Reuters reports that Jon Corzine, the former chief of MF Global, and former CEO of Goldman Sachs, testified at a House panel last year, which in essence was a criminal investigation into the collapse of the brokerage firm MF Global he was previously managing, during and after the disappearance of about $1 billion in customer money. The investigation is now heading into its final stage without charges expected against any top executives.
After 10 months of stitching together evidence on the firm’s demise, criminal investigators are concluding that chaos and porous risk controls at the firm, rather than fraud, allowed the money to disappear, according to people involved in the case.
But what else are porous risk controls other than a form of fraud? MF Global should assume responsibility for non-porous controls of its clients’ assets, which were co-mingled with Corzine’s during his reign as CEO of the firm. The theft of those monies for the futures hedge fund’s risky business left a lot of people, including livestock investors, farmers, and others high and dry.
The hurdles to building a criminal case were always high with MF Global, which filed for bankruptcy in October after a huge bet on European debt unnerved the market. But a lack of charges in the largest Wall Street blowup since 2008 is likely to fuel frustration with the government’s struggle to charge financial executives. Just a few individuals—none of them top Wall Street players—have been prosecuted for the risky acts that led to recent failures and billions of dollars in losses. And, in this case, it was the investors whose accounts were raided who will swallow major losses while Corzine walks away clean.
Reports on MF Global’s bankruptcy
In the most telling indication yet that the MF Global investigation is winding down, federal authorities are seeking to interview the former chief of the firm, Jon S. Corzine, next month, according to the people involved in the case. Authorities hope that Mr. Corzine, who is expected to accept the invitation, will shed light on the actions of other employees at MF Global. It sounds like Congress is looking for a few goats to be given up. In his initial testimony, Corzine said he had no idea where the $1 billion of customer money of the $6.3 billion went.
Yet, the new developments indicate that federal prosecutors do not expect to file criminal charges against the former New Jersey governor (and former United States Senator). Mr. Corzine has not yet received assurances that he is free from scrutiny, but two rounds of interviews with former employees and a review of thousands of documents have left prosecutors without a case against him, say the people involved in the investigation who spoke on the condition of anonymity.
While the government’s findings would remove the darkest cloud looming over Mr. Corzine—the threat of criminal charges—the former Goldman Sachs chief is not yet in the clear. A bankruptcy trustee on Wednesday joined customers’ lawsuits against Mr. Corzine, and regulators are still considering civil enforcement actions, which could cost him millions of dollars or ban him from working on Wall Street. How about both, since he has proved himself unworthy in all his undertakings. For instance, Lloyd Blankfein aced Corzine out of the CEO spot at Goldman for superior competency.
Some personal peccadilloes
The Daily News writes, Corzine divorced his wife of 33 years . “Sen. Jon Corzine—the wealthy former investment banker who spent a record $63.2 million of his own cash to represent New Jersey—is divorcing his wife, Joanne. He wrote, ‘After many years of marriage, and with deep sadness, I have reached the conclusion that it is time for my marriage to end,’ Corzine said yesterday. They live in Summit, N.J . . .”
As New Jersey governor, he practically got himself killed in a car crash, as he urged his NJ State Trooper-driver to go faster as he sat in the front passenger seat without a seatbelt on. The trooper ran into a car pulling out from another lane, seriously injuring that driver as well.
The New York Times reported, “Gov. Jon S. Corzine underwent surgery on Thursday night after a car accident in which he broke his left leg, sternum, and collarbone, plus six ribs on each side and a lower vertebra, state police and other government officials said. He was in critical but stable condition at midnight, sedated and on a breathing tube . . . Skip to next paragraph
“Mr. Corzine was in the front passenger seat when his state police vehicle swerved to avoid an apparently out-of-control driver on the Garden State Parkway and hit a guardrail. He was flown by helicopter to Cooper University Hospital in Camden, where he received seven units of blood and a metal rod in his leg during a two-hour operation that ended about 11:30 p.m.”
So here is a man who has shown himself to act irresponsibly in his own life and with the fate of his family, and now with MF Global. Yet, in a bid to rebuild his image and engage his passion for trading, Corzine is weighing whether to start a hedge fund, according to people with knowledge of his plans. He is currently trading with his family’s wealth.
If he is successful as a hedge fund manager, it would be the latest career comeback for a man who was ousted from both the top seat at Goldman Sachs and the New Jersey governor’s mansion. A spokesman for Mr. Corzine declined to comment. But even with the worst purportedly behind him, Mr. Corzine’s reputation has suffered lasting damage.
After the collapse of the firm, which left farmers and other MF Global customers with losses of millions of dollars, Mr. Corzine became another face of Wall Street recklessness. Lawmakers called him back to Washington, a humbling return to the town where he once served as a Democratic senator from New Jersey, to seek answers and to criticize him. With a criminal case unlikely to materialize, the anger over the collapse of MF Global is likely to grow. He has become the poster boy for Wall Street criminality.
Typically in white-collar cases, investigators start their interviews with lower-level employees and build up to the top executives of a firm. In July, when federal authorities first approached Mr. Corzine’s lawyers, it was not clear whether he would agree to an interview. But the signs were good. In such cases, if prosecutors have damning information, they often file charges rather than extend an offer for a voluntary interview.
Though he is now expected to attend the meeting, questions remain about which government agencies will join. Because Mr. Corzine still faces scrutiny from regulators, including the Commodity Futures Trading Commission (CFTC), their attendance could pose a problem. These agencies, which have a lower bar to proving civil wrongdoing than do criminal authorities, are examining whether top executives misled investors about the firm’s health and failed to protect customer money. But top executives still work under the CEO, and take their direction from him, Corzine.
The CFTC, the Federal Bureau of Investigation and the United States attorney’s office in Manhattan declined to comment for this article.
Shift the focus to lower level employees
As the government’s focus shifts away from Mr. Corzine, it remains interested in a lower-level employee in the firm’s Chicago office, who was known as the “keeper of the books” at MF Global. That employee, Edith O’Brien, oversaw the transfer of customer money during the firm’s final week, when the client cash vanished into the hands of banks, clearinghouses and even other customers.
Ms. O’Brien, an assistant treasurer, has declined to cooperate with authorities without receiving immunity from criminal prosecution. The government is hesitating to grant her request, suspecting that Ms. O’Brien is the highest-ranking employee with potential liability, one of the people involved in the case said. Ms. O’Brien has not been accused of any wrongdoing.
If Mr. Corzine agrees to a meeting next month with the F.B.I. and federal prosecutors, the authorities are expected to question him about his interactions with Ms. O’Brien. But Mr. Corzine is unlikely to offer damning evidence or a critical view of Ms. O’Brien, another person briefed on the matter said. The statements Mr. Corzine provides cannot be used against him under the expected terms of the interview, but authorities can use it to build their broader case. And if Mr. Corzine were to arouse suspicions during the interview, he could find himself a target.
A $175 million transfer to JPMorgan Chase
Mr. Corzine has already reluctantly given his version of events publicly. In congressional testimony last year, he detailed an exchange he had with Ms. O’Brien days before the firm’s collapse. The back and forth involved a $175 million transfer to JPMorgan Chase to cover an overdrawn account. The transfer, it turned out, came from customer money. This comingling of customer accounts with management money, without investors’ awareness, is the major no-no of investment protocol.
But internal e-mails suggest that Mr. Corzine did not know the origin of the funds. An e-mail reviewed by The New York Times shows Ms. O’Brien explicitly stated that the money belonged to the firm, not customers. It is possible that with the books in disarray, Ms. O’Brien was not aware that customer money was in jeopardy.
While Mr. Corzine also testified that he never authorized or intended to authorize the misuse of customer money, his risky trading strategy helped pave the firm’s downfall.
Known as an obsessive trader who had the highest returns at the firm, Mr. Corzine frequently inhabited a desk on the trading floor. One visitor to MF Global recalled that during a tour of the firm’s Manhattan headquarters, his guide suggested that if he “stuck around” he might catch the chief executive trading a few million dollars in bonds. That would be OPM (other people’s millions).
As the firm’s leader, Mr. Corzine was upbeat about its future, writing an e-mail to employees in January 2011: “Let’s be an example of how to do it right and play a leadership role in restoring confidence in our industry.”
But a $6.3 billion wager on the European sovereign debt proved fatal.
The size of the bet was enough to wipe out the firm many times over, and as questions about Europe’s health grew, a run on MF Global ensued. In the panic, the firm tapped customer money to stay afloat, which scuttled a last-minute deal to save the firm. Mr. Corzine resigned just days after the firm filed for bankruptcy, adding this disgrace to his self-generated life catastrophes this, and now trying to tap-dance away from it.
Jerry Mazza is a freelance writer and life-long resident of New York City. An EBook version of his book of poems “State Of Shock,” on 9/11 and its after effects is now available at Amazon.com and Barnesandnoble.com. He has also written hundreds of articles on politics and government as Associate Editor of Intrepid Report (formerly Online Journal). Reach him at gvmaz@verizon.net.
