Under pointed questioning from Senate Republicans today, federal financial regulators admitted that they have not yet found about $1.2 billion in customer funds missing at the bankrupt MF Global Inc.
At a hearing of the Senate Banking Committee, Alabama Sen. Richard Shelby, the ranking Republican on the panel, pressed Commodity Futures Trading Commission Chairman Gary Gensler about the agency’s investigation if MF Global, which was opened on Oct. 31.
Mr. Gensler said that he recused himself from the inquiry because he was a colleague of former MF Global chief executive Jon Corzine when Mr. Corzine was chairman of The Goldman Sachs Group Inc. and Mr. Gensler worked at the investment bank.
An exasperated Mr. Shelby turned to CFTC Commissioner Jill Sommers, who was invited to the witness table to answer questions about the MF Global review.
“We have not located all the funds that are missing,” Ms. Sommers told Mr. Shelby.
Mr. Shelby asked: “So, you don’t know where the funds are?”
“That’s right,” Ms. Sommers responded.
Ms. Sommers is leading the agency’s work in unraveling the MF Global collapse. The firm is suspected of using customer money to make large investments in European sovereign debt that failed.
In a gentler exchange with Senate Banking Committee Chairman Tim Johnson, D-S.D., Ms. Sommers, a Republican, said that dozens of CFTC staff members, including auditors, investigators and attorneys, are drilling down to find the customer funds, a process that often involves complex forensic accounting.
“We are all working through these issues and hope to resolve them shortly,” Ms. Sommers said.
Republicans’ ire was directed at Mr. Gensler, a Democrat who contributed to Mr. Corzine’s campaign when he ran for governor of New Jersey.
Mr. Gensler, who has been a leading proponent of toughening rules and regulations governing Wall Street, said that CFTC ethics officials saw no reason for him to stay out of the MF Global investigation. But he thought that keeping his distance would be best for his agency.
“I didn’t want my participation to be a distraction,” Mr. Gensler said.
Republicans weren’t satisfied with that answer.
“To me, it looks like you’re ducking the responsibilities of your job,” said Sen. Mike Johanns, R-Neb.
Mr. Gensler defended himself, arguing that he is working to protect farmers and other business people who use futures as part of their daily commerce.
“Senator, I take the responsibilities of my job very seriously,” Mr. Gensler said.
He pointed to a rule the CFTC approved on Monday that strengthens safeguards for customer money at futures trading companies.
The rule isn’t likely to do much good for MF Global clients, however.