In December of 2011 Jon Corzine, CEO of the recently bankrupt MF Global, had some explaining to do. Not only was the firm broke, but $1.6 billion of its customers' money was missing.
The situation was apparently a real head scratcher for Mr. Corzine, who is best known as a former New Jersey governor, US senator and onetime CEO of Goldman Sachs. He declared before a congressional committee, "I simply do not know where the money is . . .”
It was just gone. In all of the "chaos" $1.6 billion had simply vanished into thin air. Surely this sort of thing happens all of the time. One minute you have $1.6 billion in the investment funds of a customer - in this case a bunch of farmers and ranchers - and the next minute that money has been inexplicably spent to try to stabilize your own sinking business. There was a pile of money, which looked like lots of other piles of money, you were accustomed to moving big piles of money around, and this $1.6 billion pile just got put in the wrong place. It could happen to anyone, right? All of the farmers’ and ranchers’ money held by MF Global just sort of rode off into the sunset.
Jon Corzine did not become the CEO of Goldman and MF Global for being an idiot (See here for the excellent PBS Frontline video report on Corzine and the demise of MF Global). Corzine was known as a shrewd, active, hands-on trader and an incredibly ambitions man. Even while at the top of the top of the Wall Street food chain, he maintained a desk down on the trading floor. As head of MF Global he borrowed heavily to make a $6.3 billion bet on the sovereign debt of the so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain). In so doing, MF Global became highly leveraged. The strategy wasn't as crazy as it seems in hindsight, but the scale of the bet in relation to MF Global was unprecedented. As reported by Richard Finger writing in Forbes, default on the kind of short term bonds on which Corzine was betting was highly unlikely. Indeed, the bonds proved ultimately sound, but unfortunately for Corzine, the crisis in Greece exploded all over the media while MF Global held the bonds. Word soon got out just how big Corzine's bet was. As a result, Moody's downgraded MF Global’s credit rating to a near junk level, causing a run on the firm's reserves. Corzine needed some fast cash.
Enter Edith O'Brien, the Assistant Treasurer who in late October 2011 transferred, in several installments, the $6.3 billion out of the customer accounts held at JP Morgan and into MF Global's account. It was perfectly legal for MF Global to borrow from its own customers, so long as the money was returned in twenty-four hours. But in what other business situation is it acceptable for the custodian of someone else's funds to borrow from those funds even for a minute? It's handy when one's pals in government make and enforce the rules. Unfortunately, MF Global returned none of its clients’ money, not in twenty-four hours, and not ever. And testifying before Congress in late December, Corzine just had no idea where all of that money had gone.
Naturally an investigation ensued, but by August the New York Times announced that prosecution against Corzine was unlikely. The chaos that reigned inside MF Global during its meltdown is being used as a justification to get nearly everyone at the firm off the hook for the loss of the $1.6 billion. It's confusing when so much money is flying around (Did you ever try the chaos excuse with the IRS: "But my files were so messy!"). The Times reviewed an e-mail in which it says that O'Brien explicitly told Corzine that the funds being used belonged to the firm and not its customers. Nothing else to report here. Please move on.
But wait. A another report from Bloomberg cites another e-mail written by O'Brien stating that she was passing on "direct instructions" from Corzine to use the customers’ funds three days before MF Global collapsed. