customers
began to flee, alarmed by the firm's massive bet on European
sovereign debt. Investigators are still trying to find more than
$600 million in missing customer money, including money in the
accounts of hundreds of farmers.
Lawmakers are holding a series of hearings to determine
whether MF Global was transparent about its risk-taking, and
whether regulators should have reined the firm in and better
protected customer money.
Roseman appeared alongside Michael Stockman, who was brought
in to replace him as chief risk officer.
Lawmakers pressed Stockman if he was brought in as a "yes"
man, after Roseman got ousted following his warnings to Corzine
and the board.
"Did you ever think that maybe they ran off Mr. Roseman and
brought you in to be kind of the guy that doesn't see, tell,
know? Did that ever occur to you?" Republican Steven Pearce
asked Stockman.
Stockman replied, "No sir."
Pearce also laid into Stockman about his testimony that he
was "deeply saddened" by MF Global's collapse and its impact on
shareholders and customers.
"Have you suggested that maybe you ought to give your pay
back and put it into a scholarship fund for these kids that
aren't going to go to college? Sitting out there, some hog
farmer who is trying to make ends meet. My dad raised pigs. I
know what it's like. He's trying to pay for the next sack of
feed," Pearce said.
Stockman was reluctant to speculate on what specifically
doomed MF Global.
Roseman, however, said MF Global would have been on a very
different path if it had not ramped up its European debt
exposure.
"In my opinion, they would still be here," Roseman said.
Representatives from credit rating firms Standard and Poor's
and Moody's Corp are due to testify later on Thursday.
The MF Global bankruptcy is In Re MF Global Holdings Ltd, in
the same court, No. 11-15059.
For Louis Freeh, the trustee controlling the assets of MF
Global Holdings Ltd in bankruptcy: Brett Miller and Lorenzo
Marinuzzi of Morrison & Foerster.
For James Giddens, the trustee liquidating the MF Global Inc
brokerage: James Kobak, Christopher Kiplok, Jeffrey Margolin,
Anson Frelinghuysen and Sarah Loomis Cave of Hughes Hubbard &
Reed.
For the Creditors' Committee: Martin Bienenstock, Michael
Kessler and Irena Goldstein of Dewey & LeBoeuf.
(An earlier version of this article incorrectly identified
counsel for MF Global)
(Reporting by Sarah N. Lynch and Karey Wutkowski)
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