Transcripts For CSPAN2 Capital News Today 20120329

there is a vast difference between regulating somebody who is voluntarily coming into congress and telling someone that they have no choice to enter the stream of congress. as to the coercion argument, the states are equally fundamental because we have a system where the federal government is limited in enumerated powers. there are certain things you can do states to do but it can't give directly. it is absolutely vital to make sure that there is a difference between voluntary spending and coercive legislation. that is exactly what is at stake here. whether this legislation is coercive. >> does it seem like justices were leaning toward striking down the individual mandate. how did you read the justices. >> i read the justices of as testing the limits on all sides of the case. i cannot say whether they were leaning this way or that way. they are ugly trying to get to the right answer in these cases. all the justices were engaged and that is a difficult question to answer. >> what does it mean by going to the heart of people arguing. [inaudible] >> i don't think that if anybody thought that part of the statute would be struck down that congress would call it a day. congress is going to revisit this issue. that is what the severability argument gets down to. our position that it parts of the statute are unconstitutional, it actually makes more sense to give congress the opportunity to fix the health care problem as opposed to try to fix the statute. >> [inaudible question] >> well, it was a lot like her. i will tell you that right there. i certainly have a newfound appreciation for the advocate in the old supreme court that used to typically argue cases that took multiple days. it is harder to get up in the morning on the second day. that aspect of it is something. i don't think there is ever a case in history where half the states have sued the federal government. thank you very much. >> coming up on c-span two, a senate committee hearing on misconduct in the prosecution of alaska senator ted stevens. then, transportation security and ministration officials at a house oversight hearing. later, general john allen, the top military commander in afghanistan. >> on tomorrow morning's "washington journal", we look at several issues on capitol hill this week, including the health care oral arguments before the supreme court. after that, tom price and the republican 2013 budget proposal. the house will vote tomorrow. "washington journal" live on thursday at 7:00 a.m. eastern c-span. >> the senate judiciary committee held a hearing on prosecutorial misconduct on ted stevens. he was convicted in october 2008 of improperly accepting gifts, but that conviction was thrown out as the justice department alleged misconduct in senator stevens lost reelection the next month. a court-appointed special counsel is investigating the matter. he testified at the hearing, saying the government withheld information that would have damaged the credibility of a prosecution witness. >> good morning, everybody. it is interesting. i'm glad to see everyone here, senator cornyn as well as senator grassley and myself. we have a number of hearings going on around the capital involving members of this committee. but this is an area that we have a great deal of interest in, as you can imagine, of both parties. we have talked about this many times in a lot of different contexts. our criminal justice system is the envy of the world. all individuals are guaranteed the right to a fair treatment and fair trial. in order for the system to work, the courts must ensure adherence to the rule of law. defendants have to be afforded biggers and competent counsel. i think senator cornyn also would agree we have so much power when it comes to charging decisions and determining when to withhold the charge and ring a charge. prosecutors have to uphold the law. a have to adhere to the highest ethical standards. they have to seek justice. the integrity of our terminal justice system relies on prosecutors. the fact that they want to make sure that all parties, the stay, the defendant, everyone is treated fairly. much of the country has focused on trayvon martin. lows >> last week the u.s. department of justice announced that they will launch an investigation into this matter. i share the president's heartfelt feelings and saying that we need a good investigation. we want the truth. last week we focus on one pivotal component that supports integrity of our criminal justice system and regaining criminal evidence, like dna. this can be used to convict the guilty and keep the innocent state. >> we heard about the extraordinary work he is doing in the unit and the works of their of the judge in dallas. the judges, defense attorneys, can work together to assure that all get care. today we are going to talk about what went wrong in the trial related to senator ted stevens. we are going to hear testimony from henry schuelke, who just goes by hank, is that correct? the special counsel appointed by mr. sullivan. federal prosecutors engage in a prosecutor misconduct. the report is accompanied by winky rebuttal submissions on behalf of those investigators. >> the prosecution took place before the office of president obama. the justice results have taken recent steps to train prosecutors. as a senior official dedicated to this purpose, the attorney general has conducted a thorough internal investigation with the stevens gave. >> i talked to the general about that. he hopes to make this report public. i have had the committee review this report. prosecutorial misconduct cannot be tolerated. i would not tolerate when i was a prosecutor. it should not be tolerated within our federal system. under any circumstances at all. what happens in the stevens case should not happen again. all defendants should be treated the same. significant evidence was not disclosed to the defense. critical mistakes were made throughout the trial without stevens the proper opportunity to defend himself. the sloppiness illustrates poor decisions. it also disturbed me and a lot of senators on both sides of the aisle. this is not a partisan issue. the justices need to assure that this never is repeated. day in and day out, prosecutors across the nation worked tirelessly to seek justice and protect our communities. they do it at the highest standards possible. i speak often about my time as a prosecutor. i am proud of the dedicated service that prosecutors and law enforcement officers, people who i've had the opportunity to work with. they direct and seek justice for all parties, defendants and not just for conviction. >> obviously you deserved a great thank you for holding today's hearing, because this is a very troubling matter that warrants more attention than it has gotten. and the famous speech titled the federal prosecutor, it was said that the prosecutor has more control over life, liberty and reputation than any other person in america. while the prosecutor at his best is one of the most beneficial forces in our society, when he asks from malice or other motives, he is one of the worst in the world. fitting words for today's hearing as we examine the conduct of the justice and prosecutors in an effort to understand what went wrong in the prosecution of ted stevens. the government's prosecution of senator stevens was arguably the highest profile case ever brought before the justice department and their public integrity section. a reach far beyond a guilty verdict and impacted the senate election in 2008. while all criminal cases should be handled with the utmost professionalism, cases of this level and importance where elections can be swayed should be shining examples of the justice department. they should have the best prosecutors, agents, they should be that centerpiece of america's criminal justice system. unfortunately, this case appears to be the opposite of the ideal. according to our witness today, the prosecution of senator ted stevens was permeated by the systemic concealment of significant exculpatory evidence which would have corroborated his testimony and seriously damaged the testimony and credibility of the government's key witnesses. these are shocking statements that call into question the conduct of those involved in this prosecution and threaten throughout justice. like so many times before, chad joy came forward. while there were indicators of areas of exculpatory trio before, it was disclosure to the courts that investigated. of course, i hope it is not because he was run out of the fbi for blowing the whistle on this prosecution. he deserves our thanks for having encouraged to speak out. to his credit, the justice department ultimately moved to dismiss with prejudice a case against senator stevens. to judge sullivan's credit, he did not ignore the whistleblower. he helped the prosecutors in contempt of court to turnover exculpatory evidence. he then investigated and prosecuted when it was against the department lawyers and law. the report was recently released on march 15. the attorney general stated that this report has disturbing findings. i think that is an understatement. reading through this report is like reading through a case study in poor management. the case was riddled with problems right from the start when doj sought an expedited trial date. this decision, which is not fully explained and something i want to know more about, put us on a collision course for failure. why would the department ask for a has been knighted trapeze -- expedited trial case. especially when it was incomplete. from the reports detail of the disclosure of problems, it appeared to stem from lack of staffing, poor supervision. two major problems were not revealed until after the conclusion of the trial. exculpatory information from one of the prosecutors and witnesses and withholding of impeachment material for the prosecution and star witness, mr. allen. it is particularly troubled because it involves the witnesses effort to cover up a relationship with a 15 year old prostitute. it also raises questions because the justice department leader are not supposed to pursue charges and then drop the federal charges. this has led to a second investigation as to why that prosecution was declined. in addition to the failures to disclose exculpatory material, the case also suffered from a series of questionable decisions from management of justice. for example, prosecutors claim that public integrity section and leadership of the criminal division created an unclear chain of demand. they also claimed that complex developed as a result of decisions by senior leadership in dc. despite the supervisor figures, there is no recommendation of a report related to management of the case. i am particularly interested in this aspect because management failures such as this are sanctionable conduct by opi. it will be interesting to see how this report compares to the final report issued by opi. opie r.'s report should include some review of the management of this case in addition to his lesser figures. the attorney general should ensure it but the full version of the opie r. is a writer to congress. at an oversight hearing in november of last year, when senator asked for a copy of the opie r. report, he said, that is up to the people. a i want to share as much as that as we possibly can given the very public nature of that matter and the very public position that i made to a dismiss the case. despite the attorney general's report to make this information public, his statement that it is up to the people at opr make me believe we are not likely to receive that report. the justice department routinely blocks that investigation, citing employee lost and agent of misconduct. the attorney general ultimately oversees opr, and if you want that information to be made public, he should order it to be released upon the conclusion of the investigation. in the event he doesn't, the privacy act has an exemption for congress, and so, mr. chairman, under the depart -- departments tortured reason, i hope his chairman you will be able to obtain the opr report, and i will be happy to work with you on that issue. a lot of things went wrong in the prosecution of stevens, and despite the report we are discussing here today, it seems nobody has been held accountable at the justice department. it is the constitutional right for a defendant to have a fair and impartial trial. yet, those rights were violated and no one was held accountable. i find this fact more disturbing than the findings of this report, and we have an obligation to hold the justice department accountable for what went wrong and prevent it from happening in the future. >> thank you. as i noted, we need to take it one step at a time. the attorney general was given credit for it the opr report and he has told me that we will take it one step at a time today. we have hank schuelke and ed sullivan to address allegations of prosecutorial misconduct. in the prosecution of ted stevens. by court order, it is publicly available two weeks ago on march 15, by the prosecutors who were the subject of this investigation. he practiced in 1977 -- 1979. he served three years as a military judge. he served three years in the district of columbia. >> please go ahead serrie. >> thank you, sir. chairman leahy and senator grassley, senator feinstein, senator cornyn, good morning. i appeared this morning at your indication to address whatever questions you might have concerning our report to judge sullivan on the subject of our investigation conducted pursuant of april 7, 2009. we were ordered to investigate and to prosecute such criminal contempt proceedings is may be appropriate against william welch, brendan marrs, nicholas marsh, edward sullivan, joseph rotini, and james goeke. the department of justice attorneys responsible for the prosecution of the united states versus senator theodore stevens in the united states district court for the district of colombia. i come before you this morning not as an advocate for any position. but rather to respond to your questions. i have cemented to the committee a copy of our report, which as senator leahy has indicated, was filed on the public docket in u.s. district court on march 15. i should like to note that i was assisted throughout our investigation by my colleague, william shields, and note as well that our work would not have been possible without the complete cooperation of the department of justice at the highest levels of the department and by the departments office of professional responsibility. with that, i would be pleased to answer your questions. >> thank you very much. we are joined by another former prosecutor. in the supreme