CFTC Portrayed as "Disorganized and Haphazard" in Approach to Oversight."

[ by Melanie Gretchen and Howard Haykin ]

A 100-page "autopsy" report from a House Financial Services Committee panel severely criticized the Commodity Futures Trading Commission and other regulators for failed communications and ineffective oversight during MF Global's final days as a commodities and securities broker.  

The report is fraught with political overtones, as Republican panel members, in a somewhat surprising move, released the report without the support of House Democrats.  The panel's top Democrat, Representative Michael Capuano of Massachusetts, declined to endorse the Republican findings.  Some Democrats have dismissed the report as a sort of shaming of President Obama and his administration.  Rep. Capuano notes that he needs additional time to review the report and would soon file an addendum to the report.

Adding to the political bias of the Republican Congressional leaders, the panel also blamed former MF Global CEO Jon Corzine – once a Democratic Senator and Governor of New Jersey.  However, while criticizing Mr. Corzine for his excessive risk-taking, the report amply faults the regulators for not effectively reining Corzine.  The report notes that regulators gave Corzine leeway to run the firm into the ground – for which regulators are responsible.

What's in the Report. Here's what the House found:

• Two days before the collapse of the firm, top SEC officials joked about 3 regulatory conference calls all being scheduled for 10 a.m.: "Ahhhh, coordination in action!" Ms. Schapiro, the SEC chairwoman, wrote in an e-mail.

[C-I Note: In her defense, people briefed on the matter insisted that the calls were meant to coordinate efforts among regulators on different continents regarding a number of matters.]

• one senior regulator "wished" the SEC would have informed other authorities about plans to impose higher capital requirements on MF Global in the early summer of 2011
   
• the CFTC didn't inform other regulators that MF Global was using an obscure loophole to tap customer accounts: in an interview with the House panel, an SEC official said the loophole allowed the firm to use its customer accounts as an "A.T.M."
   
• the New York Fed "should have exercised greater caution" when approving MF Global's application for the coveted status of selling securities on the Fed's behalf.
   
• former CEO Corzine pushed back against demands by the firm's auditor, PricewaterhouseCoopers, that the company account for its sovereign debt holdings in a way that would have reduced its profitability, according to the report
   
• one executive described a major unit as being "currently unable to fund itself" in an internal e-mail, despite assuring investors during a public earnings call in late October that executives "feel good" about the brokerage firm's finances

For further details, go to [Dealbook, 11/16/12].