The fault for the collapse of MF Global rests in one man’s hands: Jon Corzine. Mistakes and decisions made by the former chairman and CEO directly led to the firm’s collapse last year, according to a summary of findings from a probe led by U.S. House Republicans.
The House Financial Services Subcommittee on Oversight and Investigation, chaired by Rep. Randy Neugebauer (R-TX), will release the full results of its year-long staff investigation into the collapse of MF Global on Thursday.
“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,” the summary says.
Corzine was named CEO at MF Global in March 2010 to great fanfare that he would transform the futures commission merchant into a Goldman Sachs-like investment bank. “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.
According to the summary, Corzine invested heavily into the sovereign debt of struggling European countries to generate the revenue needed to fund MF Global’s transformation. These investments carried enormous risk, and the positions weren’t revealed to regulators or the investing public until October 2011 — which by that point amounted to about 14% of MF Global’s total assets.
Additionally, the summary shows that Corzine created “an authoritarian atmosphere” at MF Global where “no one could challenge his decisions.” This was particularly evident when Corzine denied the firm’s chief risk officer access to the board of directors after he raised concerns about the size of the position Corzine was amassing.
After the positions were revealed to regulators and the public, the company’s credit rating was downgraded to junk following a poor earnings report. This effectively set off a “run on the bank” that created a liquidity crisis. The report details that because Corzine had failed to integrate systems and controls for managing the company’s liquidity and protecting customer funds, it could not assess and anticipate its liquidity needs during the crisis.
“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.”
Ultimately, responsibility rests on Corzine, the report finds. “Choices made by Jon Corzine during his tenure as chairman and CEO sealed MF Global’s fate,” Neugebauer stated. “Farmers, ranchers and other customers may never get back [more than] $1 billion of their money as a result of his decisions.”
The subcommittee notes that it will be the responsibility of prosecutors and regulators to determine whether MF Global or its employees violated laws or regulations when these withdrawals of customer funds were made.
According to Bloomberg, Rep. Mike Capuano (D-Mass), the ranking member on the subcommittee, and other Democrats are preparing an addendum to the report. “I am no co-sponsoring the majority’s staff report on MF Global primarily due to an insufficient amount of time to review the report and go over it with other Democratic Subcommittee members,” he said in an emailed statement.
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.
In addition to its findings regarding Corzine’s role at MF Global, the report also is expected to address regulatory agencies’ failure to share critical information with each other, failure 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.