court, we mentioned brady earlier in that the case brady v. maryland, every prosecutor learns that they have a clear constitutional duty to disclose exculpatory evidence is part of the trial. the constitutional duty is also common sense. if prosecutors failed to disclose exculpatory evidence they compromise the integrity of the federal justice system. in my opinion, they have the risk of convicting innocent people. i mention this because in your report you found information help from the defense and i quote you, when the central brady information. quintessential brady information. how would the trial have been different had the prosecutors disclosed this information? >> i think, senator leahy, that i first should describe at least briefly the allegations made in the indictment against senator stevens and the essence of his defense. senator stevens and his wife catherine, in addition to their home here in washington, owned a small cabin in alaska. it was a rustic cabin, which was quite agreeable to senator stevens, who like to go fishing outside of the town, sit on the porch every evening, put his feet up and perhaps smoke a cigar. not so much mrs. stevens or their children or their grandchildren, who found the cabin to be in need of improvement. in 1999, senator stevens resolved that he would do some kind of a renovation to the cabin, which he jokingly called the chalet. he was a friend of the gentleman named bill allen, a self-made entrepreneur who by 1999 had become quite wealthy. he was the ceo of an oil field services and construction company. he was a fishing buddy from time to time of senator stevens as well. he was conversant with the construction industry to some degree, and he knew what was available in and about anchorage, alaska, in terms of contract. senator stevens and he met in 1999 in the company of a gentleman whose name was rocky williams. he was a veco employee. senator stevens told him that he wanted to do a renovation to the so-called chalets. he wanted alan's assistance in identifying a remodeling contractor who might do the bulk of the work, and she was interested in having bill allen and a couple of his employees assist as might be appropriate in the renovation of the chalet. >> senator, i don't want to cut in, but we are trying to keep everyone to a set amount of time. i don't want to get to the point where -- my basic question, how the trial have been different if the exculpatory information had been released. >> one principal example, senator, i told you who rocky williams was. rocky moments, in effect, serve as the on-site form and of the job. the job was performed, for the most part, by a firm called christians and builders. the stevens is mortgaged their home in washington for $100,000, liquidated a trust for another $100,000 and spent -- for another $50,000, rather, and spent another $50,000 from savings. they paid the builders and subcontractors $160,000 for the cabin, which was appraised to be worth after the renovations $152,000. senator stevens and his wife catherine stevens testified during senator stevens trial that it was their understanding that whatever work allen's company had provided on the house, it had been included in the christians and builders invoices, which they paid in full. that testimony of both senator stevens and mrs. stevens was ridiculed by the prosecutors both in cross examination of each of them and in their summations. rocky williams was interviewed by two of the prosecutors, mr. bout >> one month before. it said we had some additional documents from the defense counsel. it is apparent from the documents that senator stevens and mrs. stevens will testify that they thought that all of the veco charges would be included in that bill by christians in the construction. the very day that e-mail was circulated, they interviewed rocky. they did not have to squeeze that out of rocky. rocky told them. back in 1999. i met with senator stevens and with bill allen. senator stevens wanted us to arrange to find a contractor. he wanted to pay for everything, and he wanted to make sure that this was done right. and so was my understanding is the foreman on the job, that my time as a veco employee, david anderson's time, and anyone else's time would be included in the christensen builders invoice. every month he told them that i went and got the christians and builders invoice. i checked it, make sure that it was accurate based on my observations. then i took it to the front office at ego to get to bill allen or his secretary if he wasn't there, so that dave anderson and other veco employees could be added to the christensen build builders bill. his understanding was altogether consistent with that of senator and mrs. stevens. had rocky williams testified as a government witness as the plan was originally, that is what he would have testified to. >> would that have made a difference of the trial? >> first of all, i believe that that anticipated testimony from rocky williams directly corroborated senator stevens the facts. i believe that it may very well have affected the outcome of the trial. >> senator, this is a serious allegation. did you provide a report that the subjects of your investigation before was finalized in order to allow them to do any rebuttal on that? >> judge sullivan in november of last year ordered that our report be made available to the subjects of our investigation, and it was. i beg your pardon, senator. in that order last year he expressly provided the opportunity for each of them to submit comments and objections. >> and did they -- >> a couple day, a couple did not. subsequently dashed. >> did that anyway change your comment -- your report? >> it did not. >> thank you. >> i should add, subsequently, in february of this year, when judge sullivan ordered that the report be made public on march 15, he provided the subjects yet another opportunity to submit comments and objections, which each of them dead, and he ordered that i pen those comments through our report, which i did. >> it wasn't given to them before your report first went to the judge? >> that is correct. >> and i understand that attorney bottini, on seven separate occasions voluntarily disclose impeachment information by general allen said that in the other line prosecutors in alaska -- that they disclose to them. but your report about mr. bottini and mr. goeke does not and did not try to become disclosed. so which is -- which is a? which is it? did they disclose information by bill allen or are they being truthful when they say on numerous occasions they asked to have -- >> as our report indicates ingrate, some would say, excruciating detail, measures bottini and goeke on a number of occasions proposed, indeed, urged the rest of the prosecution that some disclosure be made about evidence which was in their possession indicating that their star witness, bill allen, had sworn a false statement from a young woman who was a crack addicted prostitute with him she claimed to have had sex when she was 16 years old. >> and this sculptor information was not made available? >> it was not. >> senator grassley. >> your report states there was a clear, specific and unequivocal report of the court. we are satisfied that a critical criminal attempt -- your report concluded that no such report existed. however, your report states that at a september 10, 2008, motion hearing, the court admonished the government to follow the law, meaning brady, but that no order was issued despite the intentional willful efforts to conceal this material, the prosecutors cannot be criminally prosecuted. a question. the fact that judge sullivan did not issue the order on september 10, is hard to believe this point because it prevents the prosecutors from eating the elements of a prosecution for criminal intent. had the court issued a formal order on september 10 instructing doj prosecutors to comply, which you have recommended criminal contempt against the prosecutors? >> i would? notwithstanding this technical violation, do you believe they'd face criminal penalties, including jail time. >> that is not a judgment for me to make. >> in the course of your investigation, were you able to determine what the intent of the prosecutor was from september 10, motion hearings. did they -- well, that is a question. let me start over again. in the course of your investigation, were you able to determine what the intent of the prosecutor was on the september 10, motion hearing. did they intend to keep jeff sullivan from issuing an order so that they would not be subject to possible criminal contempt charges later? >> a did not. as a matter of fact, at one point on september 10, judge sullivan said, what should i do? matter prosecutor, adjusting brandon marsh. should i address in order? the response was if that is what the court wishes to do, the court may do so. the court, however concluded on september 10, by saying i'm not going to issue an order. i will except the professions of good faith on the part of the government. we all know the law. they told me that they knew the law. there is no need for me to issue an order compelling them to comply with the law. hence to the wise. >> as a result of this case and going forward, should all just judges issue formal orders to doj prosecutors instead instructing them to comply in an effort to ensure compliance and ensure the possibility of terminal content? >> that is one way, senator grassley, to address the issue. i am not satisfied that it is the best way to jurisdiction. i say in the report and during the discussion of whether or not judge sullivan had issued an order, but no district judge ought to be required to order prosecutors to comply with their constitutional obligations. let alone, do you require to it issue an order so specific that might support a criminal contempt prosecution in anticipation of its willful violation. that doesn't make any sense to me. it is true that around the country, at last count of which i am aware, some 38 of the 94 districts have standing local rules, which order the correction of the pretrial is a part of the overall discovery regimen. that is one way to address it. there are judges individually who have standing orders on every criminal case to the same effect. indeed, -- >> is his case was prosecuted by two attorneys. u.s. attorneys office alaska, as well as two attorneys public integrity section maintaining justice. the office recused from the case due to the conflicts of interest. the main justice was in charge of the case with the chief of the section and his principal involved. they were involved in drafting of the indictment and prepared memos for leadership of criminal division and they breached the division's leadership on the case. the fact was reinforced that public integrity viewed themselves as the final authority. indeed, shortly before the case was to be indicted, the front office of criminal justice criminal division made the principle deputy public integrity believe trial attorney. nevertheless, the report seems to minimize the responsibility to the public integrity for the failure of the case. the section chief claims, and the report seems to accept, but he was cut out of the supervisor's chain of command, and the deputy chief claims that she withdrew from supervision over the prosecution team, because she did not want to cause dissension among the team. question. doesn't the chief of the section that was in charge of the case their responsibility for failures? this was perhaps one of the most important cases of public integrity that has ever prosecuted that of a city senator. why does the report seem to avoid defining a fault against public integrity ultimately responsible for all cases in this section? shouldn't the buck stop with the boss at the top. if not, why not? >> personal, senator grassley, it is not so that the report fails to address this issue. the report details the management or mismanagement of the case. the report chronicles the fact that both mr. welch and brandon marsh advocated supervisory responsibility for assorted reasons, some of which eu, senator, just recited. the report did not shrink from addressing the failures of management. recall, senator, that the object of our investigation is chronicled in our report was to determine whether or not criminal contempt proceedings were appropriate with respect to any of the named prosecutors. we found no evidence apart from this failure of management that either mr. welch willfully engaged in a misconduct in the nature of concealing information from the defense. >> this will be my last question. i want to keep my colleagues going. this makes them seem hapless, at times she seemed more interested in not ruffling feathers with the supervisor of the case. as an experienced cost to tutor assigned to one case, shouldn't she have risen above the circumstances and done the job she was tasked with? wasn't it in the job of her supervisor to fix that if she was feeling? >> no question. >> thank you. >> thank you, very much. thank you for your work in this area. both senator leahy and i have served on the appropriations committee for senator stevens. senator leahy far longer than i. but me, almost 20 years. in the course of so doing, you learn a little bit about a person that sits on a committee. it is kind of a particular shot that we review what happened to him, made all the more worse by his premature demise, honestly, and the fact that he never knew the result of your report, which is a great chastity. a great tragedy. as i understand, the department's policies regarding assisting the united states attorney, ato g8 a doj attorney does not uphold the law if they make these errors and erroneous problems. i do not discipline the standards but this -- that this department of justice applies. what i did conclude was that two of the surviving prosecutors engaged in intentional misconduct. therefore, if the department were to come to the same conclun or an if they concluded that the conduct was equus, they would conclude that the lawyers engaged in professional misconduct. >> your report finds that the prosecution was troubled by significant mismanagement, specifically the lack of supervision, which you point to what the attorneys prosecuting the case and the compressed schedule of the prosecution, that they were under. did you in any way, shape or form consider the failures were due at least in part to lack of time or to a misinterpretation or misunderstanding of what the disclosure duties entail? >> i did. i have found and concluded that there were a number of failures to disclose impeachment information, owing to the compressed schedule, the absence of effective supervision and the fact that the decision was taken to the permit fbi agents who were not schooled in radio and giglio to do the giglio review. all of those occasions, which in my judgment, were the product of the failure of management, came to light during the trial. they caused judge sullivan to have great concerns about the credibility of the prosecution team. but they did come to light and the defense was able to use that information. not so with respect to the three episodes about which we concluded that there was intentional concealment of his cold -- exculpatory information or concealed information. >> what was the motivation? >> prosecutors, plainest attorneys, plaintiffs attorneys, bike to work. it is what we call contest rimming. we go into a case believing that our case is notorious. we believe that our witness is telling us the truth. we do not want to underline our case if it can possibly be avoided. i think that that motive to win a case. i do not believe that any of the prosecutors, including mr. goeke and mr. bottini, harbored a personal animosity towards senator stevens. i don't believe that any of them sought fame or glory and that was the reason they wanted to win the case. that is not in their personalities. they did, however want to win the case. >> thank you, thank you very much. >> i would like to remind everyone no matter how much the prosecution wants to win, we have the responsibility to disclose exculpatory information. prosecutor, a prosecutor has a unique position in the system. is that what you're saying? they're not just there to win, they are making sure it the justices upheld. >> mr. sheltie, the constitution, the system of justice and rules of professional responsibility that binds members of the bar as these prosecutors were all part of, prosecutors serving a goal of fundamental interest above a desire to win. would you agree? >> absolutely. mr. chairman, i would ask him behalf and the democrats be. -- on behalf of senator murkowski. i told senator murkowski, anything she wanted. >> sir, you have performed a profound public service. i know it continues here today. the thing that disturbs me so greatly is not that this prosecution involved a united states senator. because i doubt we would be having this hearing if it involved a citizen who was not a united states senator. that disturbs me greatly, because i know the resources that you in the court have put into this investigation, and i doubt those sorts of resources, that time and effort, would be put into an investigation involving similar abuses involving the constitutional rights of other citizens accused of crimes, but whose rights were violated by the prosecutors by prosecutorial misconduct. do you share those concerns? >> to a degree. the judge sullivan who i know would have done the same thing no matter who the defendant wants. >> and i appreciate that. i appreciate what judge sullivan has done here, particularly the release of this report unredacted. i hope the responsibility and report will be released in unredacted forms we can get to the bottom of this. of course, one of the prosecutors in this case did not have an opportunity to respond to your report, nicholas marsh committed suicide, did he not? >> heeded. although his counsel was invited to submit a response and did so as a representative of mr. marsh is a state. >> the justice department has told us that the stevens case does not suggest a systemic problem. with regards to prosecutors abusing their responsibilities to divulge exculpatory and other information required under brady and julio. how were we to be -- how can we be satisfied without representation? and how do we know? how does any citizen no that the department of justice won't abide by similar prosecutorial misconduct in the future? >> first of all, i do not believe on the basis of our investigation that would happen in the stevens case is representative of what happens in cases brought by the thousands across this country by the department of justice. secondly, as senator leahy indicated at the outset, it was, of course the attorney general or a colder. .. >> roi all i agree with you the attorney general is entitled to credit for after the fact raising this issue with the court seeking the dismissal of the charges will unfortunately the damage to sadr stevens and to the adversarial system of justice had already been done to with there's nothing the attorney general or anyone else could have done to undo it. and so, let me just ask in conclusion since time is short in those instances where the character and responsibility of a prosecutor do not seem to overcome what is their desire to win at any cost is their anything congress can or should do or is there further action you would recommend we take to ensure that abuses like this do not occur because i worry when they do sometimes occur in the main prosecutors are honorable people who perform their responsibilities with integrity in the instances they do not and intentionally withhold this kind of information as you said they have, how do we protect the integrity of the system of justice and their reputation of people who were wrongfully convicted when the information was withheld how do we protect the constitution? >> i do have a view on the subject. the supreme court of the united states and circuit courts around the country have long for articulated an appellate standard of review of brady violations. by that standard, the court will not reverse the conviction even in the presence of of the concealment of the exculpatory information unless it is able to conclude that concealment was outcome determinative, that is material to the convictions and was the material to the conviction that it would leave one without confidence in the guilty verdict. so we have this a public materiality standards which makes perfect sense to me. because that standard has been articulated over the years, prosecutors take the view pretrial that they are required to disclose what they believe to be material. that is which might ultimately have an adverse effect on the outcome. judge paul friedman of the district court here in washington and the recent fairly publicized case address this issue and said no, it is not the prerogative of the prosecutor who had one of the adversaries of course in this proceeding. before a jury, before the judge has ruled on the admissibility of any piece of evidence heat of devotee impeachment information will not be material, that is looking at the subject through the wrong end of the telescope that makes perfect sense. so, i believe the question for the congress may be squarely presented to me we do something about eliminating this materiality requirement so the prosecutors understand in the pretrial setting they are required to disclose any information if for which is favorable to the accused were to impeach the anticipated government witnesses. i know that the department of justice has a strong contrary view namely that there should be legislation would want. rather the department through the u.s. attorneys' manual and guidance issued buy then deputy attorney general david ogden in december in 2010 largely inspired by the case issued guidance fifth pfft which directs the prosecutors to disclose information that impeachment or exculpatory regardless of the materiality standard in most cases recognizing and specifically stating what we are saying in this policy statement is we are going to have prosecutors go beyond the requirements of law. >> thank you. i'm going to quote the conditions in the record in the justice in the discovery reform letter from attorney ken mine stand freezing the process and substantive concerns and the special counsel with of the objection and the records of senator frank and. this is pretty awful and hearing a friendly with him, this is high quality and thank you for holding it and for your work, but it's some pretty awful conduct by the prosecutors i think. it's just appalling. i just want to ask a couple questions, and you've just been talking about this, how to get at fixing these kinds of problems. one thing i would like to know, do you think what the prosecutors did, is it illegal? or do you think we need to change fell law or do you think what they did was already illegal for? >> i think what occurred in this case and a number of instances was in violation of an obligation imposed by the courts interpreting the constitution, and so using your term broadly i would have to say is an illegal. >> okay, now let's talk about in terms of brady violations and what to do about this. you were talking about maybe taking out the material part of and just say anything exculpatory the prosecutor would have to reveal. is there any kind of possibility -- and i understand five in judiciary, the justice department doesn't want to do that because they are afraid it will scare off witnesses who think that anything that they've ever done will have to be witness against the defendant and exposed in court and make people much more reluctant to testify and that is one of the fears of the justice department. instead of rewriting also that the prosecutor with has to reveal all exculpatory, anything that could possibly be exculpatory even f. their opinion isn't isn't material is there in a process that can be set up and in this system where a prosecutor can now get an advisory opinion to about evidence that presents a close call under brady. >> when using independent union outside of the department of justice. >> the department of justice has an office, the professional responsibility advisory office, known as prao which is there to entertain questions about the applications of the disciplinary rules of the bar to the conduct in the matter is there either that board can you go to the judge -- >> you can. if i had an issue it federal prosecutor and i said to myself and i've got this piece of evidence here and i'm not so sure whether i have to disclose this i was a young assistant u.s. attorney if i had to think about that for more than ten seconds, but if i didn't, i could go to the trial judge and to export que -- make a submission to the judge and say this is what i have. i don't know whether i am obligated to turn this over or not. there are reasons in my view why i should in the there are reasons why i should not. you, your honor, can decide. you are the neutral magistrate. >> that's kind of what i meant. you can go to the judge. estimate that is available as you might well imagine. simic pardon me, i'm not a lawyer. i played one in a sketch. >> and if you did a pretty good job. that kind meaning with a judge's coal is fine. okay, so maybe into law if we are changing the law if the justice department has a legitimate meaningful objection to all exculpatory evidence, even if it doesn't seem material having to be disclosed to the defense, and perhaps it could be some process written into law saying if you have any questions you have to go to the judge and if you didn't go to the judge on something, you've got a big problem. >> i'm done with my time. >> thank you, senator. >> thank you for your testimony. >> the judge stated and i quote the prosecutorial misconduct in the case or to a degree in extent he hadn't seen in 25 years on the bench. i assume that's why the attorney general holder took the commendable but where step of seeking dismissal of the case and not attempting to retry it. but there are some exceptional reasons why we are meeting today. this was a high-profile case involving the united states senator, one of the colleagues. that senator had some of the best legal talent on his defense team, experienced attorneys for prominent washington firms. in extremely conscientious judge presiding over the case and took the rare step of appointing the independent investigator who issued a 500 page support, and there's an fbi agent in the case who allegedly spoke out as a whistleblower and raised allegations of misconduct by the government's prosecutorial team. in short, this was the furthest thing from the everyday criminal trial world that is going on even as we meet. what is at stake ago, the principal of law applies equally to cases of celebrity and notoriety as it does to those that are commonplace standards. when i heard about your report and came to understand what your conclusions were, i challenged the department's justice and said now what? now that you know this has taken place what can you do, what will you do to make certain that it is less likely in the future? and the answer was we have learned our lesson. pardon my skepticism, but i am not sure because of what you've referred to earlier as contest living that we will ever avoid that inclination of attorneys and court to do their darndest. my question to you relates to what senator frank and asked. if what happened in this case by the prosecutors was in fact illegal, was it the commission of a crime failing to disclose but what should have been disclosed in evidence under the rule? second, if we are serious about avoiding this in the future, don't we have to go further than to trust the instinct and the department of justice and prosecutors across america? don't we have to enshrine in law some basic protection of the criminal defendant when it comes to this disclosure? adel has been introduced by one of the colleagues i'm not sure if you are aware of it. she talks about exceptions when it comes to this disclosure relating to witness safety and national security and the light but when it comes to the case you cite you order to basically assume everything is material. if you were to address those issues one, if it is illegal what specific crime to the prosecutors commit, and secondly, if there is a lesson to be learned here should lessen the written into the law for the criminal defendant who may not get the judiciary committee hearing has the same protection. >> first, senator durbin, as mauney report describes, had judge sullivan issued a clear and unequal order in the prosecutors prove all material, there would have been a crime committed, criminal contempt with respect to those episodes described in the report as to which we conclude the conduct was intentional. beyond that, there is a footnote in our report, which says the offer no opinion as to whether or not a prosecution for obstruction of justice might lie, because that isn't within my prerogative. as a matter of fact, the separation of powers would preclude a lawyer investigator appointed from the court by bringing such a charge. >> i'm sorry to interrupt you but what you are saying is unless there is expressed violation of the court order that you do not believe the prosecution for the obstruction of justice would like. skype that's not what i'm saying. in the absence of the order, the prosecution for the criminal content will not lie. whether or not the same conduct violates the obstruction of justice statutes and whether under the u.s. attorneys' manual of prosecution for that on this conduct would be inappropriate isn't a decision for me to make. >> five gone beyond my time if you can address the second part with their we should seriously consider creating a statute which specifies the protection which you have articulated was denied a senator stevens and should be given to all criminal defendants. estimate i believe you should consider legislation, which eliminates as i explained earlier the so-called materiality requirement. i know that senator murkowski's bill does that. it does a lot of other things as well which i'm not prepared to express at this moment. but the department i know because i saw the statement yesterday submitted to the kennedy a lengthy statement describing what they have done in the wake of the case which is quite impressive in my view. the explain as well as i said earlier that as a matter of policy, the prosecutors are instructed not to make distinctions based on the materiality issue. that policy however house and expressed disclaimer. this doesn't have the force of law. it has no rights in any way. ausley understand why that is so with respect to the policy. mauney question is if the department believes that there should be no pre-trial materiality standard because that is what they're telling their prosecutors now to do, what is the principal reason for opposing legislation that does just that? >> thank you, chairman, having been at the united states attorneys and the attorney general for my state, tend to lean towards an open file rule. i think there are obvious exceptions to the rule. witness safety being preeminent. very often these are particularly dangerous individuals who would like nothing more than to murder witnesses. national security would be another important consideration, not disclosing or impeding an ongoing investigation the would be another in the general protection against unwarranted invasion of individual privacy would seem to make sense and what seem to be subject to a reasonable check and balance with the judge to where appropriate in the matter, and it sort of put the prosecution to its paces. i think that if those protections less is likely to go wrong and jan prosecutions based on the hide the ball strategy which i think is the wrong way to go about making cases so, speaking in part to you and through you to the department to urge to take a serious look at this, not just to push back because it is new or different, but to see what systemically can be done about this. there are two messages to somebody that i have in the department and i consider myself a friend but i don't think there's a place in the government and i admire more than the department of justice. but that doesn't mean that there is an occasional room for improvement. and i worry sometimes that in addition to not necessarily having the rule right, when something does go wrong, it appears there are times there can be a bit of a lean shall we say in favor of the department attorneys who violated, assuming they did, violated the provision. and i just want to raise something i've raised over and over yet the department and take the opportunity to flatten this yet again. this goes back to the office of legal counsel opinion on torture , which they failed to cite a circuit court decision of the united states but looked at the type of conduct that was involved, waterboarding. described it very clearly, and described -- i don't remember the count right now but ten or 11 times in the decision as torture. in the opinion is never mentioned in the case. they go on for pages, dozens of pages into the never mention the case. what concerns me about that is when the department went back to look at it, the investigation concluded with a memorandum by a thing he's retired now but david margolis minow that says the lawyers said the council were not to be helped to the standard that a regular ordinary lawyer hauling the files under the district court is in terms of the standard required for candor to the tribunal. so again, speaking through you to the department. if that continues to leave a sour taste with me it doesn't make sense to me that the department lawyers of the office of legal counsel which is probably the highest and most talented part of the legal profession outside in government outside of the supreme court itself should not have to meet the standard of the day-to-day trial lawyer appearing before the judge, particularly where the process for the candor of the trivial standard is a pretty open one. there are checks on it. the other council can say your honor, they have to tell you the case on point, or the judge and the clerk will get up and say counselor, how could you not have told me about the case on the point but it comes all of the circuit court of appeals they don't operate that way. it's much more secretive particularly when it's a classified hearing. so i think if anything, the standard for the lawyer should be higher than the standard for a regular lawyer going before the tribunal, not lower, and i'm going to continue to press on that memo because i think it is wrong to hold those department lawyers to a lower standard than outside of the department. and i flood that because i think it is very important department make clear not only that it's the rules right and follows the rules, but also when there are violations it is clear that there is no hesitancy to come down on people that have violated those important rules. so, mr. chairman of that is more in the nature of the question, but i did want to make sure that those points were clear to the department of justice and my concerns about them were clear to the department of justice which i will conclude by saying again is perhaps the organization in the united states government that i am the proudest of. i think it is a wonderful organization, and i don't want to say that with these very specific concerns. >> thank you, mr. chairman. >> thank you. if you have further questions, senator? we can wrap up rather quickly here. you conclude that the prosecutors intentionally withheld the information. did you give consideration to the evidence they sought approval to disclose but for told not to buy the leadership of the public section department of justice? >> i did. >> thank you. >> and does the leadership of the public integrity section bear some responsibility for what happened in the case? >> it bears the responsibility for selling its supervisory responsibility to know all of the operative facts before they pass on the decision. >> what did you conclude about the role of the criminal division has then acting assistant attorney general matthew frederick in terms of managing the case? and including what you suggest was the department failure to satisfy this to obligations? >> i think that you frederick -- and i say so in the report quite understandably took a interest in this high visibility prosecution of the senior united states senators. it was in my judgment -- >> and a member of the same party. the administration was prosecuted. >> indeed. >> so, in my view it would be completely counter intuitive if the assistant attorney general from the criminal division hadn't taken a serious interest in the matter. i think however as we also say that paradoxically that sensible interest to supervise and make sure that things were done right put in place a prosecutor to serve as the lead counsel whom he thought was better equipped than the existing team of prosecutors contributed to the problems, contributed to having decided because they put me in here and created all these problems i don't want to make anybody more unhappy so i'm going to make myself as little as possible, as she put it coming and i am just going to do my job. i'm going to cross-examine witnesses and make closing arguments, and i'm going to the trust what the rest of them tell me about what the state of the discovery is. >> i have great concerns about this case as you can probably gather. i am trying to be as our objective as i can in getting the information. we will have the report and we will go into that when it comes. i agree with senator whitehouse some of the finest men and women we have in the country and that work in the department of justice or the prosecutors and others, but this one bothers me greatly not the least of which i knew ted stevens in my more than 30 years of knowing him, and i never knew him to break his word. i never knew him to tell me something that wasn't accurate and true, and for full disclosure, i had a personal relationship with him. i thought the world of him and assumed for whatever time i was in the senate on a would travel and we would have -- in fact i had told his attorney though we would be willing to testify while i couldn't tax defeat could testify to the case she was always totally honest with me. as the chairman of this committee and the oversight of the department of justice, i realized this happened in the last department of justice, not the current one, and i do agree with your assessment and statement of approval, attorney general, in the case we both know a lot of years before he was the attorney general, and i have a great deal of respect for his ability. i'm concerned about what happened. it happened here. i also want to make sure as others have suggested this wouldn't happen if it was ted smith, whom nobody would know. that's why i've had my innocence protection hearings and others. it used be the most important person in the whole criminal justice system. even more so than the judge in many ways because the prosecutor could determined not to bring a case as well as to bring one. that is the enormous power. it is exercised appropriately, the whole population is protected. improperly the whole system is stanched, so that's why i'm holding the hearings. thank you very much. >> if i may as a point of personal privilege, i should like to say that like senator whitehouse, ibm april your alumni of the department of justice, and this is a sad story. i take no joy in having had come to these conclusions. i hope i never have to again. >> i will concur in that i'm proud to be a lawyer. people ask me what my occupation is, i would say later before i do u.s. senator. i'm very proud of that. i was proud of being the state attorney, district attorney, and i was proud to be ticked off on of that outstanding in the country one year. whether deserved or not, i won't judge. but that is probably their leading to be on my biography someday. thank you very much. >> thank you, mr. chairman. >> november 21st i would ask the admiral directly does the president know, he told me he did not. and on november 25th, the data i was reassigned back to the united states marine corps for service, the president of the united states called me. in the course of that call, the president said to me words to the effect i just didn't know. those are the facts as i know them. i was glad when you introduced this you said you wanted to hear the truth. i came here to tell you the truth, the good, the bad and the ugly. i'm here to tell it all, pleasant and unpleasant and accept responsibility for that which i did. i will not accept responsibility for that which i did not do. >> the house financial services committee today held a hearing on ms goebel, the financial firm that went bankrupt last year. the executives testified, but the former assistant treasurer put the fifth and declined to answer questions about what happened to $200 million from a customer account. she had previously written an e-mail saying john courts line, the former ceo of ns global authorized transferring the customer's money. congressman randy now the power of texas chaired today's hearing. >> previously agreed. there are members that are not necessarily made in attendance of the hearing that are not in the oversight investigation committee, and i ask unanimous consent of the members be allowed to participate in the hearing today as well. i'm going to go ahead with my opening statement. this is the third hearing that we have had on ms global. it is not the eighth largest bankruptcy's in the history of the country but more importantly it's about trying to ascertain where they lost over a billion dollars worth of the money not a trial and the bottom line of what we are trying to accomplish today is basically to do an autopsy on having the 228-year-old company came to its demise last year. it's important that we understand what was going on corporately and what was going on on the regulatory standpoint and what was going on within the systems that support this entity and these businesses. the reason that is important is that obviously there was a breach, and people lost their money. but more importantly it's going to be important to make sure that whatever deficiencies that have been corrected factions begins of the stars and ranchers that use these kind of services in the future have confidence in the markets. we have looked at basically different aspects of the last days and months and years and today this hearing will be focused really on the last days and ascertaining how and when and why farmers and ranchers and customers came about to lose their money. so i appreciate the witness is being here today. i appreciate my fellow committee members they have a better understanding of what happened and more importantly how we can prevent these kind of things from happening in the future. specs before i went to associate myself with the comments you made and that's what i'm doing fine not looking for someone who stole money. if somebody stole money, the justice department will find them and that is their role, not ours as i see it. i see it as trying to find out what happened in order to make sure it doesn't happen again, to see if there are rules that need to be clarified if there are principles of free to be clarified, whatever it may be. there is criminal wrongdoing to encourage the proper authorities not necessarily us but i also want to talk about the events that led up to today's hearing. i think is pretty well known that there was some stories last week there were based on the memo that was leaked to read i've spoken to the german about it and we agreed that things happen unintentionally soviet, it's done and i want to congratulate the chairman for the addendum to the memo to clarify that position. i think that took a lot of the wisdom and a lot of courage and foresight to do that and was well written and i think right to the point. but i also want to make sure -- the chairman and i have talked and we both agree upon to be clear and on the record to say that up until now, the subcommittee in my opinion has worked jerry well. i have a good relationship with the chairman. i am sure we have differences as of opinion but not to this committee. we have a responsibility and we are doing it and continue to do it. but it has been done mostly in a bipartisan and cooperative manner. last week raised issues with some of the members on my side. i think legitimate issues raised with the chairman, i think they were worked out. i believe they were worked out. but i want to be clear as we go forward, material of the committee belongs to the committee. it does not belong to a member. material of the committee is required by the house rule 11 to be shared among all members equally, equally treated is not subject to determination of staff or any of remember what to do with about material. and again, i think things this week were inadvertent, and that's fine. things happen and you cleared that up, but i want to be clear that going forward, every person that works for or with the committee will try to work in a cooperative manner knowing full well that there will come a time when we have differences of opinion and we will express them appropriately and viciously and verset earnestly and all the other ways we do, but as far as information and trying to get to the bottom of this and other matters it is to protect the american people. we have met different views on how to do that but i don't think we disagree on the responsibility. with that, mr. chairman, i want to think you for the conversations we've had to clarify the misunderstandings this week and i look forward to working with you in the future. >> i want to say i appreciate the ranking member and his spirit and i think the committee is working in a bipartisan way because ultimately we work for the american taxpayers and they give responsibility to oversee markets and entities and he takes this as serious as i do so i think him for his remarks. now why yield to the chairman of the committee mr. bachus for two minutes. >> thank you, chairman, for convening this hearing to examine the events in the final days of in a global. i commend you for the continued careful and comprehensive review of the fact. through the hearings, this being the third, there's been dozens of interviews by the stuff, reviews of thousands of pages of documents, which in those documents as they came in, members were notified they were here but maybe we can improve the communication to read these oversight investigations subcommittee of the full committee have found out what led to the loss of the 1.6 billion of customer funds. we need to understand what happened ineffable global for the benefit of the ranchers and farmers that lost money as well as the american public which benefits from the properly functioning market. what we learned today is not withstanding the promise of dodd-frank, the regulators would work together there's little evidence of the regulatory coordination and supervision of them of global. in fact, some four or five months before it was asked in question, but those questions, the sec and fnra are on one side and see to -- cme on the river. there was -- we can find no communication where they were sharing those concerns with of the other regulators. a better coordination i think could have and should have led to the safekeeping of the customer funds. we also have learned internal controls do not work if they can be short circuit to buy the company's ceo. while not all of the facts are known about the role of the mf global ceo john, and with a plea and the collapse the investigation leaves little doubt mf will was his corporate alter ego and ultimate responsibility from what happened on the chaotic final days rest with him. it is examined will find of the reduced to meet the demand for cash. according to the preliminary report filed by the bankruptcy trust the margin calls were a source of stress to the firm in the last week. to help learn from the witness is whether this liquidity at in a global lead to some of the firm to improperly use customer funds to make the need for cash. to get to the bottom of what happened and who was involved the subcommittee needed the cooperation of the banks that conducted business with him at school will remember of the banks were contacted about testifying today but only jpmorgan chase volunteered to appear before us today. the financial institutions may be reluctant to testify on the complex transactions because the time and resources it takes to ensure the testimony is accurate and complete triet jpmorgan chase cooperation therefore is very much appreciated. mf close the eighth largest bankruptcy in the nation's history that isn't what makes the failure noteworthy. firms of all sizes sale every day and for every war there is a corresponding risk and that is a part of the free-market. however, $1.6 billion loss of customer money isn't a risk that should exist in an effectively regulated free-market. i hope the hearing will bring us closer to understanding what went wrong and where that money is. thank you to the witnesses and let me say this, our investigation -- everyone testifying on the panel has a good reputation to have a good background. they are respected in the industry and so as i think has been said before, the hearing is to find out what happened, not to accuse any of you with any wrongdoing because that hasn't been demonstrated. we appreciate your testimony. jarmon trial you are simply in a fact finding mode and i have been struck my -- i've looked at your resume and background. you are qualified and have a good reputation all of you. >> thank the chairman and now the gentleman is recognized for two minutes. >> thank you mr. chairman and the witnesses today for halting the committee with its work. i believe in many ways you should be given credit for the attention you've given to the collapse of mf global. i think we can learn many lessons from the collapse of the treatment of certain risky investments, the devotee of regulators to meaningfully oversee the financial institutions and quote we can do to prevent a situation like palace happening in the future. we have some previous hearings and i hope we have an opportunity to revisit them today. however, i must raise an issue of process with you today that's been mentioned by my ranking member mr. capuano. you and your staff have been slow sharing documents with our offices and other members on this side. the break the glass plan is something that is republican members apparently have a copy of at least last february hearings. moreover, the ranking member was unaware that he were in position of about 100,000 pages of documents relating to the final days of global. as my colleague has indicated the state each member shall have access to all committee hearings data charts and files. i've not had access to the portfolio documents your staff has attained in preparation for the hearing to really of no intention of going easy. we are of one mind and i am incensed as you are at the lack of care shown by employees and handling of customer funds but also disappointed is a member of the committee ought not received the full extent of the information collected by the staff and circulated to the republican members. like your side, we take our responsibility to prepare very seriously. we take the responsibility to the tax payer very seriously, and again, why why give you great credit for focusing on this issue and you deserve that credit, i hope this investigation will move forward in the bipartisan collaborative way and that our office and the rest of the members on this side will be privy to all the information your offices of attained. thank you for the time and i yield back to respect malae yield to the vice chairman of the oversight investigation committee for one minute. >> thank you. we are in hearing number three of the series of hearings investigating the facts surrounding the collapse that mf will. for the week of october 24 from 2011, mf global suffered a lack of cash that ultimately led to the filing bankruptcy october october 31st in of to $1.6 billion of customer money went missing. at the time americans already lacked confidence in the financial arkansas, mf goebel provides another devastating example of how the multibillion-dollar security firms can impact middle class americans. like many members of a cut constituents affected by this event and that is why i'm here to speak for. we know it to customers that lost money to discover what happened at ennis global to provide insight to the financial markets and regulatory regimes designed to protect them. the people expect us to hold wrongdoers accountable and protect those that played wide rules. he we are as members of the house of representatives we're here to stand in the place of many americans we collectively represent. we are here to find the answers for them and i commend the hundreds of hours the subcommittee staff has spent devoted to digging deep into the matter and i look for what the testimony of today's witnesses and the answers we hope you should be able to provide. thank you mr. jarman. >> i thank the gentleman and ask unanimous consent that a letter from the commodities customer colish and thinking the full committee or this committee for our work on mf global to the department of record today. without objection, so ordered. i would now like to yield to the gentleman from texas for a year-and-a-half. >> thank you mr. chairman. back in the fall of 2008, the financial crisis was unfolding within a candidate obama stated in the the date of the importance of, quote, holding ourselves accountable day in and day out not just with there's a crisis from folks that have power and influence and can hire lobbyists but for the nurses, the teacher, the police officer who frankly at the end of each month they've got a little financial crisis going to come end of quote. well, there is a big financial crisis going on right now for the farmers and ranchers across the country that can't access their portion of the 1.6 billion dollars that has gone missing. the past week we learned the ceo john karzai wasn't innocent bystander he claimed to be in front of this committee back in december yet for all of the rhetoric that we hear from the obama administration about holding people accountable, this administration has a wave claiming that the people that question of the former democratic senator and governor. i hate to sound cynical, but i can't help but think that the, quote, power and influence as president obama make call it that someone like john, is exempt from a thorough investigation by the current justice. the victims deserve their money back and what happened to it. this hearing and the investigation is of extreme importance and i yield back the balance of my time. >> now the gentleman from california is recognized for a minute and a half. -- before mr. chairman. the clear problem that arose here, the problem that made bankruptcy the only option for mf global was that no one could account for what happened to over a billion dollars in the segregated funds as we are going to learn today that more than leaving the customers high and dry, what's happened is the missing funds rocked the foundation of the cftc's customer protection regime. rules governing the segregated accounts, those rules have been around for 75 years, and they are not difficult to understand. reportedly they are not difficult to enforce. yet the cftc has failed in the most basic task. as we go to the commissioner's observation that the cftc says basically he's arguing that since 2010 the cftc has been consumed with the rules to regulate not just the derivatives market but the world derivative market with much of the manpower at that agency dedicated to enforcing dodd-frank. the cftc miss cracks in the system and has cost over a billion in terms of the clients at least hundreds of millions. i will end by quoting him. since the dodd-frank act became law, the commission has acted like a little child abandoning the old tory and swapping them out for the new. it is concentrated on the swaps rulemakings weigel averting its gaze from the futures markets and other developments. therein lies the concern. the broad question that's got to be answered here regarding the ability and the willingness of the cftc to ensure the customer funds are protected, and i yield back, a researcher man. >> i yield to the ranking member. >> mr. chairman, it's kind of interesting start off to be bipartisan, and now i just heard that both president obama and the dodd-frank bill caused this problem, and i would like any member here that has any information whatsoever that the justice department, the cftc or any other agency has given mr. karzai nor anyone else a pass on the investigation related to this because if you do, i would like to see if it would be another matter we don't have. i would like to know if dodd-frank caused the problem, then what caused lehman brothers? i know we are here to make political points. i'm a politician, too. but let's stick to the matter at hand. if you know, go to the justice department and tell them. if you want to make political points, held in the hall -- >> would the gentleman yield? >> i sure do. >> i appreciate you yielding. i'm quoting the commissioner at the cftc. it is his observation since the dodd-frank act came into law the commission has acted in this way. it is his observation that it has concentrated on swaps rulemaking while averting its gaze -- >> [inaudible] >> i'd be happy to join the gentleman to direct him back and see if he thinks here publicly on the record dodd-frank caused this problem, and if he did i will simply agree view it as a good job but if he doesn't, i would expect you to do the same. >> guice thank the gentleman. and now i'm going to recognize our first panel at the mf global limited. the chief financial officer at mf global and ms. christine, the chief financial officer of north america and edith o'brien assistant treasurer at mf global. i would ask to recognize each of you now for your opening statement, and first of all, i need you to please stand and raise your right hand. do you solemnly swear and affirm the testimony that you're about to give will be the truth, the whole truth and nothing but the truth? thank you kristen statements will be made a part of the record i will recognize you for your opening statement. >> chairman, ranking member and distinguished members of the subcommittee -- >> i'm sorry and can you put a little closer to you? .. 