Jon Corzine, the former CEO of Goldman (and New Jersey) and the man who singlehandedly brought down trading powerhouse MF Global with a few Italian bonds is back, baby... with a few conditions.
As Bloomberg first reported, Corzine’s application to register his new hedge fund, JDS-JSC, LP, was approved by the Securities and Exchange Commission, however in a novel spin, "it attached a series of seldom-seen conditions" for the fund of the former executive who many claim should have been barred from working in the industry.
Among the restrictions on Corzine’s firm, are limitations on his ability to handle customer cash and invest in less-liquid assets. Amusingly, the SEC order includes "trading parameters" that bar JDC-JSC from engaging in prop trading - which is bizarre for an investing vehicle whose entire operation is prop trading by definition - and also require it to have a “reasonable basis” to expect that, under normal conditions, each of its funds could be “orderly liquidated” within five trading days. According to David Tawil, co-founder of Maglan Capital, that would restrict Corzine to trading in only the most liquid of markets, such as those for currencies and large-cap stocks.
“There aren’t many assets you can blow out in five days,” Tawil said in a telephone interview. "I really don’t understand what magic Corzine thinks he is going to perform in markets with these shackles on.”
The answer may be simpler than David thinks: inside information, which is one thing the formerly best connected executive on Wall Street will have plenty of. Although in this age when all that matters are central banks, it is unclear if even having inside information will allow one to consistently generate P&L.
Separately, each fund is ordered to have investors give 65 days notice in order to withdraw capital, though the firm may agree to shorten this to no less than 30 days, according to the order, making it a glorified E-Trade account with virtually no lock-ups (and certainly no gates). Each fund also must have an independent administrator to handle client subscriptions, redemptions and cash; Corzine himself “will not be involved” in these activities.
Those limits ironically reflect the events at MF Global Holdings that unfolded under Corzine, when seeking to boost trading revenue, he commingled client funds to make at least $6 billion in proprietary bets on European sovereign debt. Then when the bonds tumbled and the firm faced a margin call, some $1 billion in client funds went "temporarily missing" and MF Global filed for bankruptcy overnight.
Ironically, whereas the CFTC permanently banned Corzine from the futures industry, he somehow was given a pass by the SEC, although one assume his tenure at Goldman had something to do with it.
As Bloomberg notes, earlier this month, a group of execs and traders from the National Futures Association had circulated a petition to send to the SEC to deny Corzine’s application, citing his role in the MF Global bankruptcy. Kyle Bass was among those who signed the petition.
“Corzine levered the firm to make big sovereign bets on euro debt and then they misappropriated their customers’ money to pay for the margin calls,” Bass said in an email. “Why on earth should the SEC allow him to have a license to handle customer money once again?”
Well, Kyle, think of it as natural selection: any idiot who gives money to Corzine to manage, deserves to lose it all. Which means that within a few weeks, we expect Corzine to be managing several billion.
For those curious, we previously reported that the JDC-JSC Opportunity Fund, which bears the initials of Corzine’s late son Jeffrey and his own, will launch this quarter and aims to attract $100 million to $300 million in its first trading year. Corzine and former Taconic Capital Advisors investment director Richard Chappelear will share the chief investment officer role.