Jon Corzine sued by trustee Freeh over MF Global failure

Giddens Claims

Giddens, who has conducted his own probe into how the company failed, said in a report last year that he determined claims for breach of fiduciary duty and negligence against Corzine, Steenkamp and other officials.

Freeh’s report paints Corzine as a tunnel-visioned leader, insulated from criticism, who, although fully aware of the limitations of the company’s system, pushed to transform MF Global into an investment bank by taking on greater risk.

Corzine moved to diversify the company away from traditional investment of client funds and make it a broker dealer and full-scale investment bank. By September 2010, he had begun asking the board to increase the company’s risk limits to invest in more European sovereign debt issued by countries such as Italy, Portugal, Spain and Ireland, according to Freeh’s report.

Corzine had unlimited power in his role at MF Global, holding positions that were previously filled by two different individuals, according to Freeh’s report. Corzine hired Chief Operating Officer Abelow, who was once his chief of staff as governor, and favored Steenkamp over then-CFO Randy McDonald. Under Corzine, the board reduced its executive committee to four members from five, according to the report.

To implement his strategy for the company, Corzine handpicked traders with whom he worked and began trading on his own, under minimal supervision, in June 2010 using an existing Treasury Department account, according to the report. He maintained his own portfolio for the company in accounts that bore his initials JSC and was known to place trades in the middle of meetings.

Driving Force

Corzine was the driving force behind MF Global’s European trading portfolio and personally instructed traders “when to enter and exit various positions,” Freeh said in the report.

The company’s problems were exacerbated by MF Global’s method of accounting for its European trades, according to the report. The so-called repurchase to maturity transactions allowed MF Global to immediately recognize income while removing the transactions from the company’s balance sheets, according to the report.

Under Corzine, MF Global’s position in such investments increased from $400 million in mid-September 2010 to $8.3 billion at the end of August 2011, according to the report.

The trades, which required a margin payment, “jeopardized the company’s available liquidity and left the company highly leveraged,” Freeh said in the report.

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