MF Global CEO Jon Corzine quits as big bet fails

Fri Nov 4, 2011 6:38pm EDT

Jon Corzine, chairman and chief executive officer of MF Global Holdings, speaks during the Sandler O'Neill + Partners global exchange and brokerage conference in New York June 9, 2011.  REUTERS/Lucas Jackson

Jon Corzine, chairman and chief executive officer of MF Global Holdings, speaks during the Sandler O'Neill + Partners global exchange and brokerage conference in New York June 9, 2011.

Credit: Reuters/Lucas Jackson

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(Reuters) - Jon Corzine, one of Wall Street's best-known stars, stepped down as MF Global Holdings Ltd's chairman and chief executive after his bets on European debt drove the futures brokerage into bankruptcy.

The departure was announced on Friday, hours before conflicting reports surfaced about the whereabouts of $633 million of missing customer money, whose disappearance derailed MF Global's effort this week to quickly sell a variety of assets.

JPMorgan Chase & Co said late on Friday it had no information about whether balances in MF Global accounts at the bank contained any of the missing customer funds. It also declined to disclose the balances of those funds.

"The accounts and their balances have been and continue to be wholly transparent to MF Global and the recently appointed (brokerage) trustee," JPMorgan said in a statement.

Earlier in the day, Bloomberg News had said customer funds had been found in a JPMorgan custodial account holding $658.8 million, citing two people with knowledge of the matter.

Corzine, a former chief of Goldman Sachs & Co, characterized his abrupt departure from a company he once joked as "too small to care about" as "difficult" but voluntary.

It was effective on Friday, four days after MF Global sought bankruptcy protection, a company spokeswoman said.

Corzine, 64, joined MF Global in March 2010 as his ticket back to Wall Street, after stints as a U.S. senator from New Jersey and one-term governor of that state. He had run Goldman from 1994 to early 1999.

But when MF Global's $6.3 billion bet on sovereign debt from Belgium, Ireland, Italy, Portugal and Spain went public, counterparties and investors headed for the exits.

"He was seeking redemption," said Robert Fagenson, former vice chairman of the New York Stock Exchange. "When you're not dealing with a Goldman Sachs-type of balance sheet, though, you can't take Goldman Sachs-type bets."

MF Global's decline accelerated last week as the New York-based company revealed more details about its European exposure, posted a larger-than-expected quarterly loss, and was downgraded by major credit rating agencies to "junk" status.

Many investors were also spooked by MF Global's roughly 30-to-1 leverage ratio, based on more than $40 billion of assets and just $1.4 billion of equity. Corzine himself has said that much leverage is unacceptably high.

The bankruptcy is the seventh-largest in U.S. history, according to BankruptcyData.com and Reuters data.

THE MIGHTY HAVE FALLEN

"My how the mighty are fallen," said Jim Rogers, a prominent commodities investor. "It is inconceivable to me he would do this after Refco," he added, referring to a brokerage that failed in a 2005 accounting scandal.

MF Global's problems this week triggered steep declines in stocks of other financial companies, such as Morgan Stanley and investment bank Jefferies Group Inc.

Jefferies, seeking to soothe investors, said on Friday it had a net short position in sovereign risk of Greece, Ireland, Italy, Portugal and Spain. [ID:nN1E7A3097]. Its shares closed up 0.5 percent on Friday, but lost 18 percent for the week.

"The idea that you might be holding European debt is very frightening" to markets," said Franklin Edwards, a Columbia Business School professor specializing in futures markets, regulation and governance. "There is so much uncertainty."

It is unclear how Corzine's resignation might affect the various ongoing investigations. Neither MF Global nor Corzine has been charged with wrongdoing.

Corzine said he intended 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."

James Giddens, the trustee overseeing the liquidation of the company's MF Global Inc unit, is working with CME Group Inc and others to move about 50,000 accounts to new clearing firms.

Giddens said his team is "securing" MF Global offices in Chicago and New York, plans to work through the weekend to transfer large accounts, and will try through next week to transfer individual accounts. Corzine's departure will not affect that process, a spokesman for Giddens said.

CME late on Friday said it expected to finish transferring all customer segregated positions by the end of the day, for a total transfer of positions in about 15,000 MF Global accounts and $1.45 billion of associated clearing collateral.

'GREAT SADNESS'

In his statement, Corzine said his departure is best for MF Global 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," he said.

MF Global said Corzine is not seeking severance. He had been entitled to $12.1 million in severance, prorated bonus and other benefits if he were let go without cause, a July 7 regulatory filing shows. The severance portion was $9 million.

Corzine has hired prominent white-collar defense lawyer Andrew Levander of the law firm Dechert to represent him in cases that might stem from the bankruptcy filing, a legal source briefed on the matter said on Thursday.

Chief executives often step down as their companies face federal probes or bankruptcy. Leaving might also give him greater flexibility in dealing with authorities.

"If you're no longer with the company, it gives you freedom to respond from the perspective of solely protecting your own interest," said Barry Pollack, a partner at law firm Miller & Chevalier specializing in white-collar defense.

Chief Operating Officer Bradley Abelow and lead director Edward Goldberg will stay in their positions, MF Global said.

STALLING REFORMS

Brokerages are required to keep customer money segregated from their own cash. Questions about the integrity of MF Global client accounts have also attracted the attention of the Federal Bureau of Investigation.

"To the extent there were diversions of funds in segregated accounts, or funds that were lost, it would certainly violate regulatory rules and perhaps even rise to the level of securities fraud," said Edwards, the Columbia professor. "We just don't know the facts."

It is unclear why regulators such as the Securities and Exchange Commission, Commodity Futures Trading Commission and Financial Industry Regulatory Authority did not do more to rein in MF Global's risk-taking, coming so soon after the 2008 financial crisis.

Last year's Dodd-Frank financial reforms have yet to take full effect, and would likely have done little to avert MF Global's collapse. But Corzine played a key role in stalling reforms designed to stop firms from using customer funds for proprietary trades.

"Many firms, including MF Global and Senator Corzine specifically, have asked us to hold back on tightening up our regulations," CFTC Commissioner Bart Chilton said in a Friday speech.

Corzine's original decision to join MF Global surprised many on Wall Street.

He has referred to himself as a "recidivist banker," and said he was willing to join a small Wall Street company because financial regulatory reform would force big banks to shrink.

(Reporting by Jennifer Ablan, Suzanne Barlyn, Nick Brown, Matthew Goldstein, David Henry, Jed Horowitz, Herb Lash, Jennifer Merritt, Marcy Nicholson, Jeanine Prezioso, Jonathan Stempel and Dan Wilchins in New York; Alexandra Alper and Christopher Doering and Sarah N. Lynch in Washington, D.C.; and K.T. Arasu, Karl Plume and Theopolis Waters in Chicago; Editing by Edward Tobin and Tim Dobbyn)

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Comments (5)
tjkong2 wrote:
from all accounts, 600 million plus dollars were embezzled from client segregated accounts, right under the collective noses of finra, cftc, and cme, which had all been on the case since june.

in fact, per my sources at cftc enforcement, “regulators and the exchanges have known for years that honor systems like those in place at mf global are woefully inadequate for protecting segregated client accounts.”

this long standing knowledge, coupled with mf global’s recent accounting irregularities, should have provoked any real regulatory apparatus into action long before this week. mf global trading desk employees were reportedly stunned by regulators failure to act sooner since they are constantly being berated to manage the risk. at mf global any individual trading account that falls below margin must be rectified immediately or be liquidated. there is absolutely no grey area. “clearly (one traded confided) the rules for the little guy do not apply to those at the top.”

early news reports however tell a far different story. these reports claim that regulators acted quickly over the last few days to shut mf global down and protect customer accounts. but did they? the glaring fact remains that regulators, who were on high alert since june, did not step in until after mr corzine and his co conspirators completed the crime.

this is not a case of the keystone cops staking out the front door while the perp exits through the back. three federal agencies had mf global surrounded yet the perp was able to walk through the front door with 600 million. unless he is houdini, the only way mr corzine could have raided the segregated accounts and escaped the building, was with help, lots of it.

now with all eyes transfixed on mr corzine’s failed magic show, can veteran trustee mr giddens keep his eye on 600 million rabbits, and can he determine who assisted mr corzine in getting them out of the hat?

since we know mr corzine embezzled the money to pay his bookies, $2 will get you $1, that these bookies and the financial powers who ultimately received the money, are the proper co defendants and the real parties in interest.

in the face of these powerful economic interests, does mr giddens have the political will and enforcement muscle to establish a constructive trust over the 600 million and bring it back to its lawful owners in a timely manner?

as far as mr corzine assisting the company and its board in their efforts to respond to regulatory inquiries and issues related to the disposition of the firm’s assets, i think mr corzine has assisted enough. mr corzine would be best spending his remaining free time fitting himself for his orange jumpsuit.

when is enough enough?

Nov 04, 2011 9:38am EDT  --  Report as abuse
ARJTurgot2 wrote:
Some jail time might provide ‘clarity’ to bankers regarding financial risk, bankruptcy obviously doesn’t.

Nov 04, 2011 10:33am EDT  --  Report as abuse
OLDPOPSIR wrote:
So then, corzine is not seeking severance. But, is Corzine taking the 9 million talked about if he left without cause? It would be hard to believe that he would leave the company with nothing; despite the quality of their leadership…something CEO’s don’t do these days.

Nov 04, 2011 11:02am EDT  --  Report as abuse
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