House Republicans Find Corzine Guilty Of MF Global Collapse, Missing Funds; Democrats Refuse To Endorse Findings

Tyler Durden's picture

It appears that these days not even the Corzining of client money can happen without it being split across furiously polarized party lines. As it turns out hours ago, the Committee on House Financial Services released an advance glimpse into a report to be released in its entirety tomorrow, which puts the blame for the collapse of not only MF Global, but also the disappearance of millions in client money, right where it belongs: the firm's then CEO Jon Corzine.

As Bloomberg summarizes, "The summary reflects conclusions reached by Republicans, who hold a majority on the panel and were in contact with Democrats during the investigation, according to Jeff Emerson, spokesman for the Financial Services Committee. The investigation included three congressional hearings, more than 50 interviews and a review of documents from MF Global, former brokerage employees and regulators, according to the summary."

Yet that Corzine corzined millions, leaving clients scrambling in bankruptcy court in an attempt to recover what should have been segregated money from the very beginning, and also just happened to blow up one of the 21 Fed-anointed Primary Dealers, is not surprising: this has been long known by everyone. Those who need a refresher are urged to recall the Honorable's testimony before the House... or maybe not: after all it is not as if Corzine himself could recall a whole lot. Where it gets interesting is that the former Democratic governor, and senator, not to mention primary bundler for president Obama, is, in the eyes of the members of the committee, innocent: All the democrats on the Investigations Subcommittee refused to sign off on the findings, meaning that to them, Corzine is completely innocent. That this is purely a political move is glaringly obvious. It is also abhorrent, because as long as political ideology gets in the way of pursuing and imposing justice, the Banana States of America will remain just that.

From The Committee on Financial Services:

Subcommittee Investigation Reveals Decisions by Corzine Led to MF Global Bankruptcy and Missing Customer Funds 

Full report of Financial Services Oversight and Investigations Subcommittee
to be released Thursday

 

WASHINGTON – Decisions by Jon Corzine to chart a radically different course for MF Global and try to turn the 230-year-old commodities broker into a full-service investment bank were the cause of the firm’s bankruptcy and failure to protect customer funds, Republican members of a congressional subcommittee will report this week.

The House Financial Services Subcommittee on Oversight and Investigations, chaired by Rep. Randy Neugebauer, will release the full results of its year-long staff investigation into the collapse of MF Global on Thursday.

 

“Our investigation is essentially an autopsy of how MF Global came to its ultimate demise and what can be done to prevent similar customer losses in the future,” said Chairman Neugebauer.

 

Corzine, a former co-chairman of Goldman Sachs who later became a U.S. senator and governor of New Jersey, resigned from MF Global on November 4, 2011, almost 20 months after becoming the firm’s Chairman and CEO.  The brokerage had declared bankruptcy four days earlier and its collapse revealed a $1.6 billion shortfall in customer funds. 

 

“Choices made by Jon Corzine during his tenure as chairman and CEO sealed MF Global’s fate,” Chairman Neugebauer stated.   “Farmers, ranchers and other customers may never get back over $1 billion of their money as a result of his decisions. Corzine dramatically changed MF Global’s business model without fully understanding the risks associated with such a radical transformation.”

 

The Subcommittee’s staff investigation of MF Global involved three hearings, more than 50 witness interviews, and the review of more than 243,000 documents obtained from MF Global, its former employees, federal regulators and other sources.

 

“By expanding MF Global into new business lines without first returning its core commodities business to profitability, Corzine ensured that the company would face enormous resource demands and exposed it to new risks that it was ill-equipped to handle,” the subcommittee report states.

 

In order to generate the revenue needed to fund MF Global’s transformation, Corzine invested heavily in the sovereign debt of struggling European countries.  These investments, which carried enormous default and liquidity risks, were a “prime focus” of Corzine’s attention and he failed to develop a corporate strategy for managing the risks, the subcommittee majority staff found.

