MF Global: The Untold Story of the Biggest Wall Street Collapse Since Lehman
Continued from previous page
JC Flowers was the namesake of J. Christopher Flowers, a former colleague of Corzine’s at Goldman Sachs. Flowers had acquired a stake in MF Global to help shore it up in 2008 after a trader blew up $141 million of the firm’s money overnight in what the firm called an unauthorized trade. It was Flowers who invited Corzine to become CEO of MF Global. Corzine left MF Global on November 4, four days after its bankruptcy filing, at the request of the Board.
Why Corzine, a man of great wealth and political stature, would join an obscure brokerage firm is a mystery worthy of pursuit by the FBI, which is investigating the missing customer funds according to Congressional sources. One avenue worthy of pursuit according to Wall Street veterans, is whether Jon Corzine turned MF Global into a giant parking lot for other Wall Street firms’ bad bets on sovereign debt. Fueling that speculation is the fact that JPMorgan, Citigroup and Bank of America were part of a syndicate of 22 banks that provided MF Global with an unsecured $1.2 billion revolving credit line that required no posting of collateral, despite the company’sstring of losses and weak credit rating. The firm heavily tapped this line of credit in its last days.
The trustee of the Chapter 11 proceeding for the parent holding company is Louis J. Freeh, a former FBI director. On April 19, Freeh asked the court for an expedited hearing to grant him the ability to issue subpoenas to “the Debtors’ affiliates and subsidiaries, the Debtors’ former employees, current and former officers, directors and employees of the Debtors’ affiliates and subsidiaries, lenders, investors, creditors and counterparties to transactions with the Debtors…”
The court is allowing Freeh’s own firm, Freeh Group International Solutions, to perform the accounting work. Four docket entries show that Freeh has asked for and received four extensions by the court to file a list of assets of the holding company.
Compared to Corzine’s former employer, Goldman Sachs, MF Global was a flea on an elephant’s back. It had experienced a string of quarterly losses since 2007, waspredominantly a Futures Commission Merchant (FCM) holding retail and institutional commodity and futures trading accounts, and had 80 regulatory actions against it since 1997. It had a securities brokerage unit with 300 to 400 U.S. accounts according to the trustee. How big those accounts were is unknown. If they were all institutional or hedge fund accounts, it could have been a sizeable operation. One known account, which presciently moved out before the bankruptcy, belonged to the $100 billion private energy firm, Koch Industries, majority owned by Charles and David Koch, financial backers to numerous corporate front groups.
Corzine had no expertise with running a commodities firm. His trading background at Goldman was in U.S. Government bonds, not commodities. According to a spokesman for the National Futures Association, Corzine passed a limited exam called the Series 32 on August 17, 2010 but never took the full National Commodity Futures Exam, Series 3, which would be expected of Registered Associated Persons working for an FCM. The spokesman suggested Corzine may have been given a waiver.
Corzine testified to Congress that he was trading debt instruments. That would have required a valid Series 7 securities license. But the Financial Industry Regulatory Authority (FINRA) shows that Corzine last took his Series 7 on June 21, 1975 – 37 years ago. Securities rules require that if one has a gap of more than two years in working for a securities firm, they must retake the exam. Corzine had a nine year gap while serving as U.S. Senator and Governor of New Jersey. A FINRA spokeswoman said Corzine was given a waiver. Corzine would have also been required to take ongoing continuing education – some of which can only be administered by the securities firm one works for. Since Corzine didn’t work for a securities firm for 9 years, it’s difficult to see how that requirement could be waived.