Corzine knew MF Global systems fatally flawed, Freeh says

Former MF Global Holdings Ltd. Chairman and Chief Executive Officer Jon S. Corzine’s risky business strategies and mismanagement helped accelerate the futures brokerage’s demise, according to a report by bankruptcy trustee Louis Freeh.

“Corzine and his management team failed to strengthen the company’s weak control environment, making it almost impossible to properly monitor the liquidity drains on the company caused by Corzine’s proprietary trading strategy,” lawyers for Freeh wrote. The 124-page report details how Corzine initiated an “aggressive trading strategy” at the futures brokerage, investing heavily in European sovereign debt, according to the filing today in U.S. Bankruptcy Court in Manhattan.

The parent company of brokerage MF Global Inc. filed for bankruptcy on Oct. 31, 2011, after a wrong-way $6.3 billion trade on its own behalf on bonds of some of Europe’s most- indebted nations. The company, once run by former New Jersey Governor and Goldman Sachs Group Inc. Co-Chairman Corzine, listed assets of $41 billion and debts of $39.7 billion.

During the last week of October 2011, MF Global needed to rely on its Operations, Risk, and Treasury Department systems, which were fatally flawed, Freeh found. Corzine and other members of his management team, including Chief Operating Officer Bradley Abelow and Chief Financial Officer Henri Steenkamp knew about their deficiencies many months before, and their failure to address them contributed to the company’s demise, Freeh found.

Estimated Losses

Freeh estimates the losses to MF Global and its finance subsidiary were from $1.5 billion to $2.1 billion.

“Based on the Trustee’s investigation, the actions and failures of key members of MF Global’s management, in particular the former Chairman and CEO Corzine, the former COO Abelow, and the former CFO Steenkamp contributed to the losses suffered by Holdings Ltd. and FinCo,” lawyers for Freeh wrote.

MF Global Holdings is scheduled to seek court approval of its final plan to liquidate tomorrow, which will pave the way for the eighth-largest bankruptcy in U.S. history to wind down under court protection. The plan is supported by Freeh.

The holding company’s Chapter 11 case is In re MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The liquidation of the broker is In re MF Global Inc., 11-bk-02790, in the same court.

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