In the somewhat unsurprising conclusion of former FBI Director Louis Freeh's investigation into the MFGlobal collapse, Jon Corzine's aggressive bets on European sovereign debt led to the firm's dramatic collapse. The 124 page report (below) is extensive; noting, as Reuters reports, that Corzine's single-handed "negligent conduct" contributed to the company's failure. It was also "almost impossible to properly monitor the liquidity drains... caused by Corzine's proprietary trading strategy," the report said, adding that the "glaring deficiencies" in the firm's internal reporting were, "long-known to Corzine and management, yet they failed to implement sufficient corrective measures promptly." The investigation, based on interviews with former MF Global employees, board members and the review of hundreds of thousands of documents, concludes, "The risky business strategy engineered and executed by Corzine and other officers and their failure to improve the company's inadequate systems and procedures so that the company could accommodate that business strategy contributed to the company's collapse." Obviously, Corzine has denied any wrongdoing.
Via Reuters, [10]
Jon Corzine's aggressive bets on European sovereign debt while head of the MF Global Holdings Ltd brokerage led to the firm's dramatic collapse in 2011, according to a report by the bankruptcy trustee.
Former FBI director Louis Freeh acknowledged that a slow U.S. economic recovery had played a role in MF Global's woes, but he said "negligent conduct" contributed to the company's failure.
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"The risky business strategy engineered and executed by Corzine and other officers and their failure to improve the company's inadequate systems and procedures so that the company could accommodate that business strategy contributed to the company's collapse," Freeh wrote in the 124-page report.
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Freeh's report found MF Global management ignored the hedging recommendations of its chief risk officer, Michael Stockman, and lacked the controls to monitor its cash on a real-time basis.
The weak reporting system also prevented the company from knowing that cash from segregated customer accounts was being used to meet margin calls tied to MF Global's own bets on the sovereign debt of countries such as Portugal and Ireland.
"These glaring deficiencies were long known to Corzine and management, yet they failed to implement sufficient corrective measures promptly," the report said.
Freeh's responsibilities include pinpointing possible legal liabilities of the management, and the singled out the "failures" of Corzine, former chief operating officer Bradley Abelow and former chief financial officer Henri Steenkamp.
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On Friday, U.S. Bankruptcy Judge Martin Glenn will be asked to approve MF Global's plan of liquidation. General unsecured creditors of the holding company are expected to collect between 14.7 cents and 34 cents on the dollar of what they are owed, according to court documents.
Full Freeh report below: