It appears that these days not even the Corzining of client money can happen without it being split across furiously polarized party lines. As it turns out hours ago, the Committee on House Financial Services released an advance glimpse into a report to be released in its entirety tomorrow, which puts the blame for the collapse of not only MF Global, but also the disappearance of millions in client money, right where it belongs: the firm's then CEO Jon Corzine.
summarizes, "The summary reflects conclusions reached by Republicans, who
hold a majority on the panel and were in contact with Democrats during the
investigation, according to Jeff Emerson, spokesman for the Financial Services
Committee. The investigation included three congressional hearings, more than 50
interviews and a review of documents from MF Global, former brokerage employees
and regulators, according to the summary."
Yet that Corzine corzined millions, leaving clients scrambling in
bankruptcy court in an attempt to recover what should have been segregated money
from the very beginning, and also just happened to blow up one of the 21
Fed-anointed Primary Dealers, is not surprising: this has been long known by
everyone. Those who need a refresher are urged to recall the Honorable's
testimony before the House... or maybe not: after all it is not as if Corzine
himself could recall a whole lot. Where it gets interesting is that the former
Democratic governor, and senator, not to mention primary bundler for president
Obama, is, in the eyes of the members of the committee, innocent: All the
democrats on the Investigations Subcommittee refused to sign off on the
findings, meaning that to them, Corzine is completely innocent. That this is
purely a political move is glaringly obvious. It is also abhorrent, because as
long as political ideology gets in the way of pursuing and imposing justice, the
Banana States of America will remain just that.
Committee on Financial Services:
Investigation Reveals Decisions by Corzine Led to MF Global Bankruptcy and
Missing Customer Funds
Full report of Financial Services Oversight and Investigations
to be released Thursday
WASHINGTON – Decisions by Jon Corzine to chart a radically different course
for MF Global and try to turn the 230-year-old commodities broker into a
full-service investment bank were the cause of the firm’s bankruptcy and failure
to protect customer funds, Republican members of a congressional subcommittee
will report this week.
The House Financial Services Subcommittee on Oversight and Investigations,
chaired by Rep. Randy Neugebauer, will release the full results of its year-long
staff investigation into the collapse of MF Global on Thursday.
“Our investigation is essentially an autopsy of how MF Global came to its
ultimate demise and what can be done to prevent similar customer losses in the
future,” said Chairman Neugebauer.
Corzine, a former co-chairman of Goldman Sachs who later became a U.S.
senator and governor of New Jersey, resigned from MF Global on November 4, 2011,
almost 20 months after becoming the firm’s Chairman and CEO. The brokerage had
declared bankruptcy four days earlier and its collapse revealed a $1.6 billion
shortfall in customer funds.
“Choices made by Jon Corzine during his tenure as chairman and CEO sealed MF
Global’s fate,” Chairman Neugebauer stated. “Farmers, ranchers and other
customers may never get back over $1 billion of their money as a result of his
decisions. Corzine dramatically changed MF Global’s business model without fully
understanding the risks associated with such a radical transformation.”
The Subcommittee’s staff investigation of MF Global involved three hearings,
more than 50 witness interviews, and the review of more than 243,000 documents
obtained from MF Global, its former employees, federal regulators and other
“By expanding MF Global into new business lines without first returning its
core commodities business to profitability, Corzine ensured that the company
would face enormous resource demands and exposed it to new risks that it was
ill-equipped to handle,” the subcommittee report states.
In order to generate the revenue needed to fund MF Global’s transformation,
Corzine invested heavily in the sovereign debt of struggling European
countries. These investments, which carried enormous default and liquidity
risks, were a “prime focus” of Corzine’s attention and he failed to develop a
corporate strategy for managing the risks, the subcommittee majority staff
Those risks were exacerbated by an authoritarian atmosphere Corzine created
at the firm where “no one could challenge his decisions,” the subcommittee
Corzine made significant changes to MF Global’s senior management, including
the hiring of Bradley Abelow, his former gubernatorial chief of staff, as the
firm’s chief operating officer.
When MF Global’s chief risk officer disagreed with Corzine about the size of
the company’s European bond portfolio, Corzine directed him to report to Abelow
rather than to MF Global’s board of directors. “This change effectively
sidelined the most senior individual charged with monitoring the company’s risks
and deprived the board of an independent assessment of the risks that Corzine’s
trades posed to MF Global, its shareholders and its customers,” the report
Corzine insulated trading
activity from review process
In addition, the subcommittee’s report reveals that Corzine acted as MF
Global’s “de facto chief trader” and insulated his trading activities from the
company’s normal risk management review process. This enabled Corzine to
quickly build the company’s European bond portfolio “well in excess of prudent
limits without effective resistance.”
Rather than hold the European bonds on MF Global’s books, which could expose
the company to earnings volatility, Corzine chose to use these bonds as
collateral in repurchase-to-maturity (RTM) transactions. This permitted the
company to book quick profits while keeping the transactions off its balance
Failure to initially
disclose extent of risks
Since MF Global did not initially disclose the full extent of its European
bond holdings, federal regulators and the investing public were not aware of all
the risks facing the company.
The belated disclosure in October 2011 of its extensive European RTM
portfolio – which amounted to 14 percent of MF Global’s total assets – combined
with poor earnings news prompted credit rating agencies to downgrade the
company’s credit rating to junk status.
The downgrade set off a “run on the bank” by MF Global’s investors, customers
and counterparties that created a liquidity crisis during what would turn out to
be the company’s final days.
Because Corzine had failed to integrate systems and controls for managing the
company’s liquidity and protecting customer funds, the company could not fully
assess and anticipate its liquidity needs during the crisis, nor could it
coordinate its cash management, liquidity monitoring and regulatory compliance
Liquidity crisis prompts
withdrawal of customer funds
“As the company struggled to find additional liquidity,” the subcommittee
reports, “company employees identified excess company funds held in customer
accounts. However, because they did not have an accurate accounting of the
amount of customer funds the company held, they withdrew customer funds as well
as company funds.”
The subcommittee notes that it will be up to prosecutors and regulators to
determine whether MF Global or its employees violated laws or regulations when
these withdrawals of customer funds were made.
“However, the responsibility for failing to maintain the systems and controls
necessary to protect customer funds rests with Corzine,” the report maintains.
“This failure represents a dereliction of his duty as MF Global’s chairman and
In its report, the subcommittee recommends that Congress consider legislation
to impose civil liability on the officers and directors of futures commission
merchants (FCMs) like MF Global who sign financial statements or authorize
transfers from customer segregated accounts. Such legislation could “restore
investor confidence in the derivatives markets and ensure that an FCM does not
misuse customer funds in the future,” the Subcommittee report said.
Other findings of
investigation to be released
In addition to its findings that Corzine’s decisions led to MF Global’s
downfall, the Subcommittee report is expected to address regulatory agencies’
failure to share critical information with each other about MF Global, failures
by credit rating agencies to sufficiently review MF Global’s public filings, and
concerns about the New York Federal Reserve’s decision to designate MF Global as
a “primary dealer” despite the company’s troubled financial situation.