 

Authoritarian atmosphere

 

Those risks were exacerbated by an authoritarian atmosphere Corzine created at the firm where “no one could challenge his decisions,” the subcommittee report reveals. 

 

Corzine made significant changes to MF Global’s senior management, including the hiring of Bradley Abelow, his former gubernatorial chief of staff, as the firm’s chief operating officer.

 

When MF Global’s chief risk officer disagreed with Corzine about the size of the company’s European bond portfolio, Corzine directed him to report to Abelow rather than to MF Global’s board of directors.  “This change effectively sidelined the most senior individual charged with monitoring the company’s risks and deprived the board of an independent assessment of the risks that Corzine’s trades posed to MF Global, its shareholders and its customers,” the report declares.

 

Corzine insulated trading activity from review process

 

In addition, the subcommittee’s report reveals that Corzine acted as MF Global’s “de facto chief trader” and insulated his trading activities from the company’s normal risk management review process.  This enabled Corzine to quickly build the company’s European bond portfolio “well in excess of prudent limits without effective resistance.”

 

Rather than hold the European bonds on MF Global’s books, which could expose the company to earnings volatility, Corzine chose to use these bonds as collateral in repurchase-to-maturity (RTM) transactions.  This permitted the company to book quick profits while keeping the transactions off its balance sheet.

 

Failure to initially disclose extent of risks

 

Since MF Global did not initially disclose the full extent of its European bond holdings, federal regulators and the investing public were not aware of all the risks facing the company. 

 

The belated disclosure in October 2011 of its extensive European RTM portfolio – which amounted to 14 percent of MF Global’s total assets – combined with poor earnings news prompted credit rating agencies to downgrade the company’s credit rating to junk status. 

 

The downgrade set off a “run on the bank” by MF Global’s investors, customers and counterparties that created a liquidity crisis during what would turn out to be the company’s final days.  

 

Because Corzine had failed to integrate systems and controls for managing the company’s liquidity and protecting customer funds, the company could not fully assess and anticipate its liquidity needs during the crisis, nor could it coordinate its cash management, liquidity monitoring and regulatory compliance functions.

 

Liquidity crisis prompts withdrawal of customer funds

 

“As the company struggled to find additional liquidity,” the subcommittee reports, “company employees identified excess company funds held in customer accounts.  However, because they did not have an accurate accounting of the amount of customer funds the company held, they withdrew customer funds as well as company funds.”

 

The subcommittee notes that it will be up to prosecutors and regulators to determine whether MF Global or its employees violated laws or regulations when these withdrawals of customer funds were made.

 

‘Dereliction of duty

 

“However, the responsibility for failing to maintain the systems and controls necessary to protect customer funds rests with Corzine,” the report maintains.  “This failure represents a dereliction of his duty as MF Global’s chairman and CEO.”

 

In its report, the subcommittee recommends that Congress consider legislation to impose civil liability on the officers and directors of futures commission merchants (FCMs) like MF Global who sign financial statements or authorize transfers from customer segregated accounts.  Such legislation could “restore investor confidence in the derivatives markets and ensure that an FCM does not misuse customer funds in the future,” the Subcommittee report said.

 

Other findings of investigation to be released

 

In addition to its findings that Corzine’s decisions led to MF Global’s downfall, the Subcommittee report is expected to address regulatory agencies’ failure to share critical information with each other about MF Global, failures by credit rating agencies to sufficiently review MF Global’s public filings, and concerns about the New York Federal Reserve’s decision to designate MF Global as a “primary dealer” despite the company’s troubled financial situation.

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Rearranging Deckchairs's picture

yeah great but no one's going to prosecute. I wonder if the conclusions of a congressional panel are admissible in the civil suits ?

john39's picture

i read in RT today that some guy got convicted in Alabama of selling a couple copied cd's and got sentenced to two years in prison...    clearly he should have sold 200 million CD's, and could then walk away like corzine.

kaiserhoff's picture

So much for the rule of law.

