A House subcommittee report to be released Thursday lays the blame for the demise of commodities broker MF Global at the feet of CEO Jon Corzine, the ex-governor of New Jersey and former Goldman Sachs co-chair.
In a press release today, Republican members of the House Financial Services Subcommittee on Oversight and Investigations said “decisions by Jon Corzine to chart a radically different course for MF Global” sealed the broker’s fate and were at the center of the firm’s bankruptcy and misuse of customer funds.
The committee also found that the liquidity crisis MF Global experienced in its final days and the $1 billion “disappearance” of funds in customer accounts were a result of Corzine’s failure to “integrate systems and controls for managing the company’s liquidity and protecting customer funds.” This led to an inability to “coordinate [the company’s] cash management, liquidity monitoring, and regulatory compliance functions.”
Several CFOs of MF Global testified before the committee earlier this year. They were accused by the company’s bankruptcy trustee of being aware of the risks to customer funds as early as three months before the firm filed Chapter 11. But it is not known whether any of them are mentioned in the subcommittee report.
The year-long committee investigation found that risky investments in European sovereign debt became the prime focus of then-CEO Corzine and that the risks were “exacerbated by an authoritarian atmosphere Corzine created at the firm where no one could challenge his decisions.”
Corzine acted as MF Global’s de facto chief trader, but “insulated” his trades from normal risk-management oversight, the report says. When the European bond strategy was questioned by the company’s chief risk officer, Corzine changed the reporting structure, directing the head of risk to report to the chief operating officer instead of the board of directors.
While it will be up to prosecutors and regulators to determine if MF Global or its employees violated any laws or regulations, the subcommittee said the responsibility for failing to protect customer funds rests with Corzine. “This failure represents a dereliction of [Corzine’s] duty as MF Global’s chairman and CEO,” the report states.
In the report, the House committee recommends that Congress consider legislation imposing “civil liability on the officers and directors of futures commission merchants who sign financial statements or authorize transfers from customer-segregated accounts.”
The subcommittee didn’t let other players in the scandal off the hook entirely. The report also addresses the failure of regulatory agencies to share information about MF Global and that of credit-rating agencies to “sufficiently review MF Global’s public filings,” according to Wednesday’s press release.