3 Serious Questions Jon Corzine Needs to Answer Now (Update 1)

Story updated to include comments of MF Global's former president and CFO.

NEW YORK ( TheStreet) --Jon Corzine is in the hot seat again on Tuesday, testifying before the Senate Committee for Agriculture, Nutrition and Forestry.

By most lawyers' accounts, the former MF Global ( MF) CEO successfully navigated his first testimony before Congress last week, avoiding invoking the fifth amendment but at the same time carefully choosing his words to ensure he was not incriminating himself in any way.

Appearing before the House Committee on Agriculture last Thursday, Corzine answered questions from 46 representatives for over three hours. But the questioning did not really lead anywhere.

At the very outset, Corzine reminded Congress that he had no access to documents or any kind of correspondence since he left the firm over a month earlier. That meant that pretty much anything he said was based on his "recollection".

He also was quick to claim that he had very little involvement of the day-to-day operations and was not an expert on "complicated rules and regulations" governing the various businesses.

He flat out said that he did not know where the missing $1.2 billion is and, further more, he did not know who was responsible for authorizing any transfer from the customer accounts. "I never had any intention to authorize the transfer of segregated monies," he added, repeating the statement at various other points in the testimony.

Corzine will likely stick to that script in his upcoming testimonies before the Senate Agriculture Committee and the House Financial Services Committee that will take place on Thursday.

During Tuesday's hearing fellow MF Global executives added their own denials about using customer funds or directing others to shift assets and that they remain clueless about billions in missing money.

"I understand that the Committee, MFGI's customers and the public have many unanswered questions about customer funds," said former CFO Henry Steemkamp. "I share many of these questions and I am personally extremely frustrated and distressed that they remain outstanding and that client funds are missing."

Former MF Global president Bradley Abelow added during his testimony also said that he remains in the dark about the missing assets.

"I am deeply troubled by the fact that customer funds are missing, and I can assure you that I share your interest, and the public's interest, in finding out exactly what happened." Abelow said. "At this time, however, I do not know the answers to those questions."

Still, Washington will likely press Corzine for answers and observers expect the questions to be more advanced in the upcoming hearings.

1.Seriously? You don't know where the money is?

The missing $1.2 billion will continue to be the main focus of the hearings, as speculation mounts that the transfers were not a result of some inadvertent operational error but a case of fraud.

CME Chairman Terrence Duffy told House Agriculture Committee last week that MF Global had first internally reported to the CFTC a $900 million shortfall on October 28, three days before the bankruptcy, that resulted from an "accounting error." He said a day's investigation found no such error and on Monday October 31 at 2 a.m., MF Global informed the CFTC and CME that customer money had been transferred out of segregation to firm accounts.

Hedge fund manager Tom Brown told Bloomberg in a recent television interview that he could understand that Corzine was not intimately involved in the operational aspects of the business, but he could not believe that more than a billion dollars could be transferred from a segregated account without "at least two" senior officials knowing about the transaction.

Congress will likely question Corzine's failure to take responsibility for the missing money. Although he did acknowledge that "the buck stops here," Corzine has to explain how he fell short on his duty as CEO to ensure that the firm had a strong internal risk controls and a culture of compliance.

Yves Smith at the blog Naked Capitalism points out that Corzine could be considered guilty of violating the Sarbanes Oxley Act, which requires the CEO of a company to guarantee that risk controls and rules are in place and monitor their compliance.

2. Seriously? You traded from your Blackberry?

A New York Times article Monday portrayed Corzine as a CEO who was "at heart" a trader who took a much larger, "hands-on" role in the firm's high-stakes trading.

Apparently, Corzine traded from his Blackberry during meetings and dashed out occasionally to check on the markets. While there is nothing illegal or fraudulent about his direct involvement in trading activities, such behavior is likely to attract criticism as it suggests that Corzine was at odds with his role as CEO, who should be reining in risk rather than taking more of it.

Corzine has already taken full responsibility for the now infamous "repurchase to maturity" positions in Europe, adding that while he advocated it strongly the board approved all the transactions.

But according to the article, Corzine steamrolled protests from the board and other managers, reportedly telling directors that "If you want a smaller or different position, maybe you don't have the right guy here."

3. Seriously? You didn't get special treatment from regulators?

Corzine's significant influence in Washington and his close ties to CFTC head Gary Gensler is also likely to be in the spotlight.

Gensler's name was brought up several times during the testimony before the House Agriculture committee last week.

According to media reports, Corzine heavily lobbied against a proposal to restrict the investment of customer money in certain instruments including foreign sovereign debt and repurchase agreements. Gensler delayed the implementation of the rule in July after opposition from Corzine and other industry members.

That rule was finally passed earlier this month, when it was already too late for MF Global's customers. It is unclear how much of customer money, if any, was part of the $6.3 billion European sovereign debt exposure. The CFTC rule does not have any restrictions on how a firm invests its own capital-that falls under the broker-dealer side of regulation.

In any case, reports that Corzine successfully overruled objections to his outsized trading bets within the firm and used his influence in Washington to push back against any regulations that would limit his ability to execute his high-conviction bet would call for greater scrutiny in the days ahead.

--Written by Shanthi Bharatwaj in New York

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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