NotApplicable's picture

As I mentioned in another thread earlier, I've yet to see anything in the report discussing his blatant CRIMINAL activity.

Instead they just paint him as a loose cannon, taking on undue risk, which caused a bank run, which brought down MFG.

Perhaps there's something buried deep within the report, but if so, it's being white-washed away.

asteroids's picture

I would be more than happy to free him from the hangmans noose after he expires.

AlaricBalth's picture

I would think an aggressive state attorney would have standing to charge Corzine with criminal breach of fiduciary duty. If the Feds don't have the intestinal fortitude perhaps a state prosecutor will.

"If a relation of trust and confidence exists between the parties (that is to say, where confidence is reposed by one party and a trust accepted by the other, or where confidence has been acquired and abused), that is sufficient as a predicate for relief. [ ] Fiduciary relationships may be implied in law and such relationships are premised upon the specific factual situation surrounding the transaction and the relationship of the parties. [ ] Courts have found a fiduciary relation implied in law when confidence is reposed by one party and a trust accepted by the other. [ ] To establish a fiduciary relationship, a party must allege some degree of dependency on one side and some degree of undertaking on the other side to advise, counsel and protect the weaker party."

Rearranging Deckchairs's picture

I wasn't aware that there was such a thing as a criminal breach of fiduciary duty! I have only ever heard  about breach of fiduciary duty as a civil cause of action. He is surely liable for a breach of fiduciary duty by his actions taken as outlined in the report. Unfortunately, I am sure that MF Global had Errors and Omissions or Directors and Officers insurance as well as probably have some sort of indemnification clause in their bylaws so its not like the civil suits will directly punish Corslime. Unless they manage to make civil fraud causes of action stick.

If there is indeed such a crime I would like to see an agressive state attorney general

redpill's picture

Well, it's criminal when it's blatent fraud.  We're not talking about an accounting error here.

 

strannick's picture

As every good Democrat knows, there is no objective Truth, only subjective truths. You only have to choose to believe Corazine is innocent and then it becomes true to you.

Only power mongering white patriarchical western males insist on such antiquated notions such as justice and truth.

Only Republican Fascists would attempt to smear a noble Obama footsoldier such as John Corazine.

GetZeeGold's picture

 

 

On further review....there's not sufficient evidence to support the challenge.

 

The play stands. First down and ten.

 

Hurray for our side. Paying off the referees was a good call.

 

kralizec's picture

More proof of zero difference between Dem's & Pubbies?  Absolutism is soooo confusing...

williambanzai7's picture

Breach of fiduciary duty is watered down by something else called the "business judgement rule."

hidingfromhelis's picture

Hmmm, no mention of clawing back the segregated account funds that improperly went to JPM.  Imagine that!

Karl von Bahnhof's picture

Maybe he should go to jerk off to some orthodox church or put a frozen chicken in his ass in WalMart to ensure his freedom.

/sarc on

TeamDepends's picture

He is pretty good looking...

NotApplicable's picture

*With purchase of bankster of equal or greater value.

tom a taxpayer's picture

Where the hell are the prosecutors?

William Black for Special Prosecutor.

knukles's picture

There're thousands upon thousands of star prosecutors... just nothin' to prosecute.

Beam Me Up Scotty's picture

"As I mentioned in another thread earlier, I've yet to see anything in the report discussing his blatant CRIMINAL activity.

Instead they just paint him as a loose cannon, taking on undue risk, which caused a bank run, which brought down MFG.

Perhaps there's something buried deep within the report, but if so, it's being white-washed away."

If they painted Corzine a criminal it would reveal that they are all criminals in one way shape or form. The whole thing is rotten to the core.

Urban Redneck's picture

Jury nullification is the rule of law, just ask OJ.  Hopefully if someone takes the law into their own hands, they will benefit from jury nullification as well.

Troll Magnet's picture

Why do you want to prosecute Corzine?  Are you a Hamas member or something?

Shalom, bitchez!

