The chief risk officer who was brought in to install risk management systems at MF Global after a rogue trading incident in February 2008 is expected to tell Congress Thursday he outlined his concerns about European sovereign debt trades in the fall of 2010.
Michael Roseman, who joined MF Global in August 2008 and departed in March 2011, is scheduled to testify before the Oversight and Investigations Subcommittee of the House of Representatives Committee on Financial Services. The European debt trades, which eventually reached $6.4 billion, helped lead the firm into filing for bankruptcy last October, leaving $1.2 billion in customer funds missing. Various U.S. government agencies are investigating the demise of the firm.
At the hearing, Roseman is expected to say he "expressed my growing concerns with regard to the potential capital risk associated with the growing positions and began to express caution on the growing liquidity risk," according to a copy of the testimony reviewed by The Wall Street Journal. In mid-September, Roseman told MF Global's chief executive, Jon Corzine, that he would consult the firm's board of directors on requests to increase limits on the European trades.
According to his written testimony, Roseman is expected to say that by late October of 2010, the positions were approaching $3.5 billion to $4 billion. After discussing his concerns with Corzine and others, the risk scenarios he presented "were challenged as being implausible." Roseman's testimony doesn't specify who aside from Corzine and the board he told of his concerns.
In November 2010, Roseman went to the board again and presented gloomy hypothetical scenarios, according to his testimony. The board chose to increase the limits and in January 2011, Roseman was notified he would be replaced as chief risk officer by Michael Stockman, effective immediately, according to the seven-page testimony.
The Journal and FINS first reported in early December that Roseman had expressed concerns with the trades.
Stockman will testify on the same panel as Roseman tomorrow morning. He is expected to say he also warned of the risk consequences associated with the trades, albeit at a later time. He voiced his concerns in July 2011, three months before the firm declared bankruptcy.
Write to Julie Steinberg at Julie.Steinberg@dowjones.com