Perhaps we should no longer be surprised by the arrogance of Wall Street executives. Still, the level of hubris and bullying displayed by Jon Corzine during his 19-month tenure as chairman and chief executive officer of MF Global Holdings Ltd. (MFGLQ) — as described in a recent congressional report about the company’s 2011 collapse — stands out for sheer offensiveness.
The 97-page report prepared by the staff for Republicans on the House Financial Services Committee panel on oversight and investigation pulls no punches when it comes to blaming Corzine for the MF Global disaster, which wiped out thousands of jobs and billions of dollars of customers’ and creditors’ money. “Jon Corzine caused MF Global’s bankruptcy and put customer funds at risk,” the report concludes flatly.
And the gory details strewn throughout the elegantly written report — some revealed for the first time — show the full extent to which Corzine was out of control. In May 2010, two months after he was hired, Corzine, the former senior partner of Goldman Sachs Group Inc. (GS) and former governor and U.S. senator from New Jersey, began his pattern of deception.
“The goal here is not to be a prop trader,” the report claims Corzine said. “I don’t think that we will be in a risk taking position, substantial enough to have it be the kind of thing that the rating agencies would say ‘holy cow, these guys got a different business strategy’ than what we told them we had.”
As speculation builds around Chris Christie’s role in the upcoming fall presidential campaign, New Jersey residents have been treated to what the governor calls his “Endless Summer Tax Relief Tour.” Barnstorming the state, Christie has been slamming so-called “Corzine Democrats” in the legislature for refusing to enact his proposed income tax cut. It’s part and parcel of his “Jersey Comeback” narrative, which the governor recites ad nauseum in front of admiring national audiences.
The Jersey Comeback story goes something like this: Having inherited a state on the brink of bankruptcy, Christie cut state spending; held the line on taxes; fixed the state’s unfunded pension liability; and took on the vested interests that have so long made Trenton a den of dysfunction. In short, tough-guy Christie took a bat to the bad guys and saved hard-working taxpayers from economic ruin.
It’s a great story, made more powerful by an unpopular foil (Jon Corzine) and a deferential national press corps. It also happens to be completely untrue. Christie certainly brings an unusual disposition to the governor’s office. But in every other way, he has proven just as unwilling (or unable) as his predecessors to confront the structural barriers to meaningful reform. And that is the real tragedy of his governorship. First, let’s dispense with a few myths.
News reports this morning are indicating that investigators are not likely to be able to track down what happened to nearly $1.2 billion in client funds at the bankrupt MF Global financial firm. They characterize the missing money as having been vaporized.
Sorry, but that’s the wrong terms. It was misappropriated; not vaporized.
And that means that the money was stolen from client accounts by individuals within the company.
Theft means that a grand jury should be convened to bring charges against the responsible parties - and that means anyone with a fiduciary responsibility to the clients.
Jon Corzine had previously retained counsel in expectation of such an event.
MF Global has made a bad situation even worse because its books were in shambles and didn’t meet general accounting standards, and add to that the malfeasance by using client funds for corporate trading disregarded basic brokerage/finance rules that limit those activities.
A New York Times investigation into the MF Global tenure of former U.S. senator, New Jersey governor, and Goldman man Jon Corzine concludes that the CEO “played a much larger, hands-on role in the firm’s high-stakes risk-taking than has previously been known.” Upon Corzine’s first visit to the company’s Chicago offices, he asked a broker excitedly, “How are you making money on side bets? What else are you guys doing to make money here?” Corzine eventually upped the ante at the “miniature Goldman Sachs,” and brought the whole thing down:
He pushed through a $6.3 billion bet on European debt — a wager big enough to wipe out the firm five times over if it went bad — despite concerns from other executives and board members. And it is now clear that he personally lobbied regulators and auditors about the strategy.
His obsession with trading was apparent to MF Global insiders over his 19-month tenure. Mr. Corzine compulsively traded for the firm on his BlackBerry during meetings, sometimes dashing out to check on the markets. And unusually for a chief executive, he became a core member of the group that traded using the firm’s money. His profits and losses appeared on a separate line in documents with his initials: JSC
Jon Corzine’s testimony before the House agriculture committee may mark the definitive end to the Democratic party’s love affair with Wall Street.
Once upon a time, Wall Street bankers were Republicans. Not terribly ideological, they preferred whenever possible a minimum of taxation, regulation, and government in general, but they didn’t make a fetish of it. As the GOP moved right starting in the mid-1960s the east coast Republican establishment began to crumble, and by the late 1980s it was mostly gone. These silk stocking conservatives had been driven out of the Republican party by a social agenda that frightened them, a budget deficit that threatened their livelihoods, and a base that increasingly viewed moderates as RINOs (“Republicans In Name Only”).
By the early 1990s Wall Street was ready to go Democratic. In his new book, Back To Work, former President Bill Clinton writes,
“For every person on Wall Street who resembles the character Michael Douglas played in the Wall Street movies, there are many others who give lots of money every year to increase educational and economic opportunities for poor kids and inner-city entrepreneurs.
“Most of these people are grateful for their success and know that because of current economic circumstances, they’re in the best position to contribute to solving our long-term debt problem and to making the investments necessary to restore our economic vitality. Many of them supported me when I raised their taxes in 1993, because I didn’t attack them for their success. I simply asked them, as the primary beneficiaries of the 1980s growth and tax cuts, to help us balance our budget and invest in our future by creating more jobs and higher incomes for other people.”In crafting his first budget bill, Clinton was mindful of the bond market to such a degree that James Carville famously complained, “I used to think that if there was reincarnation, I wanted to come back as the President or the Pope or as a .400 basball hitter. But now I would like to come back as the bond market. You can intimidate everybody.”
Former NJ Gov. Corzine, and later head of MF Global, has testified before Congress, and can’t recall where the nearly $1.2 billion (range of $600 million to more than $1.2 billion has been given) in client funds went.
Right now, he’s looking at potential civil and criminal actions against him and other MF Global officials for the missing funds.
One can argue that he might not know where the money is because he’s not directly involved in handling customer accounts, but he’s got to know whether proper procedures and protocols were in place - and everyone involved in the situation admits that they weren’t. So, he can’t claim ignorance on the matter either. Moreover, it was his strategic decisions to engage in trades on European sovereign debt that helped push MF Global into the mess it now faces. That is an aspect he glossed over in his prepared statement.
US regulators have adopted more stringent restrictions on how futures brokers and clearing houses can use customers’ funds as federal investigators continue to look for an estimated $1.2bn still missing from client accounts at failed brokerage MF Global.
The Commodity Futures Trading Commission (CFTC) voted 5-0 on Monday to approve a rule that largely prohibits firms from using customers’ cash to invest in foreign sovereign debt or to finance in-house bets by other units or affiliates through repurchase agreements.
MF Global, under former chief executive Jon Corzine, (yes that is the former NJ Governor -ggt) bet billions of dollars on European sovereign debt before downgrades of the broker’s credit led the company to declare bankruptcy in October. Authorities say MF Global had been dipping into clients funds for weeks before its failure. It is illegal for a firm to use customer funds for its own investments.
James Giddens, the company’s bankruptcy trustee, said last week that some customer money from MF would never be recovered. The revelation has rocked the once-sleepy futures industry and shaken confidence among investors.
Since then, regulators have sought to stiffen the requirements governing companies’ use of customer funds. The CFTC originally proposed its rule in October 2010 but the measure languished as firms, including MF Global, sought to weaken it.
- Moody’s Investors Service said it saw no reason to change its rating of MF Global when Jon Corzine became CEO of the Manhattan-based brokerage in March 2010.
But while citing the “first-rate industry and leadership experience” of the onetime Goldman Sachs head, former U.S. senator and ex-New Jersey governor, the ratings agency posed a question.
“What will new management do to return MF Global to consistent, long-term profitability while keeping its risk appetite in check?” asked Alexander Yavorsky, a Moody’s vice president who has since left the firm.
After last week’s Chapter 11 bankruptcy filing by MF Global, a collapse triggered in part by the brokerage’s heavily leveraged, multibillion-dollar bets on European government debt, the question seems somewhat prescient.
Yet a series of other statements by ratings agencies, along with charges in lawsuits against MF Global, spotlighted serious questions and warnings that threatened the firm’s future before the implosion.
