Corzine ‘never intended to break rules' as MF Global CEO

WASHINGTON, Dec. 8- What led to the misuse of MF Global customer funds is unknown, largely due to the enormous number of transactions made in the hours before the firm’s collapse, said Former MF Global CEO Jon Corzine when he testified before the House Committee on Agriculture today.

“I never intended to break any rules,” he said in response to questions from Chairman Frank Lucas (R-Okla.). “I am not in a position, given the number of transactions, to know anything specifically about the movement of any specific funds. I can only say I know I had no intention to ever authorize the transfer of segregate moneys.”

Farmers and ranchers across the country used MF Global to make commodity market trades as financial hedges intended to protect them against volatile market prices. An estimated $1.2 billion in customer funds went missing after the firm’s collapse.

“I think about this every day,” Corzine said. “I could not be more regretful of the distress we’re bringing into people’s lives.

Corzine departed MF Global on Nov. 3 after the firm declared bankruptcy on Oct. 31. He told the Committee he did not become aware of un-reconciled customer accounts until the evening of Oct. 30.

“I was stunned when told MF Global could not account for millions of clients’ money,” he said. “I simply do not know where the money is.”

Executive Chairman of the CME Group Inc., Terrence Duffy, said that MF Global reported stable segregated accounts until reports on Monday, October 31 indicated otherwise.

Investigators described the state of the firm’s records during the last days before the bankruptcy as “a mess.” Corzine cited the unusually high number of transactions taking place during the last few hours before Oct. 31.

"It's my understanding that our books and records were reflecting the chaos that occurred in the last two or three days as the firm was under severe pressure," he said.  "It's clear that in the last hours there were many, many more transactions than before."

During the hearing, Corzine discussed the firm’s choice to invest in European sovereign debt. According to Corzine’s testimony, he met with MF Global’s senior traders in 2010 to discuss ways to improve the company’s profitability. One of those ways was to purchase European sovereign debt using “repurchase transactions to maturity,” or RTMs, which he said would reduce finance and market risk at a time when the spread on European sovereign debt securities appeared favorable.

“Through these discussions, I became an advocate of purchasing European sovereign debt using RTMs,” he said. “At the time that MF Global entered into the transactions, I believed that its investments in short-term European debt securities were prudent.”

Several members characterized the firm’s investment in sovereign debt as irresponsible. Ranking Member Collin Peterson (D-Minn.) questioned the MF Global betting strategies. “They just seem pretty risky,” he said.

Corzine emphasized that during his tenure at MF Global, the firm actually reduced leverage from 37.3 to 30.

MF Global existed jointly as a futures commission merchant (FCM) and a broker-dealer firm before the bankruptcy. The broker-dealer firm of MF Global placed the investments in sovereign debt. Corzine stated repeatedly during the hearing that he has no recollection of ever authorizing customer funds from the FCM to be used in the sovereign debt investments.

Commodity Futures Trading Commission (CFTC) Commissioner Jill Sommers said during her earlier testimony that this investigation would result in policy changes and “lessons learned.”

“We might consider that operating as a combined broker-dealer and FCM should not exist,” said Vice Chairman of the Financial Industry Regulatory Authority, Stephen Luparello.

“We need to seriously examine whether we should put these segregated accounts into a third party,” Peterson said. “Hopefully the committee can spend some time looking at this and working with people to determine what a solution should be.”

A court-appointed trustee is attempting to transfer and distribute $2.1 billion in MF Global funds frozen by the bankruptcy. A New York bankruptcy judge is expected to consider the transfer Friday.

“Many firms still will have significant amounts of margin funds and excess cash tied up with the trustee-- or missing,” said Central Missouri Agri-Service manager, John Fletcher, on behalf of the National Grain and Feed Association. “Even at a relatively small firm like Central Missouri Agri-Service, we are trying to manage a $600,000 deficit in the value of our account.”

