Friday, November 04, 2011

Corzine Resigns From MF Global As Investigations Continue

Things are not looking good for former New Jersey Governor Jon Corzine. First, his new company MF Global imploded after Corzine pushed the company to take risky bets on sovereign debt in Europe and failed to have sufficient collateral to back those bets.

Then, the company failed to provide proper protections for client accounts - commingling funds of clients with company money that is a huge red flag. That only came to light after suitors for the company started poring through the books and saw serious discrepancies. Those discrepancies total more than $630 million that cannot be accounted for.

The potential buyers fled, MF Global declared bankruptcy, and the regulators and investigators are now picking over the ruins.

And what of Jon Corzine? Not only has he resigned as head of MF Global, he's now hired a criminal attorney, which is natural because he's likely going to be facing charges relating to the commingling of funds, leading everyone astray with his reassurances at a time when he knew, or had reason to know, that his company was crumbling all around him.

We're supposed to be grateful that Corzine didn't seek his massive severance package, which totals more than $12 million? Sorry, but he's bankrupted the company; there's no money to collect.
Mr. Corzine resigned from MF Global on Friday morning and will not seek $12 million severance payments.

Federal authorities, including the Federal Bureau of Investigation and the Securities and Exchange Commission, are investigating the $630 million in missing customer money at MF Global.

Mr. Levander could not be reached as he is out of the country, according to his assistant. He did not return an e-mail seeking comment. Daniel O’Donnell, the chief executive of Mr. Levander’s law firm, Dechert, declined to comment.

In Mr. Levander, the chairman of Dechert, Mr. Corzine has retained a New York lawyer who is no stranger to defending prominent Wall Street executives. He represented John Thain, the former chief executive at Merrill Lynch, in a government inquiry related his role in Merrill’s sale to Bank of America. Ezra Merkin, a hedge fund manager who invested with Bernard L. Madoff, hired Mr. Levander to defend him against a New York attorney general’s lawsuit connected to the Madoff case.

“Andy is not just smart but has a deep understanding of the investigative process,” said Steven M. Cohen, a defense lawyer at Zuckerman Spaeder in New York and the former top aide to Governor Andrew M. Cuomo. “He understands how cases are built and therefore how they are defended.”

Other recent high-profile assignments for the bow-tie clad Mr. Levander include his representation of the outside directors of Lehman Brothers and, a jobs Web site, in a government investigation relating to the backdating of employee stock options. In 2004, he obtained an acquittal for Michael Rigas, a former Adelphia Communications executive, in a criminal trial. A jury convicted Mr. Rigas’s father and brother in the same case.

Like much of New York’s white-collar defense bar, Mr. Levander is a former federal prosecutor in Manhattan. A graduate of Tufts University and Columbia Law School, Mr. Levander clerked for Judge Wilfred Feinberg on the Federal Appeals Court in Manhattan. He joined Dechert in 2005 after it acquired Swidler Berlin Shereff Friedman, a small New York firm where he had worked.
Corzine also hired another firm to represent him in bankruptcy proceedings and shareholder suits that are already being lodged against the firm and him personally.

This will not end well for Corzine.

Is there a conflict of interests between the regulators and investigations into Corzine's actions. The head of the Commodity Futures Trading Commission (CFTC), is Gary Gensler. The two have crossed paths numerous times and raises questions as to whether Gensler can do his job to suss out all that went wrong with MF Global and hold Corzine accountable:
Gensler was a partner with Goldman Sachs, rising to rank of co-head of finance before leaving the firm in 1997 for a role in the U.S. Treasury department. At the time, Corzine, a 24-year veteran of the firm, served as its CEO.

The two men met up again on Capitol Hill, when Corzine, then the junior senator from New Jersey, in 2002 helped co-author the landmark Sarbanes-Oxley Act, which imposed massive new regulations in response to accounting scandals that caused Enron, Tyco and WorldCom to implode. Gensler was a senior advisor to Sen. Paul Sarbanes (D-Md.), then chairman of the Senate Banking Committee, for whom the act was partially named.

This week’s turn of events–MF Global’s meltdown and subsequent findings by its regulators that the firm allegedly violated requirements on customer segregated funds–promises to reunite the two men once again, though on opposite sides of the table. A CFTC spokesman did not return a message immediately seeking comment on Corzine and Gensler’s connection and whether it represents a potential conflict.
I don't think this will affect the investigations, since Gensler could recuse himself while others around him in the CFTC can do their jobs.

Wouldn't you know it that Corzine lobbied to get regulators to reduce their restrictions on the very kinds of transactions that undid MF Global.
As a former United States senator and a former governor of New Jersey, as well as the leader of Goldman Sachs in the 1990s, Mr. Corzine carried significant weight in the worlds of Washington and Wall Street. While other financial firms employed teams of lobbyists to fight the new regulation, MF Global’s chief executive in meetings over the last year personally pressed regulators to halt their plans.

The agency proposing the rule, the Commodity Futures Trading Commission, relented. Wall Street, which has been working to curb many financial regulations, won another battle.

Yet with MF Global in bankruptcy and regulators scrambling to find $630 million in missing customer funds, Mr. Corzine’s effort may come back to haunt him.

The proposed rule would have restricted a complicated transaction that allowed MF Global in essence to borrow money from its own customers. Brokerage firms are allowed to use customers’ money to earn interest, not unlike banks, but this rule would have outlawed using customer funds for a loan to the firm itself.

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