As our regular readers know, it’s been more than a year since MF Global filed for Chapter 11 bankruptcy. In the ensuing months, the saga has brought revelations of regulatory lapses, missing customer money, squabbling trustees and charges of executive misconduct. On Thursday, a House Financial Services investigative subcommittee issued a 100-page report breaking down the MF Global bankruptcy and assigning blame among the various executives, officials and regulators involved in the firm’s downfall.
In honor of the report, and our MF Global-focused November issue, Futures decided to give our take on the 15 most important figures in the year-long saga.
15. Michael Roseman
Former Chief Risk Officer at MF Global
They say hindsight is always 20/20, but predicting crises before they occur can be a bit more difficult. That’s what landed Michael Roseman on our list: The former chief risk officer reportedly voiced concerns about the brokerage’s exposure to European sovereign debt a year before its collapse in October 2011. According to Roseman, he raised the issue with MF Global’s board in the fall of 2010, when the firm increased its positions on European bonds to $2 billion and, subsequently, $4 billion.
At the time, the board reportedly sided with CEO Jon Corzine, who did not believe that European nations including Ireland and Spain would default. Several months later, MF Global replaced Roseman with new chief risk officer Michael Stockman. Roseman later told a House Financial Services subcommittee that “[his] views on risk certainly played a factor in that decision.”
14. Bradley Abelow
Chief Operating Officer of MF Global
Bradley Abelow, a long-time Jon Corzine aide who joined MF Global in September 2010, has attracted interest for his close ties to the CEO’s office and for his continuing role at the firm following its collapse. Although Abelow has skirted many of the allegations of wrongdoing that have plagued his fellow executives, he did have oversight over some of the firm’s risk management operations. He is also a defendant in nearly all of the customer lawsuits related to the bankruptcy filing.
Unlike many of his colleagues, Abelow remained at MF Global as part of the team winding down the firm. In his December 2011 testimony before a House Financial Services investigative subcommittee, Abelow told representatives that, since the bankruptcy, he had “worked day and night to reduce costs and maximize the remaining value in the business.”
13. Jill Sommers
Commissioner of the U.S. Commodity Futures Trading Commission (CFTC)
During the MF Global debacle, the futures industry was especially hard hit by the revelation that customer-segregated funds were not untouchable, as had long been believed. The industry regulator charged with investigating the debacle is Jill Sommers, who took on the task after CFTC Chairman Gary Gensler recused himself from the case.
In December 2011, Sommers told Reuters that CFTC investigators already had a clear picture of where the MF Global money went. “We certainly don’t want to lead anyone to believe we don’t know what happened,” she said. “We do know, and we see where all the transactions went.” Sommers has not yet commented on Thursday’s report, which placed some of the blame for the firm’s collapse on regulators including the CFTC.
12. Henri Steenkamp
Chief Financial Officer of MF Global
Before his sudden fall from grace, then-35-year-old Henri Steenkamp was one of the youngest high-level executives on Wall Street. Steenkamp joined MF Global in 2006 and assumed the CFO role less than a year before the firm went belly-up.
For his part, Steenkamp has denied any wrongdoing, maintaining in less-than-illuminating Congressional testimony that he had only limited knowledge of money transfers occurring immediately before the firm’s collapse. A report from Trustee James Giddens, however, suggests that Steenkamp was aware that the brokerage was transferring money from an account that held customer funds. In one email to colleagues, Steenkamp voiced concerns over “the situation of our broker-dealer that is currently unable to fund itself, and more worrying…having us dip into FCM excess every day.”
11. J. Christopher Flowers
Chairman of J.C. Flowers & Co.
With friends like Jon Corzine, who needs enemies? That might be the question that private equity investor and Corzine compatriot J. Christopher Flowers was asking himself after his firm, J.C. Flowers & Co. lost a reported $47.8 million on investments in MF Global. The two men were long-time colleagues at Goldman Sachs, and Flowers later made Corzine an operating partner at his firm.
But Flowers may have miscalculated when he threw his support behind Corzine and asked him to assume the CEO role at MF Global. After MF Global’s bets on European debt soured, Flowers reportedly resisted a bankruptcy in favor of a sale, and even considered acquiring the failing firm. But those plans were scuttled following revelations of the massive shortfall in the company’s customer accounts.