A costly bad trade
MF Global’s Memphis branch office was the epicenter for arguably the most significant previous financial tremor in February 2008. Evan Dooley, a broker there, placed an unauthorized wheat futures position while trading for his own account. His financial bet went $141 million bad.
Dooley had no apparent way to pay, so MF Global was forced to make good on the contracts. The brokerage and its insurers have been fighting in New York state courts ever since over whether MF Global’s policies should cover the incident. The brokerage initially prevailed, but the insurers appealed in April.
In an earnings conference call with Wall Street analysts after the incident, MF Global’s then-CEO Kevin Davis described the shortfall as an “aberrational” loss that had prompted “false rumors regarding our liquidity.” He also said “the worst is behind us.”
But by then, Moody’s had downgraded the brokerage’s long-term issuer rating from A3 to Baa1, a grade signifying moderate credit risk on Moody’s Aaa to C rating scale. Moody’s also placed the rating on review for a further possible downgrade.
“The failure of MF Global’s systems to prevent the placement of trades in an account with insufficient funds represents a serious breakdown of risk controls,” the ratings agency said, adding that it would re-evaluate the firm’s risk management.
Regulators and investigators are circling over the carcass of MF Global, wondering where more than $630 million in investor money went, even as MF Global admits to commingling funds and not having proper protections in place.
The company admits that they’ve broken the cardinal rule in commingling funds, and the regulators also note that MF Global officials apparently tried to hide transactions from regulators after the latest audit in the runup to talks meant to stave off bankruptcy.
It was when the disclosure work was being done that all kinds of irregularities became known and the buyers walked. MF Global had no choice but to declare bankruptcy as margin calls were made and the company lacked the capital to cover its positions.
Corzine, who ran the company, has now resigned, but is looking at potential criminal charges (he’s retained a criminal defense attorney).
And to add sauce to the goose? He lobbied the very same regulators to water down rules that would have prevented his company from carrying out the very transactions that brought down MF Global.
As a former United States senator and a former governor of New Jersey, as well as the leader of Goldman Sachs in the 1990s, Mr. Corzine carried significant weight in the worlds of Washington and Wall Street. While other financial firms employed teams of lobbyists to fight the new regulation, MF Global’s chief executive in meetings over the last year personally pressed regulators to halt their plans.
The agency proposing the rule, the Commodity Futures Trading Commission, relented. Wall Street, which has been working to curb many financial regulations, won another battle.
Yet with MF Global in bankruptcy and regulators scrambling to find $630 million in missing customer funds, Mr. Corzine’s effort may come back to haunt him.
The proposed rule would have restricted a complicated transaction that allowed MF Global in essence to borrow money from its own customers. Brokerage firms are allowed to use customers’ money to earn interest, not unlike banks, but this rule would have outlawed using customer funds for a loan to the firm itself.
I wonder if the OWS protesters will be satisfied if Corzine ends up sharing a cell with Bernie Madoff?
(Reuters) - Jon Corzine has resigned as MF Global Holdings Ltd’s chairman and chief executive officer four days after the futures brokerage filed for bankruptcy protection, culminating a rapid downfall for one of Wall Street’s best-known executives.
Corzine said his decision was voluntary and was best for the company and its stakeholders.
“I feel great sadness for what has transpired at MF Global and the impact it has had on the firm’s clients, employees and many others,” Corzine said. “I intend to continue to assist the company and its board in their efforts to respond to regulatory inquiries and issues related to the disposition of the firm’s assets.”
Friday’s resignation is the latest development in a stunning downfall for Corzine, 64, who ran Goldman Sachs & Co in the late 1990s and was subsequently a U.S. senator from New Jersey and governor of that state. MF Global, which Corzine joined in March 2010, had been his ticket back to Wall Street.
Corzine is not seeking severance, the company said. He had been entitled to a $9 million payout if he were let go without cause, a July regulatory filing shows.
The bankruptcy filing came after MF Global’s bets on European sovereign debt scared away clients, counterparties and investors. It was accelerated after major credit rating agencies downgraded the company to “junk” status last week.
U.S. regulators, meanwhile, are conducting a broad review of the company’s business as they try to track down more than $600 million of missing customer money.