Corzine blames in report on MF Global failure

I’ll bet Jon Corzine wishes he never said yes to the top job at MF Global. After a pretty good run at Goldman Sachs and as governor of New Jersey, he could have written a book, milked the speaker circuit, or simply enjoyed his millions. But no, he had to run another company, but this time, he didn’t do such a good job.

Here’s the story from the Wall Street Journal:

A risky business strategy as well as “negligent conduct” by former Chief Executive Officer Jon S. Corzine and his management team contributed to the unraveling of MF Global Holdings Ltd.,  a new report said Thursday.

The report, released by Louis J. Freeh, the trustee for MF Global Holdings, laid much of the blame for the company’s 2011 bankruptcy at Mr. Corzine’s feet, accusing him of implementing trading strategies with minimal oversight and exceeding board-approved limits for some European trades the company made under his stewardship.

The brokerage Mr. Corzine was trying to turn around was doomed due to “inadequate systems” and a trading strategy that had “fatally flawed” capital and liquidity assumptions, said the 174-page report, filed in U.S. Bankruptcy Court Thursday morning.

Mr. Freeh planned to bring a lawsuit alleging breaches of fiduciary duty against former MF Global executives including Mr. Corzine, but held off to join settlement talks instead, according to the report and a person familiar with Mr. Freeh’s thinking.

Mr. Freeh agreed to postpone filing any suit until a mediator in a related MF Global civil case could complete his work, the person added. Mr. Freeh and other attorneys representing customers of the firm hope that settlement talks will result in faster distributions of payments to all parties.

The New York Times coverage took a slightly different angle, focusing on the potential lawsuits and legal actions that could be brought against Corzine and his team:

The 124-page report filed in federal bankruptcy court early Thursday leveled its sharpest critique at Mr. Corzine, the former chief executive who was once the governor of New Jersey. Expanding on similar reports issued last year by Congressional investigators and another bankruptcy trustee, Mr. Freeh claimed that the C.E.O. ignored warning signs that the firm was in a precarious position even as he placed a risky bet on European debt.

While the bonds were not by themselves to blame for felling MF Global, the bet unnerved MF Global’s investors and ratings agencies. And when the firm spun out of control in October 2011, it grabbed money from its customers in a futile bid for survival. Mr. Freeh argued that the breach, still the subject of a broad law enforcement investigation, could have been prevented.

“Corzine and management knew, or should have known, that these factors were contributing to a precarious liquidity position that ultimately spelled disaster for MF Global,” Mr. Freeh wrote in the report.

A spokesman for Mr. Corzine did not immediately comment. Federal authorities have not accused him of any wrongdoing.

But as Mr. Freeh weighs his next step, a range of legal avenues are available for him to pursue. He could join an earlier lawsuit against Mr. Corzine and other executives, teaming up with the firm’s customers and the trustee overseeing the return of money to customers. Alternatively, Mr. Freeh could file his own case against Mr. Corzine.

The lawsuit, which could help Mr. Freeh recover money for MF Global’s creditors, would likely hinge on what Mr. Corzine knew about the firm’s mounting problems. Mr. Freeh’s report suggests he knew plenty.

Bloomberg added these specifics on the financial collapse of the brokerage:

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.

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

That’s a lot of potential liability. While Corzine certainly isn’t talking, there was one piece of information missing in these stories. I want to know how many CEOs of bankrupt companies have actually had to pay anything to the trustee. I’m sure there are some examples out there. What about Enron or some of the other spectacular collapses?

The problem for the trustee and anybody else thinking of suing them is that it’s going to be hard to prove who knew what and when they knew it. I certainly don’t have high hopes for a successful lawsuit.