The CFTC adopted a rule earlier this week that eliminates foreign sovereign debt as a permitted investment by an FCM. The rule updates regulation 1.25. However, Corzine and Commissioner Jill Sommers testified that the regulation 1.25 never made customer funds available for sovereign debt investments, except if the customer made deposits in foreign currency and authorized an amount.

CFTC initially proposed the update to the regulation in October 2010, but deferred it after multiple financial firms, including MF Global, objected the change as too costly.

Whether this rule would have prevented the consequences of MF Global’s collapse is not certain. The investments MF Global made in Europe were not made by its FCM, but by the MF Global broker-dealer firm. The location of the misplaced customer funds, as well as the timing, is still unknown.

“My impression is that in the chaos of the last few hours and days, either a miscalculation occurred or money that was expected to come in did not.” Corzine said.

The Dodd-Frank Act, enacted to enhance regulatory oversight of large financial institutions, is in the stages of final rule approval. House Agriculture Committee members debated during the past few months whether these rules are being enacted too quickly. Some are using MF Global’s failure and the recent bankruptcies of Lehman Brothers and Refco as examples that these new regulations are urgent.

“There have to be some rules in place that limit high risk and give the farmers and ranchers confidence in these markets,” said Rep. Joe Courtney (D-Ct.). “Our job here is to try to figure out the right way to balance rules to prevent these events form occurring again. I think implementing these rules can create a structure of stability in our economy.”

Google Checkout scrapped – Users moved to Wallet

Google have taken the decision to scrap the Google Checkout program in favour of Google Wallet.

Consumers will be directed to merge their Checkout account with their Google Wallet account. They can automatically transition their Checkout account to Google Wallet the next time they sign in or make a purchase online and their Checkout history will then be available in their Wallet account.

Thankfully Google recognise that merchants won’t take too kindly to having to change their websites a month before Christmas, so shoppers using Google Wallet will be able to make purchases seamlessly on merchant sites that accept Google Checkout. Buyers will simply be able to log in and pay with their Wallet account… assuming that they’re aware that their Google Wallet will work on sites with the Google Checkout branding.

Once Christmas is out of the way in the new year Google will begin transitioning merchants Checkout logos to Wallet logos, and doubtless there’ll be some back end tinkering to do on your website if you currently accept Checkout.

Realistically this is an admission that Checkout hasn’t caught on, otherwise Google could have built offline payments into Checkout rather than launching them as a rebranded Google Wallet. How well Wallet will catch on has yet to be seen. The big question is will you change the Google Checkout logos on your websites to Google Wallet, or will you just press the delete button and allow buyers to use other payment methods?

Mobile commerce: three trends to watch

These are heady days for futurists trying to predict the future of cash.

The meteoric rise of smartphones and growing confidence in e-commerce have led to a Klondike rush to devise new ways of extracting money from willing consumers’ wallets.

By most accounts, widespread adoption of the most high-tech of these visions – a world in which smartphones are waved at terminals instead of wallets – is a few years off.

Here’s a buzzword you’ll be hearing a lot more of in the years to come.

Before mobile payments, there are going to be all kinds of other mobile shopping activities. If e-commerce is the act of using digital technology to make a purchase, then pre-commerce is the catch-all term for all the digital shopping that happens before the customer gets to the register.

“Shopping is about to change substantially,” says Darrell MacMullin, managing director of Paypal Canada. “People are walking in off the road with a barcode scanner for price comparison.”

Some forms of pre-commerce are here already: UPC and QR-code scanning apps are a reality, and scannable codes are turning up everywhere from grocery stores to bookstores.

Consumers are already well-accustomed to using the Internet to compare products, something that’s only going to get conducted on the fly more frequently as mobile websites, apps, and hardware improve.

Geo-aware marketing – a long-promised idea – might soon arrive, sending offers to customers’ mobile devices as they walk past a storefront, or through a store’s front door. (Customers would probably have to download an app first; uptake of such a system would depend on their tolerance for digital flyers arriving on their doorstep.)