10. Laurie Ferber
General Counsel of MF Global
As the top attorney at MF Global, Laurie Ferber was responsible for the company’s legal and compliance functions. Notably, she was involved in handling JPMorgan’s request for written assurance that a transfer of MF Global money did not include customer segregated funds. Believing the request to be too broad, Ferber asked JPMorgan to change its wording.
Although no one at MF Global ever signed any version of JPMorgan’s letter, Ferber testified before Congress that the firm’s treasurer, Edith O’Brien, signaled her willingness to sign if the request was limited to two transactions. But the lawyer didn’t shed much additional light on the ultimate fate of the certificate. “Having obtained a certificate that I considered to be in satisfactory form, I turned this matter over to my legal department colleague,” Ferber said in her testimony. “I do not recall further involvement with this issue.”
9. Terry Duffy
Executive Chairman of CME Group
Amidst the rather evasive Capitol Hill testimony of MF Global execs such as Edith O’Brien, Henri Steenkamp and Laurie Ferber, Terry Duffy’s remarks before the House Financial Services Committee gave an unexpected jolt to the proceedings. In a surprising turn of events, Duffy testified that Jon Corzine was aware that the company was improperly using customer money, saying, “A CME auditor also participated in a phone call with senior MF Global employees wherein one employee indicated that Mr. Corzine knew of the loans made from the customer segregated accounts.”
Some industry participants have criticized the CME Group for failing in its role as MF Global’s designated self-regulatory organization. In response to those allegations, Duffy told Futures in February that “When people are hell-bent on doing things that are improper, they will find ways to do things that are improper…Read my testimony—that shows that we fulfilled our obligations as a DSRO.”
8. Louis Freeh
Trustee for MF Global Holdings Ltd.
Former FBI Director Louis Freeh has a stellar pedigree, but the decision to make him the trustee of MF Global’s parent company was not without controversy. Shortly after the firm’s Chapter 11 filing, a bankruptcy judge established a two-trustee system under which Freeh is responsible for recouping creditors’ funds and James Giddens is charged with recovering money for customers.
This set-up has resulted in sparring between the two trustees over information and what parties should receive the money that the estate recovers. Freeh told the Senate Agriculture Committee in a statement that he believes “all the customers of MF Global Inc. eventually will be made whole,” although he has opposed some of Giddens’ efforts to distribute funds to those customers, disputing his fellow trustee’s estimate of the size of the shortfall in segregated funds.
7. Donna Dellosso
Managing Director at JPMorgan Chase & Co.
If there is a smoking gun in the MF Global saga, it may well be a series of emails that JPMorgan officials sent to MF Global executives regarding several large money transfers between MF Global accounts. Strapped for cash, MF Global apparently illegally transferred money from customer segregated accounts to cover shortages in other parts of the business.
Employees at JPMorgan, one of the brokerage’s primary bankers, asked MF Global to provide written assurances that the transfers in question did not involve customer segregated funds. One of those employees was Dellosso, who sent MF Global Assistant Treasurer Edith O’Brien a letter asking her to confirm that the transfer “represented [MF Global’s] actual interest in such funds” and was compliant with regulations. No MF Global employee ever signed the letter.
6. Edith O’Brien
Assistant Treasurer of MF Global
Among the enduring images of the MF Global bankruptcy is that of a tight-lipped Edith O’Brien refusing to testify in front of the House Financial Services Committee. While many of her fellow executives agreed to offer up their accounts, however opaque, of the brokerage’s collapse, O’Brien invoked her Fifth Amendment rights in response to each of the committee’s questions. Her former boss, Jon Corzine, had previously said that O’Brien wrongly told him that a $200 million money transfer did not involve customer money.
That assertion was called into question, however, when Congressional investigators found an email in which O’Brien said that the transfer was made “per [Jon Corzine’s] direct instructions”; investigators also said in a memo that O’Brien was “reluctant” to sign off on JPMorgan’s request for assurances that no customer money was involved in the transfer.