TruthInSunshine's picture

The Hon. Jon S. Corzine is far too relaxed on his luxurious sloop ("Fractional Rig-ged") that's currently cruising through warm Caribbean turquoise/aquamarine waters to be bothered by such political wrangling.

 

#PimpHandStrong

emersonreturn's picture

as well as corzine, obama has to answer for underwriting the banks rather than giving the Fed's bogus printed fiat to small business.  he chose to support crime and corruption rather than follow a path toward prosperity and integrity. 

Troll Magnet's picture

Op, op, op, op

Oppa Chicago Style!

SILVERGEDDON's picture

Corn, meet hole. We are the hole, Corzine and his buddies are the cobs. Bend over, bitchez.

eatthebanksters's picture

I'd rather donate a bullet to the soul that is brave enough to take the shot...

FEDbuster's picture

Better make that a silver bullet with a tungsten cross as it's core.

Why hasn't one of the people he ripped off taken this POS out?  There has to be a rancher, farmer, etc... out there who can put a hole through a silver dollar from 200yds. out with a 30.06, just sayin...

xtop23's picture

I just can't believe, we have fallen so far, that this fuckhole still has his freedom.

vast-dom's picture

Good cop, bad cop fuck them both = the game is to perpetuate the rot.

HelluvaEngineer's picture

If cracka don't go jail, imma gonna riot </twitter>

BurningFuld's picture

cracka ain't gonna see no jail: In its report, the subcommittee recommends that Congress consider legislation to impose civil liability on the officers and directors of futures commission merchants (FCMs) like MF Global who sign financial statements or authorize transfers from customer segregated accounts.

Civil liability??? Are you fucking kidding me? The guy should be in shackles with NO BAIL!! He knowingly robbed hundreds of people.

In other news I am luckily married to an American citizen and have just discovered her reporting requirements under FBAR. (Look it up) I think you people HAVE LOST YOUR FUCKING MINDS! That's just my opinion of course as I am sure you have plenty of money and time to peruse through legally registered foreign retirement accounts while all the time remembering Mittens paying his whopping 14% tax. Good thing your politicians are not running for office here!!! Fuck me.

SilverRhino's picture

That would be the same Mittens who donated roughly a quarter of his income to charity right?   

dark pools of soros's picture

saying he has Income???  Those are fighting words for the 1%

LongSoupLine's picture

 

 

Time for another ZH "Meet the members of the (insert corrupt group here)" profile outting.

 

I love those.

PrintingPress's picture

Print names! 

 

Get 60 minutes to do a story on things and get this public.  I bet there are some farmers that have an opinion on this. 

NotApplicable's picture

LOL, surely you don't believe in the sanctity of 60 Minutes?

Like all weapons, they are used by one entity to take out another. The only thing to learn from 60 Minutes is who isn't in "the club" (total take-down) vs. who is (fake attack in the form of damage control).

In other words, one of the finest long-term CIA ops going.

iDealMeat's picture

+1,  Watched it last night. It was on mortgage fraud, derivatives, and general crisis in 08. The sole reason I watched it was to see who they'd name..

 

Yep..  They called out the usual Bankster criminals save 2..  No mention what-so-ever of Goldman or JP. Morgan..

nada..

Bay of Pigs's picture

Yes, we dont need people to name names, we know who the Morgue is.

CFTC Commissioner Bart Chilton on HFT regulations, silver manipulation probe & MF Global

http://rt.com/programs/capital-account/bart-chilton-regulations-global/

foodstampbarry's picture

Bring on the end...Dissolve this union bitchez.

yogibear's picture

Let's start with Texas breaking away and then other viable states that haven't been infested with leeches and socialist.

ghengis86's picture

Remind me again why I don't go and rob banks, the Treasury and all the TBTF's?

no taste's picture

Because that is where you work, Jamie Dimon.

NotApplicable's picture

LOL

"Go home Jamie. You're drunk!"

Strider52's picture

Corzine should be sentenced to jail for a thousand years, or hard labor mining gold to get the customer's money back. But he won't.