Similarly, customers might soon find themselves in control of detailed information about real-world inventory at retail outlets, without having to go in and ask. eBay Inc. acquired a hot startup named Milo that interfaces between companies’ inventory systems and the public-facing Internet, saving customers the hassle of phoning around for a product. (This would make a perfect app for an iPhone 4S, if you could figure out where to find one in stock.)

Not all the pieces of the new world of mobile payments at the cash register have landed yet. The industry is still shaking out, and technical standards haven’t been completely settled upon.

But that hasn’t stopped some firms from charging ahead. Starbucks Corp. is implementing a mobile system that does an end run around the digital wallet technology of the future. Starbucks uses an iPhone app to turn the mobile device into a virtual Starbucks card. Customers create an account and load it up with store credit; at the till, the app will display a barcode on the phone’s screen, which the cashier can scan with a barcode reader, debiting the customer’s account.

More elaborate technologies coming down the pipe will allow consumers to pay by tapping the phone to a reader device – but proprietary solutions like that of Starbucks could beat them to the punch

Companies like PayPal and Visa are taking a technology-agnostic approach to the future of mobile payments, working to build up platforms for e-commerce that can be used with whatever devices consumers end up toting five years down the line.

So while tap-to-pay solutions hog the limelight, they’re not the only ones in the offing.

For instance, PayPal is working on a system that will allow customers to show up at the till with no physical payment card at all – and simply offer a phone number and a personal access PIN, which the merchant can use to debit a PayPal account online using computer equipment they already have.

“Merchants love the idea, because they don’t have to do anything from a technology standpoint,” Mr. MacMullin says.

The widespread adoption of digital wallets might also lead to the spread of the kind of retail experience customers are already having at the Apple Store, in which purchases happen on the store floor and receipts are e-mailed instead of printed.

Digital wallets run by major entities like Visa, PayPal or Google would mean that it would become practical to centralize that experience through the payment provider to apply to all purchases, and not just those at a single, tech-savvy merchant.

But there is life beyond smartphones. The wallet-less future might be overstated, for the simple reason that smartphones go dead, and nobody wants to be out a wallet when their iPhone dies.

Lower-tech alternatives will persist, whether plastic or paper, or metal. Coinage has been around for at least two millennia. Smartphones won’t dispatch it quite yet.

Search Concluding for Ann Arbor City Admin

The two Ann Arbor city administrator finalists – Ellie Oppenheim and Steve Powers – wrapped up their two days of interviews in Ann Arbor with a Wednesday morning session that included presentations by both candidates and questions from city councilmembers.

For their 10-minute presentations, Oppenheim and Powers had been asked to talk about what they’d try to accomplish in their first 90 days on the job. They covered much of the same ground that they’d discussed during Tuesday’s round-robin interviews with councilmembers and senior staff, talking about how they’d familiarize themselves with the organization and the community of Ann Arbor. [See detailed Chronicle coverage of those Tuesday sessions for Powers and Oppenheim.]

When asked during the Q&A to describe the most challenging part of their presentation, both joked that it was handling PowerPoint – Oppenheim had difficulty advancing the slides and eventually enlisted the aid of a city staffer, and Powers’ presentation included a blank slide, because he couldn’t figure out how to insert the image he wanted to use. Powers also noted that it was difficult to know how much of his sense of humor to show in this context – his wife, for example, had advised him to delete some slides that he’d included.

Seven of the 11 councilmembers were on hand for the presentations and follow-up questions: Mayor John Hieftje, Mike Anglin (Ward 5), Marcia Higgins (Ward 4), Steve Kunselman (Ward 3), Stephen Rapundalo (Ward 2), Tony Derezinski (Ward 2) and Sabra Briere (Ward 1). The other four councilmembers are expected to watch a video of the session prior to Monday’s council meeting. There will be a resolution on the July 18 agenda to nominate a candidate, but no name will be added to the resolution until the evening of the meeting.

Higgins, who’s chair of the search committee, told her council colleagues that on Monday a candidate will be nominated, a discussion of that nomination will take place, and hopefully the council will arrive at a consensus, she said. Or it’s possible that councilmembers will decide they don’t yet have an acceptable candidate, she added, and the process will continue.

However, based on a nearly hour-long discussion on Wednesday among councilmembers, it seems that a consensus is coalescing in favor of Powers – though both finalists were praised. Powers’ management style and familiarity with Michigan’s economy and governance structure were among the reasons cited by those councilmembers who are leaning toward hiring him.

This report briefly summarizes the presentations of Powers and Oppenheim, as well as the questions they were asked on Wednesday morning. The discussion among councilmembers at the end of the session is reported in detail.

Second Street District hoping for a lift from new arthouse movie theater

The coming attraction in Austin's Second Street District is getting plenty of buzz.

Violet Crown Cinema, specializing in documentaries as well as art, indie and international films, will open its doors at 434 W. Second St. on Friday, after nearly two years of planning and construction.

Nearby businesses and AMLI, which owns two apartment buildings and is the district's property manager, are hopeful the theater's arrival — combined with the recent opening of the W Austin Hotel and the ACL Live venue just a block away — will draw more people to the area, where retail space is now 80 percent occupied.

"It adds that last puzzle piece for us," said Julie Sutton-McGurk, who handles marketing for the district. "You can shop, you can eat, you can stay down here."

"The Alamo Drafthouse locations on Sixth Street and South Lamar draw people to those areas," added AMLI development manager Craig Brockman, "and we think the Violet Crown will have the same effect."
The manager of Málaga, a tapas bar downstairs from the Violet Crown, says the theater should draw much-needed foot traffic to the stretch of Second Street between Guadalupe and San Antonio streets. "Our block just doesn't see as many people as the other blocks," LisaMarie Pinder said. "When we moved here two years ago we doubled our size, but we haven't really doubled our business."

Theater customers will get four hours of free parking in the adjacent AMLI garage, a perk one former Second Street merchant says should be a tremendous help. "People don't know where to park when they come to Second Street," said Jeff Kirk, who shuttered his Kirk vintage furniture and home decor gallery on Guadalupe Street in late 2009 to focus on his Internet business. That confusion, he says, led potential customers to go elsewhere.

"There were some weekdays that would go by, and not a single person would walk in during the nine hours we were open," Kirk said.

Kirk also believes more should be done to help people navigate the district.

Sutton-McGurk says maps are in the works and soon will be in the hands of merchants. Directional signage is being discussed, she says, as well.

Violet Crown features four screens, with 50 seats or fewer in each screening room. There's also a lobby bar and patio — no ticket necessary — serving "heavy appetizers" such as french fries, pizza and spring rolls.
"This is designed to be a place where people can hang out, whether they're going to a movie or not," owner Bill Banowsky said.

Food and drink offerings are expected to account for about half of the theater's revenue, Banowsky says, attracting customers even on nonpeak days early in the week. Hours will flex based on demand.
"My goal would be for the theater to be open 24 hours a day," he said, "but I don't believe that's feasible right now."

Tickets are $9 for a matinee, $11 weekdays and $13 weekends, and customers can reserve seats online.
Spots in the front row feature specially made ottomans, which Banowsky expects will make them the first to go.

"The goal of the front row was to make that the best seat in the house," he said. "You'll have a best-in class presentation, sight and sound."

The new theater is five minutes from a pair of Alamo locations, but founder Tim League isn't worried.
"I like the concept of Violet Crown," League said. "There's a need downtown for a venue playing more arthouse films."

League says he's even been checking with Banowsky to make sure they don't double-book flicks.
The closing of the Dobie Theatre last August left the Regal Arbor Cinema in North Austin as the city's only reliable home for art and indie films.

But Austin, Banowsky believes, can indeed support two arthouses. "The Dobie was an older theater built in a very awkward space for a cinema," he said. "As is the case with many theaters, time passed it by.
"It was not inexpensive to build the Violet Crown, and I intend to be here a long time."