5. James Koutoulas (right)
CEO of Typhon Capital Management; President of the Commodity Customer Coalition
For all the talk of customer-segregated funds, many discussions of the MF Global saga are long on executives and officials and short on actual customers. That’s where James Koutoulas (pictured on right next to CCC co-founder John Roe) comes in. The commodity trading adviser and attorney, whose clients reportedly had $55 million invested in MF Global, became a voice for the firm’s former customers within days of its collapse.
Koutoulas flew to New York City in early November to file an (ultimately unsuccessful) emergency motion to unfreeze customer accounts and move them to other clearinghouses. Since then, as a co-founder of the non-profit Commodity Customer Coalition (CCC), Koutoulas has continued to lobby MF Global trustees and other officials to restore missing customer-segregated funds to clients. Most customers attribute the relative speed in which they received their money (72% of U.S. segregated accounts by Christmas) to Koutoulas and the CCC as Trustee James Giddens' office had announced a long claims process that would have delayed major transfers of funds until June of 2012.
4. Gary Gensler
Chairman of the U.S. Commodity Futures Trading Commission (CFTC)
Despite MF Global’s significance to the futures industry, CFTC Chairman Gary Gensler opted not to take part in the agency’s investigation into the bankrupt brokerage. The reason? Gensler said he didn’t want his participation to be a “distraction,” considering that he had worked with Jon Corzine at Goldman Sachs Inc.
Gensler’s decision may have backfired, as some legislators criticized his decision not to answer questions related to the investigation, and asked why he had not recused himself from MF Global matters immediately upon joining the CFTC, or at least at the onset of the bankruptcy instead of a week later. Following an internal examination, two CFTC lawyers concluded that Gensler’s recusal was unnecessary. “From a legal and ethical perspective, Chairman Gensler’s participation in commission matters involving [MF Global] would not be improper,” the CFTC report read.
3. Kenneth Ziman
Partner at Skadden, Arps, Slate, Meagher & Flom; attorney for MF Global
Kenneth Ziman is not the only MF Global representative to give controversial testimony related to the firm’s demise, but his statements may well have affected the structure of the bankruptcy proceedings. At one of the initial hearings following the collapse, U.S. Bankruptcy Judge Martin Glenn asked Ziman about the impact of a reported shortfall in customer funds at the broker-dealer unit, to which Ziman responded: “I think, to the best knowledge of management, there are no shortfalls, Your Honor. All funds are accounted for, and I’m talking about the broker-dealer. That’s to the best knowledge. All funds can be accounted for.”
This assertion may have contributed to Glenn allowing the firm to be split into two units overseen by two different trustees, a decision that some claim weakened customer protection rules enshrined in the Commodity Exchange Act and Bankruptcy Code.
2. James Giddens
Trustee for MF Global Inc.
MF Global Inc. Trustee James Giddens provided a decidedly less optimistic counterpoint to Louis Freeh’s assessment of the estate’s ability to recoup customer funds. In testimony before the Senate Agriculture Committee, Giddens told legislators that returning all customer money “will be a time-consuming, difficult and uphill battle,” and that it was more likely that former MF Global clients would recover roughly 90% of their funds.
Giddens and Freeh have disagreed on numerous other facets of the bankruptcy proceedings, including everything from the amount of the customer funds shortfall to proposed distributions of recovered funds. Giddens has also signaled his possible willingness to pursue claims against MF Global executives including Jon Corzine, Edith O’Brien and Henri Steenkamp.
1. Jon Corzine
Chairman and CEO of MF Global
Finally we come to the man at the top: MF Global CEO Jon Corzine. Corzine took his place at the company’s helm in March 2010, having previously served as Chairman and CEO of Goldman Sachs, a U.S. Senator and Governor of New Jersey. It was Corzine who spearheaded the firm’s transformation into an investment bank, an effort that led him to take on the risky positions in European sovereign debt that would later precipitate the firm’s demise.
The former executive’s exact role in the improper transfer of customer funds is still unclear, although individuals such as Terry Duffy and Trustee James Giddens have openly accused him of wrongdoing. Thursday’s Congressional report also placed the blame for the company’s bankruptcy squarely on Corzine’s shoulders, stating that “During his nineteen-month tenure as Chairman and CEO of MF Global, Jon Corzine made several fateful decisions, the cumulative effects of which caused MF Global’s bankruptcy and jeopardized customer funds.”
Check out these other slideshows related to MF Global: