The chief risk officer at the time of MF Global's collapse is expected to tell a congressional committee he sounded concerns about the firm's European sovereign debt trades in July 2011, three months before the firm declared bankruptcy.
Michael Stockman, who joined the company in January 2011 to replace Michael Roseman, will testify before the Oversight and Investigations Subcommittee of the House of Representatives Committee on Financial Services on Thursday. Roseman departed over clashes with Chief Executive Jon Corzine about the size of the European trade, people familiar with the matter have said. He stayed through March to help with the transition.
At the hearing, Stockman will say he believed it was prudent for the company to "mitigate the increased risks associated with its European sovereign debt trading position, and to consider entering into hedging transactions to reduce the company's exposure," according to a copy of his testimony reviewed by The Wall Street Journal.
Stockman will say he highlighted the default and liquidity risks associated with the European debt trades in written and oral presentations to the board at the August 2011 board meeting. After that meeting, the board decided to "cease adding to the company's long position in European sovereign debt and to allow existing long positions to roll off," he will say.
Prior to joining MF Global, Stockman worked for a financial services boutique and also held risk management positions at UBS. He previously worked as a mortgage trader at Morgan Stanley and Goldman Sachs. In 2008, Stockman co-authored a paper on the credit crisis that offered his perspective on risk management and ways to avoid another implosion.
MF Global filed for Chapter 11 bankruptcy protection Oct. 31.
Separately, Commodity Futures Trading Commissioner Scott O'Malia said in a speech Tuesday that the regulator should consider taking on the power to appoint its own trustee in bankruptcy cases in the wake of the company's collapse.
The current trustee overseeing the liquidation of MF Global Inc., which housed the firm's broker dealer and its futures merchant, was appointed by the Securities Investor Protection Corp., or SIPC. Created by Congress, SIPC helps restore funds to investors with assets sitting in bankrupt or financially trouble brokerage firms.
The CFTC, meanwhile, has little role in allocating assets to clients, Mr. O'Malia said in a speech at the New York Law School. ``This dynamic is not optimal,'' he said. ``The interests of futures customers are not always aligned with the interests of securities customers.''
To remedy the situation, the CFTC should consider asking Congress to give it the power to appoint its own trustee, said Mr. O'Malia, one of two republican CFTC commissioners.
The SIPC trustee overseeing the case, James Giddens, is investigating what became of an estimated $1.2 billion in missing customer funds. The majority of those funds went missing from futures accounts. Because there's no backstop for futures accounts under current law, customers might not get all of their money back.
Mr. O'Malia, however, said he's skeptical about proposals being discussed to add an insurance fund to futures accounts similar to SIPC, which handles failed securities firms.
In response to a question about why the MF Global bankruptcy went to SIPC, Mr. O'Malia said "we are stuck with what we have,'' quickly adding that he was "supportive'' of the trustee's efforts to recover money. But he said that in the future, a separate trustee should be available to look at issues to protect futures customers. "Our regulations aren't the same as securities'' regulations, he said.
Write to Julie Steinberg at Julie.Steinberg@dowjones.com
- Bull/Bear Report - Hirings, firings, rising stars and downward spiral of the finance job market
- Get the job: From writing resumes to negotiating the offer, all the tools to land the perfect finance job
- Morning Coffee: Sign up for the latest in finance career news
- FINS.com: Finance jobs, research and career news by FINS from The Wall Street Journal