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The two faces of Jon Corzine

NEW YORK (Reuters) - Sometimes it seems there are two Jon Corzines.

New Jersey Governor Jon Corzine speaks at a campaign rally at Susquehanna Bank Center in Camden, New Jersey, November 1, 2009. REUTERS/Jim Young

There’s the statesman-like former senator and governor, who while serving this past year as a visiting professor at Princeton University’s Woodrow Wilson School of Public and International Affairs, has championed the need for stiffer regulation of Wall Street banks.

And there's the risk-loving trader with a thirst for profits, who oversaw a $6.3 billion bet on European sovereign debt that culminated with Monday's bankruptcy filing of MF Global Holdings MF.N.

The sudden collapse of MF Global, a futures brokerage firm that Corzine has run for less than two years, has left some 2,800 employees likely to be soon looking for work and put in jeopardy some $600 million in customer money.

Just over a year ago, in a speech at Princeton that was recorded and posted on (here), the former head of Goldman Sachs GS.N offered some rationale for why he took the job at MF Global - a move that surprised many on Wall Street at the time.

He referred to himself as a “recidivist banker,” and said financial regulatory reform would force big banks to get smaller and provide more growth opportunities for firms that were “too small to care about.”

Now some critics are saying the chief executive officer of MF Global would have done a better job managing the busted futures firm had he worn his visiting professor cap more often than dusting off the one he wore some two decades ago as a top tier trader and CEO of Goldman Sachs Group.

“Corzine has violated every rule about what not to do,” says Janet Tavakoli, a Chicago-based derivatives consultant, who has written several books on structured finance. “Corzine is a caricature of a financial meltdown.”

The president of Tavakoli Structured Finance says Corzine repeated all the mistakes of the financial crisis by using too much leverage, or borrowed money, to invest in risky assets that could result in demands from trading partners for more collateral postings.

Yet Corzine sounded like a real Wall Street reformer during the speech at Princeton in September 2010, titled: “After the Crash: Regulating the New American Economy.” In the 90-minute talk, which included a question and answer session with graduate students and professors, Corzine said he generally supported much of the financial regulatory law known as Dodd-Frank and believed it would lead to less risk taking on Wall Street.

“We are going to end up with a better and more stable system,” said the former New Jersey governor and U.S. senator, who had just a few months earlier returned to Wall Street to head MF Global. He said there would be “much, much stiffer leverage requirements, and that will also make the system more conservative.”

Corzine went on to say it was unacceptable that some of Wall Street’s biggest players were leveraging shareholders’ equity at a ratio above 30 to 1 going into the financial crisis.

Yet just before MF Global filed for bankruptcy, the firm was operating as if it was in the pre-crisis days with a leverage ratio of 33 to 1, according to regulatory filings.

“He knew better and this is something he should not have been doing,” said William Cohan, a former Lazard investment banker turned author, who wrote a book about Goldman Sachs.

Cohan, who interviewed Corzine for his Goldman book and spoke to some of his Princeton students, says the conflict between what Corzine was saying at Princeton and doing at MF Global is hard to square.

Last week, just days before Moody’s downgraded MF Global’s debt, Corzine addressed a small group of equities traders at New York’s Helmsley Park Lane Hotel and talked about how his perspective has changed since he left government.

“He said Wall Street needs more clarity about the rules and better incentives for doing business and taking risk,” said a person who attended the off-the-record event organized by the National Organization of Investment Professionals. “He sounded more like a Republican than a Democrat.”

Corzine did not respond to an interview request that was forwarded to him by an aide.

A person close to Corzine said that the firm’s leverage ratio was actually much higher, at around 45 to 1, when Corzine came to the firm, and he lowered it over time. The person also said the board of MF Global had approved Corzine’s European debt strategy on several occasions.

To be sure, it’s not uncommon for politicians to advocate certain positions yet ultimately vote in a way that deviates from their public stances. The same sometimes occurs in business where corporate executives have a fiduciary duty to their shareholders, and that may trump their own personal preferences.

But senior research associate Paul Hodgson with the corporate governance firm GovernanceMetrics International says Corzine “seems to be saying one thing and taking undue risks in the next breath.”

