Corzine: 'I don't know where the money is'

Jon Corzine, the former chief executive officer of the bankrupt broker MF Global, apologized for his firm’s failure Thursday and told a House committee that he doesn’t know where the missing money went.

“I simply do not know where the money is, or why the accounts have not been reconciled to date,” said Corzine, in prepared testimony to the House Agriculture Committee on Thursday.

He also apologized “to all those affected.”

“My sadness, of course, pales in comparison to the losses and hardships that customers, employees and investors suffered as a result of MF Global’s bankruptcy,” he said.

The lengthy testimony is the first full response from Corzine since MF Global’s failure in October. He will appear in person before the committee later Thursday.

Corzine, a Democrat who served as a U.S. senator and governor of New Jersey, was called to Capitol Hill to participate in the committee’s investigation of the firm, which went bankrupt after disclosing bets on risky European debt that sparked a panic among investors.

In his prepared remarks, he did not mention a specific amount of money. But since the bankruptcy filing, investigators have been trying to find $1.2 billion missing from MF Global’s books, according to the trustee overseeing the brokerage firm’s liquidation.

“No matter the exact size of the shortfall, however, its probable size is significant and will substantially affect the trustee’s ability to make a 100% distribution to former MF Global Inc. customers,” said James Kobak, counsel for the bankruptcy trustee, in prepared testimony.

Corzine resigns from MF Global

The Federal Bureau of Investigation and other federal authorities are probing the company, which is also being investigated by the House Financial Services Committee and the Senate Agriculture Committee.

Jill Sommers, commissioner of the U.S. Commodity Futures Trading Commission, said in prepared testimony that her agency is “expending an enormous amount of effort to locate the missing customer funds and pursuing the enforcement investigation.”

MF Global, a trader in commodities and derivatives, started to implode after it disclosed $6.3 billion in exposure to troubled sovereign debt from weak European countries.

Corzine testified that the company was already carrying “over $9 billion in foreign government securities” when he joined the company in March, 2010. He said that during the following months he “became an advocate of purchasing European sovereign debt” using a financial instrument called “repurchase transactions to maturity.”

He defined the so-called RTM as “a particular kind of repurchase transaction in which the purchaser (MF Global) agrees to buy back the underlying debt security on its maturity date.”

Corzine said that purchasing European sovereign debt using RTMs was “attractive” because of “the reduction of finance risk and market risk — and the spread on the European sovereign debt securities appeared to favorable.”

Nonetheless, the company eventually unraveled. He testified that he was “stunned” on Oct. 30, when he was told “that MF Global could not account for many hundreds of millions of dollars of client money.”

Corzine failed to broker a last-ditch deal to sell the company to Interactive Brokers (IBKR) after accounting “deficiencies” were found. MF Global filed for Chapter 11 bankruptcy protection on Oct. 31, in the eighth-largest bankruptcy in U.S. history.

Both the House and Senate agriculture committees as well as a subcommittee of House Financial Services have voted to subpoena him. The Senate Agriculture and House Financial Services hearings are scheduled for next week.

Corzine, who is also a former CEO of Goldman Sachs (GS, Fortune 500), tried to get the hearings postponed to January, but his requests were denied.

He said in his prepared remarks that many people in his situation would invoke their constitutional right to remain silent, a guarantee under the Fifth Amendment.

But while Corzine says he might not be able all questions posed by the committee, “as a former United States Senator who recognizes the importance of congressional oversight, and recognizing my position as former chief executive officer in these terrible circumstances, I believe it is appropriate that I attempt to respond to your inquiries.”