's as general counsel of mf global i supervise the legal and compliance functions. >> mr. chairman can i get her to bring the microphone forward? >> as general counsel of mf global, i supervise legal and compliance functions. my responsibilities include managing the legal function to the evolving business, dicing the board and senior management and facilitating mf global's relationships with its regulators. mf global's legal department included approximately 17 attorneys and 12 professionals. the firm's legal team was supported by several highly-skilled outside law firms with expertise in various areas of law pertinent to mf global's operating businesses. the global head of compliance who have substantial expertise and compliance matters and manage the global department of over 80 people reported directly to me. i report directly to the chief executive of mf global and direct did -- interactive free valley. my focus during a last week of mf global's operation was to make sure the legal and compliance department and outside counsel were available and prepared to support the firm as it attempts to deal with the rapidly unfolding events of mf global's last days. the senior management and board of directors reacted to those events by initially seeking to sell all or part of the firm and reducing its balance sheet while also seeking to make sure the firm met all of its obligations. ultimately when the sale of the firm became impossible, mf global holdings had no viable option other than to file for bankruptcy protection. throughout mf global's final spinal week, i personally was in offices for all but if yours ezra many of the senior management. the board of directors was also present at mf global monitoring events and receiving almost constant updates. my colleagues and i were in very frequent contact with many of mf global speculators during this time. these include the fec, the cftc, the cma, the cboe, finra and the federal reserve bank of new york as well as the financial services authority u.k. financial services regulator. keeping the regulars informed was one of my top rarities. that included spending most of sunday evening october 30 working with regulators to agree to terms on which the firm would be sold in accounts transferred to a buyer. as best i recall it was shortly after the process before midnight october 30 that i learned that the firm was unable to reconcile its funds account. i was shocked. i believe that the firm had in place the fullest compliant system operated by highly qualified professionals were controlling in securing customers a va funds. as a last effort senior people from potential buyers worked with people from our finance and operational teams to provide a fresh set of eyes to help identify the reconciliation errors. once the inability to reconcile the accounts became clear that approximately 2:00 a.m. we notify the regulators. later that morning after several hours discussing with regulators we -- i have been assisting the complex efforts, global efforts to maximize the value for all of mf global stakeholders and i will try to answer any questions you have. as being in our next, mr. steenkamp. speech airman nuegebauer, rank member -- >> i want to ask you to pull back that back closer to you and ask whoever is in charge of sound in the building to see if we can turn these mics up just a little bit. i'm having a difficult time hearing and so are the other panels. >> chairman nuegebauer, thank you for the opportunity to make this brief statement. my name is henri steenkamp and i'm the chief financial officer of mf global holdings limited a position i've held since april april 2011. let me say at the outset that i am deeply saddened, upset and frustrated that money belonging to mf global inc.'s customers has not been returned in full. i know however that my reaction cannot be compared to those people who are suffering with this issue. along with certain other senior executives of mf global holdings limited i have remained at my post wallowing the bankruptcy filing and working diligently with the chapter 11 trustee to do what i can to maximize the value of the firm for all interested parties. that said a cousin specific trust -- trustees rules and policies i have not been able to participate in the efforts to return customer funds. while i am deeply distressed by the fact that customer monies have not yet been fully repaid by a unfortunately have limited knowledge of the specific movements of bonds at the u.s. broker-dealer subsidiary of mf global angst during the last two or three business days prior to the bankruptcy filing. this is in part because of my global role and in part because during those days i was taken up with very serious matters. has the global cfo at many different functions that principle among them was the effort to want to ensure the holding company's consolidated financial accounts, complied with all u.s. accounting and reporting requirements and two work closely with our investors in the rating agencies. as its name suggests mf global holdings limited is a global holding company with approximately 50 domestic and foreign subsidiaries. each of the regulators subsidiaries generally had its own or a regional chief executive officer, chief operating officer, chief financial officer and others obligated to independently discharged the customary duties of those officers according to its home jurisdiction's regulatory requirements. all of these positions were filled by highly experienced professionals dealing directly with local regulators. direct involvement with operational manage -- matters has never been part of my duties. it is of course important to understand the way it was segregation issues were handled at mf global inc., the subsidiary that acts as a future commission merchant in the ordinary course of business. to avoid confusion when necessary to specifically refer to nmap global inc. i will call it mf gi. mf gi holds all customer funds required by law to be segregated and all segregation calculations were performed by personnel in chicago overseen by mf gi finance professionals. to my understanding mf gi's have been repeatedly reviewed by outside auditors and regulators for a long period of time. as a general matter i was not involved with the details of segregated funds nor would the conflict segregation -- and reported to regulators on a daily basis. the week higher to the bankruptcy filing saw among other things multiple regencies downgrading in quick succession and efforts to sell all or part. is a time of constant pressure and little or no sleep with a significant number of critical issues to resolve. is the cfo of the holding company my attention was a privately focused on crisis management and strategic issues relating to the sale of the company. on monday october 24, 2011, we announced we were downgrading ms global's grade rating. this was followed by further downgrades throughout the rest of the week of wood were unprecedented in my experience placing extraordinary pressure on liquidity. as the situation deteriorated the sale of mgm five -- mfgi. i dedicated my time to the daunting task of facilitating the due diligence necessary for an acquisition or sale come almost exclusively in the period on the evening of october 27 and ending the decision to file for bankruptcy on the morning of october 31. as i recall on sunday october 30 when the deal for the acquisition of all a part of the country appear to be close at hand i first learned of the serious issue with mfgi's segregated fund calculations. unfortunately as the subcommittee is aware, efforts to reconcile the segregation calculations were not successful in the deal fell through. i come along with others from mf global probably notified a regulators about the segregation issues. i understand the subcommittee, mfgi's customers in the public have many unanswered questions about customer funds. i am personally extremely frustrated and disgraced that they remained outstanding and the clients funds have not been repaid in full. i would be pleased to enter the subcommittee's questions. thank you. >> thank you. mrs. sawinski you are recognized for five minutes as well. >> ranking member capuano -- >> i'm going to ask you to do the same thing and may be tilted down just a little bit. there you go and tried to talk as loud as you can. i don't know what's going on here. >> thank you or the opportunity to testify today. my name is christine sawinski. the time of the events in question i was the chief financial officer of mf global inc. the firm's broker-dealer and his submission merchant. mice position as the foi was responsible for the accounting and regulatory accounting team. in light of the subcommittee's focus on the events of the week of october 24, it is important to note that the departments responsible for the transfer of funds into and out of the company, treasury, treasure operations and securities operations did not report to me. i'm aware the subcommittee is particularly interested in the event in the week primary to the october 30 bankruptcy. i will do my best to provide whatever information i can but i was away for the majority of that week and i apologize in advance if i'm unable to add a great deal of detail. on monday, october 24, moody's downgraded ms global's credit rating. on tuesday, there was an earnings trial. on that same day i left chicago for a previously planned vacation. i had every reason to believe that the firm was on solid ground prior to my departure. before leaving, i spoke to members of my staff and drafted e-mails to co-workers to ensure that all of the functions of my office would be covered. all of my colleagues and subordinates knew how to and did reach me as necessary during my absence. i have access to e-mails in my blackberry during my week off and i read e-mails when i could. i also spoke to people at mf global on the telephone from time to time throughout the week. all communications with mf global employees indicated that things were very busy but i was assured that everything was under control and at no time did anyone ever suggest that i should return to the office. nonetheless, late in the day on thursday i decided to come back to chicago a day early, on sunday. i was not alarmed, but i believed it would be better to return early given the level of activity at the firm. after receiving reports earlier in the day and upon arriving at at the office on sunday evening, i was informed that in fact there appear to be segregated secured deficit of approximately $900 million. i believe that this must be an accounting error because such a large deficit simply is inconceivable to me. early monday morning the treasure handed me a piece of paper that identified a series of transactions that according to calculations accounted for the shortfall of the segregated accounts. i then realized the deficit in the segregated and secured funds was not an accounting error. we informed our representatives of the cmb in my focus immediately shifted to identifying all firm funds within mf global that might be transferred into the segregated and secured environment as quickly as possible. we worked relentlessly throughout the early morning hours and indeed throughout most of the day on october 30 -- 31st to try to bring segregated and secured -- unsecured counts back to the appropriate level. although some of the funds were transferred in segregated and security council number of committed wires were not executed by the bank and we were unable to move sufficient funds to make up for the shortfall. sometime on october 31, i learned at mf global had filed for bankruptcy, that we were under specific protection at the firm could no longer engage in further financial transactions. shortly thereafter, a specific trustee asked me to stay on at mf global to assist in the wind-down of the business which i agreed to do. i look forward to addressing to the best of my college -- knowledge and ability any questions you may have. thank you. >> thank you. we have been instructed that ms. o'brien does not plan to give an opening statement at this time and we will therefore begin our questions at this time ms. o'brien, on friday, october 28, 2011, mf global transferred $200 million from the segregated customer accounts to the house account and then subsequently sent $175 million in money from the house account to the mf global u.k. account to cover an overdraft. as you are aware in december mr. corzine testified here that you assured him that those transfers complied with the cftc rules about customer segregation. reportedly, you dispute mr. corzine's testimony so let me ask you today ms. o'brien, did you give mr. corzine assurances that the farmers and ranchers money that was an mf global's account, the segregated account, did you give him assurances that money was not their money? i'm sorry, you are going to have to -- >> on the advice of counsel i respectfully decline to answer based on my constitutional rights. >> i'm going to yield to mr. capuano and see if you would like to -- >> ms. o'brien understand and i respect your constitutional rights but there is an article in today's wall street, maybe yesterday's, that stated that they were trying to negotiate immunity with federal investigators and i'm just curious if that article was accurate or inaccurate. i'm not asking about anything that happened at mf global. i am simply asking is that in a report inaccurate part? >> on the advice of counsel i respectfully decline to answer. >> ms. o'brien the subcommittee asked you here to testify so that you could help use your background and experience to solve a very serious matter and to try to find out exactly what happened and how we can keep this from happening again. we are extremely disappointed that you have chosen to do that. i would ask you now, do you intend to invoke your fifth amendment rights to any question the subcommittee a askew asking on the subject today? >> i will. >> i'm disappointed because of your answer but i believe, because i believe you have important knowledge and i'm hopeful that maybe that sometime you will reconsider and come back and testified before this committee but at this time i ask unanimous consent to dismiss mrs. o'brien from the panel. ms. o'brien you are dismissed. >> okay. >> we will continue the question and i think what we will do at this particular point in time, we will reset the time and begin the question and answer period again. ms. sawinski, on october 28, mf global transferred at least $200 million from the segregated accounts and subsequently transferred $175 million to the u.k. affiliate to cover an overdraft. in an interview that you had with our committee he stated that if you are working that day it was very unlikely you would have approved 175 million-dollar transfer because it could have violated sec state capitol rules. can you explain that for me? >> the