Jon Corzine Faces 'Nixon Moment' (Update 1)

Updated with information from Bloomberg report on regulators' investigations and comments by the MF Global bankruptcy trustee on his investigation of JPMorgan.

WASHINGTON ( TheStreet) -- Once again, the question is "what did he know, and when did he know it."

The words of Tennessee Republican Senator Howard Baker during the Senate Watergate Committee hearing may have a ghostly echo for former MF Global ( MF) CEO and former New Jersey Senator and Governor Jon Corzine.

In testimony that appeared to contradict what Corzine said earlier, CME Group Executive Chairman Terrence Duffy said on Tuesday that Corzine knew that segregated customer funds had been transferred "to the firm's broker-dealer accounts."

MF Global filed for bankruptcy on Oct. 31.

Here's the full quote from Duffy's opening statement before the Senate Agricultural Committee Committee, which was not included in his written testimony: "A CME auditor also participated in a phone call with senior MF Global employees wherein one employee indicated that Mr. Corzine knew about the loans that had been made from the customer segregated accounts."

Duffy added that CME group had provided the names of the people involved in the phone call to the Justice Department and the Commodities Futures Trading Commission and the Justice Department.

CME Group operates the CME, CBOT, NYMEX, and COMEX exchanges, facilitating trading of many asset classes, including futures, options and currencies.

Duffy's statement appeared to contradict Corzine's testimony in front of the House Committee on Agriculture last week, when Corzine said he was "stunned when I was told on Sunday, October 30, 2011, that MF Global could not account for many hundreds of millions of dollars of client money."

When Senator Debbie Stabenow (D-Mich) -- the Chairwoman of the Senate Agricultural Committee -- said that Duffy had made a "serious allegation" and asked why it had not been included in Duffy's written testimony, Duffy said he had "received this information this past Saturday."

In his written testimony, Duffy said the CME found "only immaterial discrepancies" during an unannounced audit of MF Global on Oct. 27, with "no indication that segregated funds were missing as of Wednesday October 26th." After receiving segregation reports for Oct. 27 and Oct. 28 asserting "that the firm remained in full compliance with segregation requirements," ME Group auditors returned to MF Global on Oct. 30, because they had "learned from the CFTC that the draft segregation report for Friday, October 28th, which had been provided to the CFTC that day, showed a $900 million dollar shortfall in segregation caused by an 'accounting error.'"

After spending all day and night on Sunday, Oct. 30 looking for the accounting error, "no such error was ever found," and "instead," according to Duffy, "at about 2 am Monday morning, MF Global informed the CFTC and CME that customer money had been transferred out of segregation to firm accounts."

Duffy added that "transfers of customer funds for the benefit of the firm constitute serious violations of our rules and of the Commodity Exchange Act."

Bloomberg reported on Wednesday that the the Securities and Exchange Commission, the Justice Department, the CFT and MF Global bankruptcy trustee James Giddens were investigating whether the missing client funds were transferred in order to to cover margin calls on trades in European government bonds.

According to the report, Giddens said in a court filing on Tuesday that he was also investigating JPMorgan Chase ( JPM), which may have received preferential treatment as a lender to MF Global, before the Oct. 31 bankruptcy filing.

-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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