“There are over 100 professionals monitoring risk at MF Global but that all seems to have been a complete phantom,” Hodgson added.


One of the first things Corzine did after joining MF Global was to go on a firing and hiring spree in which he remade the firm in his image. A good number of his top hires came from UBS UBSN.VX, including Michael Stockman, who is MF Global's chief risk officer, and Jon Bass, MF Global's global head of institutional sales.

Corzine made no secret of the fact that he wanted to up MF Global’s profile - and he did just that in his role as a Princeton policy wonk.

The speech he gave in September 2010 was the first of six financial market regulation lectures he organized for the Woodrow Wilson School. In the fall of 2010, Corzine brought in regulators and well-known financial journalists to debate the merits of regulating derivatives, bank bailouts and excessive Wall Street compensation.

Corzine’s guest list included Gary Gensler, chairman of the Commodities Futures Trading Commission, former Federal Reserve Chairman Paul Volcker, former Treasury Secretary Henry Paulson and New York Times columnist Andrew Ross Sorkin.

Gensler and Sorkin spoke at a lectured titled, “Banks, Shadow Banks and the New Face of Wall Street.” In his opening remarks, Gensler talked about “the privilege of working with Jon both in the private sector and in public service.”

Gensler and Corzine worked together at Goldman Sachs GS.N. And when Corzine was in the Senate, Gensler served as a top aide to Maryland Democratic Senator Paul Sarbanes.

The CFTC is one of MF Global’s main regulators and is leading an investigation into what has happened with some $600 million in customer money deposited with the futures firm that has yet to be located.

A CFTC spokesman declined to comment on Gensler’s appearance at the Woodrow Wilson lecture event. Earlier Thursday, Gensler told a group of reporters that he has not personally spoken to Corzine since the firm filed for bankruptcy.


Back in the summer, Corzine and others from MF Global had two conference calls on July 20 with the staff of the CFTC. In one of those calls, Gensler was a participant.

The calls, according to a summary posted on the regulatory agency’s website, centered around a proposed rule that would restrict the way futures brokers invest customers’ cash collateral, known as margin in the industry. In the call Gensler participated in, part of the conversation involved a discussion over repurchase agreements.

It is not clear what the purpose or outcome of the calls was, but repurchase agreements have emerged as a point of controversy as they were used to gain exposure to European sovereign debt. Specifically, MF Global entered into a series of repo-to-maturity agreements, a type of arrangement that moved assets off the firm’s balance sheet but left it on the hook in the event of a default.

Around the same time, the Financial Industry Regulatory Authority began holding discussions with MF Global about setting aside more capital in the event some of its European sovereign debt investments defaulted.

FINRA appears to have begun those discussions after the Securities and Exchange Commission sent several letters to MF Global in March, asking the firm to provide more information in its regulatory filings about the repurchase agreements it used to invest in foreign debt notes. The SEC official who sent those letters to MF Global did not return a phone call seeking a comment.

In October things began to unravel quickly for MF Global and Corzine when the firm was forced to disclose that it had been prodded by FINRA to post more capital for its European trades. The firm also posted a bigger than expected second-quarter loss on October 25 and for the first time provided a detailed accounting of just how much Italian, Spanish, Irish and Portuguese sovereign debt it was exposed to.

A few days later, Moody’s Investors Service downgraded MF Global’s debt to junk.

Throughout this tumultuous time, Corzine continued with his role of statesman. In early October, he was a guest speaker at the School of Public Affairs and Administration at Rutgers University’s campus in Newark, New Jersey. The subject of his address was public service.

For now, Corzine’s attention is on survival.

In what could herald many such investor lawsuits, Corzine and three other company executives were sued by a shareholder on Thursday. The complaint filed in Manhattan federal court by shareholder Joseph DeAngelis accused the executives of having “continuously touted” MF Global’s financial controls and liquidity, despite knowing their statements were false and misleading at the time they were made.

Reported by Matthew Goldstein, Jennifer Ablan and Jed Horowitz, with additional reporting by Lauren Tara LaCapra, Christopher Doering and Jon Stempel; Editing by Claudia Parsons