transaction, 175 million-dollar transaction as i understand it was an intercompany -- between mf global inc. and its affiliates u.k. limited. as i understand the $175 million was taken out of customer segregation. there were two things i would have looked at with respect to the transfer. one, we will refer to and refer to as the firm invested in excess segregation and secured funds with that 175 million-dollar brought that level to a negative. the firm was still in mandatory compliance but would have breached its own internal policy. the second consideration that would have had to be evaluated with this potential impact on the excess net capital so that number without being ejected would have brought i believe the firm to a potential under early warning situation which would not have been a role violation but would have required a reporting to the regulators. >> i want to go back to my question. had you been there on that day, would you have approved the transfer? yes or no? >> i honestly don't know what all the circumstances were around the transaction but the impact would have would have reached a regulatory rules i don't believe i would have approved of. >> would you have approved the transaction, yes or no? >> no. >> okay, thank you. you are aware of an e-mail that edith o'brien described, this 175 million-dollar transfer that per mr. corzine, jca believe, is it a normal course of business for the ceo to make instructions on wiring funds? i mean did that happen on a regular basis on your watch? >> no. >> so this would be out of the ordinary for mr. corzine to start calling people and instructing them to start wearing money? >> yes, i believe that would be an unusual event. >> thank you for that. ms. ferber according to the action of thursday representative he may group sent you a letter to you, ms. sawinski and mr. baldwin i believe in all of the mf global senior managers had stated it effective immediately any equity withdrawals from mf global inc. must be improved in writing by ecma's audit department. basically seamy is telling mf global not some of its own capital out of mf global without this approval. who just disseminate that information to when you receive that letter? >> i don't recall at the time. it obviously went directly to our finance group and i cannot remember back on that thursday. i recall having a conversation where people were aware of. >> so, did you all seek approval when you made the 175 million-dollar transfer to the mf global u.k. before you move that money? did you notify cme that you are making the transfer? >> i was not aware of that transfer before it was made so i would not know that. >> so you don't know who you disseminated the information to sell navy nobody got the mo? >> again, the memo went directly to the finance people and so the key people operating the transfers and things were all in chicago. i don't recall. >> mr.'s team camp i was interested in your testimony that you said you are the cfo for global and you are addressing very important issues facing the company as the cfo. is their testimony? >> that is correct. >> when you think the liquidity of the company would be one of the important aspects of an entity the size of mf global and based on its businesses? if they were having liquidity problems with that be something of the cfo should be involved in? >> sir there were many things going on at that point in time. >> that was not the question. the question, is liquidity of a corporation an important role of the cfo? >> the liquidity -- >> the this is a yes or no question. this is not rocket science here. is the liquidity of a corporation an important piece of the role of the chief financial operator of the company? yes or no, sir. >> liquidity is critical on a consolidated basis, yes. >> i'm surprised you have very little knowledge about the transfers and these were not small transfers, of money, people trying to liquidate a decision to create liquidity and you are saying you really didn't have much knowledge of that? >> sir when it comes to the liquidity i was looking at liquidity on a global consolidated basis and that was a transfer within mf global inc. that obviously was important but there were many liquidity events that were occurring across not just chicago but across the whole globe that we were dealing with. >> how was the liquidity going? >> well, we slowly experience throughout the week the drastic drastic changes liquidity from especially the wednesday to the friday and we experienced in the last couple of days significant equity strains. not to similar dissimilar on friday to that. >> i see my time is up. i now turn to ranking member capuano. >> thank you mr. chairman. i actually don't have a clue what questions to ask any of you because i have general counsel of mf global saying i didn't know what was going on. i've nothing to do at this. is the chief financial officer of mf global holding saying, from not my job, didn't do it in the chief financial officer by the way mf global and's issues, don't have anything to do with it. and i the chief financial officer from north american mf global inc. saying i was on vacation. so how am i supposed to ask you questions if none of you apparently knew what was going on or claimed to not know what was going on, have no information whatsoever. how did this company run? did anybody in the company, anyone have authority to transfer customers funds? mr. steenkamp, did anybody have that authority? i know you said in your written statement you didn't, but who did? >> my responsibility was to oversee the global finance functions. >> i know what you weren't responsible for. i read the testimony and apparently you weren't responsible for anything. who was responsible for deciding to transfer customers funds? if not you, fine. i read your testimony, who? >> sir the transfers of customer funds, the authority would be resident in each of the local regulatory entities. >> what would that be? a name? >> it would be between the finance team, ms. sawinski's team. >> that is what i read in your testimony but i want to make sure i read it right. mr. steenkamp you have the authority come is that correct? did you have the authority to transfer customers funds? >> i did not have the authority to transfer customer funds. in my written statement sir, the transfer of customer funds was managed by the treasury group, treasury operations group in the securities operations group. >> so you were the chief financial officer and the treasury did not report to you? >> no, they did not. >> who did they report to? >> they recorded -- reported to the local treasure. >> the treasure would be the main person responsible for making that decision? >> make in the decision -- the. >> to transfer customers funds. >> would be the assistance treasure or the global treasure. >> names? >> edythe obrien and renée. >> i have not yet seen a corporate organizational table for all of mf global. i understand it was over 50 or 80 different companies so it will be fun to try to read these but of all the people that are probably going to show up on the corporate ladder, i would say ms. o'brien's name or her position will not show up and she however was the only person. is a top-ranking person to say let's take all the funds and do whatever we feel like and if that is the case, i think we have got more than a little bit of a problem here and i will tell you that this hearing after reading this testimony and listening to you reminded me off a lot of the hearing we had on this committee and a remember how many years ago on enron. we had mr. skilling's. we had mr. delay and me -- we had mr. festa now and i will tell you accepting what i told them. no one did every -- anything wrong but there is an million dollars missing. here's what you should be concerned with, not us. we are not be a pro great investigative latte at responsibility. here's your concern. the people sitting next to you because somebody is going to say something to the appropriate investigators and say this is the person who had final responsibility. and when that happens, it's going to be problems for those individuals, so i wish i could find -- one other question. all of you were working for mf global before these problems arose, is that correct? did i read the testimony correctly? you are all still working there, zach wrecked? >> i will ask you mr. savage -- steenkamp. the company is considering onus is. are you in line for some of those bonuses? >> as far as i'm aware there have been no decisions made on bonus is. >> i have well played -- well-paid employees who have misplaced or misappropriated a billion dollars of customer funds and yet you are asking the trustee of rank reps he, someone is asking the trustee in bankruptcy to give bonuses to the very people that may or may not have had something to do with this? do you see that as a potential little issue? mr. steenkamp do you think that would be appropriate for the trustee in bankruptcy at this point before we know what happened to be giving out bonuses to people who were there that may have had something to do with creating this problem? >> that is not his decision that is in our hands. we believe the trustee will make the decision. >> do you think that's appropriate? we do you advise your client that is a good idea? >> i would totally differ to the trustee. my focus right now is in helping the trustee and how to manage the bankruptcy estate and how to retain employees. >> i appreciate your consistency and having nothing to add to this discussion and as i said from the beginning i wasn't sure what questions i could ask and i have apparently spent six minus and done just that. >> i think the gentleman and mr. fitzpatrick you are recognized for five minutes. >> thank you mr. chairman. mr. steenkamp did you on sunday, october 30 or any day for that matter, did you instruct anybody at mf global to hold off on contacting regulators about mf locals segregated deficiency? >> i have no memory of instructing anybody to hold off. >> have no memory of instructing anybody? >> no. >> ms. sawinski you stated on page three of your testimony that on saturday i was initially told that the segregation and secured statement for friday showed the firm to be under segregated. who told you that? >> someone on our staff i believe. i don't recall exactly who the person was. >> you need to pull the microphone closer. >> someone on my staff. >> someone on your staff? and who was that? >> i don't recall if that was the regulatory capital comptroller or the comptroller. >> it would be a pretty significant piece of information you received on the day that you were turned back from your vacation, correct? you don't remember who told you that you had a significant deficiency? >> originally when the calculations on saturday morning issued a deficiency. my department was assured by the treasury operations group but there was a reconciliation item or issue to be resolved. they were spending that saturday afternoon to do just that. on sunday morning, before i boarded a flight back to chicago, i was informed that in fact the firm might have been truly under segregated at that time as of the 28th. when i landed, and i received information to say you know we were not actually under segregated, when i went to the office, i was told that yes in fact we were under segregated and that is when the team started to look to see how that could possibly be the case. >> ms. sawinski did you inform anyone else of that that? >> once we determined that the funds had in fact not been an accounting error but in actual deficit, we contacted the cmd who was on the premises and i believe contacting either my colleagues in new york at that point. >> would the was that? was that saturday? >> no, that was probably very early and not ours of monday, october 31 or late, sunday october 30. >> you would have waited approximately two ways to let anybody at cmb know about the deficiency? >> i did not believe it was a deficiency at that point. we believed, as i mentioned it was inconceivable to me that the firm could be under segregated i've asked substantial and amount. >> but it was in fact deficient by the right a substantial amount, correct? >> was brought to my attention there in the very early hours of october 31 that yes it was in deficiency. >> under segregation, is a hugely significant violation is it not? you did not inform management or a significant regulator of affect? >> i said after it was confirmed it was an actual under segregation situation. >> ms. ferber on friday october 20 jpmorgan chase sent a letter asking mf global to verify in in writing that have the authority under cftc rules to transfer $170 million to replenish an account that mf lovell was overdrawn. apparently jpmorgan sent three drafts of that letter asking mf global to confirm the transfers were proper. is that correct? >> yes. >> at any time did anyone at mf global refused to sign the letter? >> not in any discussions with me. >> were you told that anybody at mf global were fused to sign a letter? >> no, i was not. >> so you have no information of anybody at mf laval refusing to sign, correct? >> we have to focus on which version of the letter. >> any of the letter's. >> the first letter was asking one individual to confirm that everything that i'd ever been done in the history of those accounts and everything that would ever be done in the future was in compliance with all cftc rules and i think have conveyed it was a very hectic time and no one individual as far as i know in this area that i supervise or am directly involved with that no individual can make those transfers. my understanding jpmorgan were interested in two related transfers. so with the letter was limited that we would be able to make that and they understood the importance of getting something to them quick weight and asked them to get the letter to where we needed and we would you assign. >> did you tell the assistant treasurer about the letter being sent? >> i forwarded a copy of a letter to edith o'brien. >> did you tell are her it needed to be signed? >> certainly that was the substance of our conversation. >> what was her response? >> i discussed it with her and i understood their focus was on those two transactions and my clear understanding from ms. o'bryant that was if they alluded to those two transactions, she would sign it. >> i thank the gentleman. mr. lynch you are recognized for five minutes. >> thank you mr. chairman. ms. ferber how important is it for mf global to protect client funds? >> is a critical obligation. >> ms. serwinski? same question, how important is it that you protect client funds? is that a peripheral responsibility for how would you classify it? >> very critical