Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Looking for the Red Flags in Today’s MF Hearing


MF Global will be one of the topics dejour on Capitol Hill today when the House Oversight and Investigations Subcommittee holds its hearing on “The Collapse of MF Global: Part 2”.

The star witness will be whistleblower and former Global Chief Risk Officer of MF Global, Michael Roseman.  Jacob Frenkel, former SEC enforcement attorney and partner at Schulman Rogers, gave C-Suite Insider the scoop on what the CNBC audience should be listening for.

JF: I want to know what warnings he gave, to whom and what was the response.  When red flags are presented in any compliance context, you are looking to see how the recipients of the warnings and chain of command responded, including whether the culture of the company encouraged action or ignored the red flag. Depending on what was said, for those eager to see criminal charges, the answers could shed light on whether we ultimately may hear that individuals acted with criminal intent or implicate deliberate ignorance. 

The concept of “deliberate ignorance” is the “ostrich head in the sand” concept, but someone with a duty cannot put his or her head in the sand upon becoming aware of certain information.  We may learn who had a duty to act and the nature of the response.  Passing the buck does stop somewhere, and we may find out where.

LL: Do you think Corzine will face criminal charges?

JF: Based on the positions that he has taken so far, I don’t think he will. Realistically, his counsel would not have permitted him to testify in the previous hearings if counsel believed that Mr. Corzine had any potential criminal culpability.

LL: So, not be a repeat of Jeff Skilling?

JF: Correct, because Mr. Skilling thought he could talk his way around Congress. For Mr. Corzine, this is not a Skilling scenario.  Not because Mr. Corzine is a more skilled or accomplished orator, and he faced tough questions. 

This is evidentiary.  If his attorneys thought he had criminal culpability after evaluating the evidence known to them, then they likely would have had advised him to assert his Fifth Amendment privilege against self-incrimination.

LL: Are you expecting any new information to be brought to light?

JF: Yes for the public; no for government investigators.  What we the public are hearing from these hearings is information the government likely already knows. This is an opportunity for the public to get more information, not necessarily answers.

LL: But there will be a void in the answers given on Capitol Hill. Do you think the Congressional members will be able to extract all the information the government investigators did?

JF: That depends entirely on the quality and purpose of the questions.

If you go back to the Congressional hearings of the 70’s and 80’s when trained examiners were conducting the questioning on behalf of committees, then that testimony was useful and illuminating, unlike when members ask the same questions but in different ways.

Their staffs do prepare them as well as they can, but the answers of those testifying will be well-prepared and tailored to what likely are less precise questions than those asked by the government investigators in the various investigations.

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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."

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