and importance. >> mr. steenkamp? >> it's a critical objective. >> solicits a central core responsibility. this is in some esoteric rule. this is in some accounting error. this is central. this goes to the very trust that your firm relies upon and that the whole market relies upon in order to function and we have $1.6 billion of customer money take a walk and none of you know anything about it. been if you you of you are aware of it. this is not a small amount of money, $1.6 billion, money that was entrusted to you from the whole reason for a segregated account is to protect the clients money. it's absolutely disgraceful, utterly disgraceful, what has happened here. and it's disgraceful that you sit there and you say we knew nothing about it. i was on vacation, i was in chicago, i was in the global thing. it's not believable, i will tell you. it's not believable at all appear and it is utterly disgraceful. it's disgraceful not only to mf global for anybody in your industry because it is such a central principle in protecting clients and hard-working farmers and grain operators, families that invested their savings and their hard-earned you know, their life savings and they trust you? this industry is supposed to protect their interest. and they were robbed. they were robbed in nobody knew anything about it. $1.6 billion. let me ask you, under cftc rule 1.23, it permits the firm, and this is a problem and we have got to look at the regulations at some point. it permits the firm to add its own funds to customer segregated accounts. understand the practice. how do you tag your firm funds that you put in there injured co-mingle with so-called segregated funds which are not segregated funds if you are adding firm funds to it in my opinion but ms. ferber how detect those funds? >> i think that is an accounting question and i would refer to my colleagues for more knowledge on that. >> so you don't know with the central responsibility of protecting funds phones funds come you don't know? >> no, do not know. i know that customer funds need to be kept in a bank account that are segregated customer funds accounts. >> ms. serwinski or mr. steenkamp any idea on this? if the rule allows the firm to co-mingle funds, put a buffer in there in that account along with customer funds that are segregated, so-called, how do you tag the firm's funds and distinguish them from customer segregated funds? ms. serwinski? >> if i may for a moment. may i take an opportunity to -- segregation and secured funds. >> how about you just answer my question? judging on your other responses, since i sat down here some time ago, ms. o'brien's declaration of the fifth amendment was more helpful to this committee than any of your answers so i don't want you going off on any long explanation because based on everything else that is come out of your mouth come all three of you, there has been nothing there that is owned up to the responsibility for any of the stuff that is gone on here even though you are all in major positions of responsibility. soap please answer the question that i asked. how do you tag the firm's funds and keep them separate from these customer segregated funds in the same account? >> affirms collateral is deposited into the segregated or secured environment. they become co-mingled with the customer secured an segregated funds. >> so it's indistinguishable? >> on a dollar for dollar basis. >> so just the balance, you know the balance of segregated funds and then you know what the margin is that you put on top of that. is that basically what what you are telling me? >> yeah. >> so there's no ability once the fund is funds fund is in there to distinguish any assets from another? >> the firm's investment in the excess segregated and secured funds on a daily basis. >> but if you had to sell securities out of that fund you could take securities of that were placed in thereby customers or you could take securities out based on the company's deposit their? i am trying to figure out a way for this from happening again. >> i understand, sir. >> i think there is a loophole here. this is a situation where the regulation that is in place has not protected these people, these grain operators and these farmers from having $1.6 billion stolen out of their count and i think somebody in your firm, somebody in the industry have recommended a better method of protecting it. i realize i'm all for my time and i yield back. >> i thank the gentleman and now the gentleman from new mexico, mr. pierce, is recognized. >> thank you is your chairman. ms. ferber i heard mr. lynch say that clients were robbed. i can see his point there. do you think that is an appropriate term? >> just yes or no. >> excuse me? >> yeah sort no. >> something terrible happened but i don't know how to describe it. >> the money is not there. they put the money there and it's not there and they cannot get it back. does that fit the definition of stolen or robbed? this is magnificent. one of the highest-paid lawyers in the dam country, bonnie and clyde. they were chums. they drove around and they used gas money to go out. you have people send things electronically to you and no one is responsible and they can't even declare that they were rotger stolen from. what jumps those old-style managers were. ms. serwinski you seemed alarmed when you came back to your office that these funds were taken. why were you alarmed? i mean, having gone through through the 24 hours, wednesday it did not reconcile and you were alarmed. why were you alarmed? push them might. >> i was not alarmed -- >> you said you were distressed. why would you have not done that? why would you not have approved that? >> why would i not have approved it? one, based on the previous day's information i had -- >> wise or wrong is i guess what i was getting at. is it right to take that money and not pay it back at the end of the day? is it illegal? >> it was utilizing customer funds. >> is it illegal to hold it overnight or is it will be illegal to hold were -- holder for you? is it illegal to take customer funds to shore up the sinking ship and use them for a year? >> i don't know what was done. >> i'm not accusing you of what was done. you just said that, you he founded alarming or whatever word you used. >> i believe i said if it was presented with a request to approve 175 million-dollar intercompany -- >> you missed the deadline to pay back. so what was the deadline? was it a legal deadline? what deadline? >>. >> you mr. chairman i think i understand we were talking about two different items. my reference in the written testimony with respect to the deadline being messed on the wednesday and for the repayment of intracompany, intraday loans is what i was concerned about. thursday it had been brought to my attention. those intraday loans that were not paid back by the end of the day did not violate -- the firm was in regulatory compliance at the end of wednesday which had been reached with an internal policy to ensure that the firm invested in excess segregation of secured funds. >> so there is no extra row aggression against using segregated funds? >> there is no external prohibition? >> not that i'm aware. >> so mr. royce's testimony was incorrect than? you still have those funds basically, so you are telling me that the $1.6 billion, you did what was fair and square. fair and square. i'm hearing the other two witnesses say it's fine, it's okay. is it okay? >> senator not knowing what actually happened is impossible to be will to comment. >> you took your money. if i put money in the bank and if i can give my money back from the bank, the tank has taken it from me. if i can get my money back in the bank is taking it. these hog farmers put their money with you and they cannot get it back so is that right or wrong, morally right or morally wrong? it doesn't matter anymore. your legal counsel actually cannot swear it's against the law. >> i think there are a lot of different concepts that are being combined. >> now i think i understand why mr. capuano and mr. lynch for a little frustrated there. they will probably never be repaid and it's okay because we cannot really declare it. this is really reassuring to the american people who might want to know their money since it keeping with people like you all is not quite in safekeeping after all. i think it sends aloud message that you all cannot mind the illegality about it. i think that is the message that is going out today. i think mr. capuano said it fined, shame on you, shame on you. thank you and i yield back. >> the gentlewoman from california, ms. waters is recognized for five minutes. >> thank you very much mr. chair. i was just talking the with staff here about some of the accounts that i have read in the newspaper, where there has been some attempts to describe a customer account as opposed to other accounts and i suppose what i'm hearing is that company money was kept in the same account as client money and of course one story said that the client money have been taken out and put in another account and then the money was taken from that account to pay an overdraft. when mr. corzine asked about where it came from someone was able to say that it came from an account other than the client account. so that we ask mr. steenkamp, do you know anything about another account where the client money was placed fire to the payout from that account to help take care of the overdraft? >> maam to the base of my knowledge i was uninvolved with the transfer so i don't know the details. >> did you know the details of what accounts are official accounts of the company? are there one, to cub, three, four,, five, 10, 20? do you know that much? >> there were obviously accounts that were held in the citgo holding company. those accounts are very different than the separate accounts held in each of the regulated entities. in my role i was not involved in the detail of those accounts which were managed by the senior professionals we had in each regulated entity. which company is different and there in their specified rules that apply to each. >> as the cfo of mf global. [inaudible] view it says that your certification is accurate and that you know that, when you know they are not you could be serving criminal penalties so without my question is were you confident that your internal controls were adequate at the time that you signed them a year and in each quarter period? quarter and? >> maam i became the cfo in april 2011 so i assigned stock controls the year that you mentioned as well as the first quarter and thereafter. as part of signing those controls, which are a snapshot of a point in time, you go through a lot of review, subcertifications, sector overall of the controls across the world. >> let me just ask. it is as the cfo your certifications are accurate and you know they are not you could face civil and criminal penalties so without my question is, were you confident that your internal controls were adequate at the time that you signed them a year and in each quarter and? you felt good about your signature? >> my last was in june and nothing came to my attention at that point in time that indicated that i should not sign it. >> so, what you are telling us is that you are not confident that there were internal controls that were adequate at the time that you signed them that year and at each quarter and? >> no, maam. nothing came to my attention as of june when i signed the certification that indicated there were issues with internal control. >> but you were confident? >> at at the of the time in my signing nothing came to my attention to indicate otherwise. >> a lot of attention is paid to the question as of why mf global's auditor price cooper waterhouse gave a clear report but losing $1.6 billion in customer funds. to the best of your salt -- my college did twc raise questions as they relate to the segregation of customer accounts while you were employed at the firm? >> that is a very broad question in a very long period of time. i would say that we work closely with twc and they perform their own independent assessment of the controls. that is the best of my memory. nothing came up during my time as cfo that indicated an issue with segregation of client money. >> so basically price waterhouse cooper gave the company a clean report in name when the internal controls turned out to be compromised enough to lose $1.6 billion. do you think the price waterhouse was incompetent in doing that, that they should take some responsibility for that? >> maam, i can't comment on the independent review that twc does. they did not raise any concerns to the best of my memory. >> did you not have to have confidence in the auditor? you have to feel that your auditor is competent and acting properly and that you have no reason to question them. >> the editors or form their own independent assessment of controls and reach their own independent conclusion. >> i thank the gentlewoman and now the gentleman from florida, mr. posey, is recognized for five minutes. >> thank you mr. chairman. these are going to be easy questions. when we had the opportunity to question mr. corzine i was advised and shocked quite frankly that he had not yet apparently been interviewed by the department of justice or any other authorities so i just wondered mr. steenkamp, if you've been interviewed by the fbi, department of justice or any other federal investigators? >> my lawyers have done a proper with all the different i guess predatory agencies and investigative offices. that is the status. >> i don't know what you're mumbling because i don't hear good at is that a yes or no? >> my lawyers have proffered him he is. >> you have not face-to-face talk to any auditors get? >> i have not. >> ms. serwinski? >> yes, i have. >> do you talk to them face-to-face? >> yes, it. >> how long ago? >> i've spoken to them twice. >> what you think was the most compelling line of questions that they had? >> there was a lot of questions and a lot of topics discussed. i cannot think of one off the top of my head that was more compelling than another. >> ms. ferber? >> i'm cooperating with the department of justice and i'm scheduled to meet with them on april 6. >> have any of you been offered any -- [inaudible] let the record show all three said no. you thought the investor should get their money back in one way or another come you intimated that but what do you think the odds are for the investors to get their money back? >> i really have, we have no basis to answer that. >> ms. serwinski? >> i know. depends on whether -- >> mr. steenkamp? >> you served, the bankruptcy process, that is why we are trying to work and maximize.

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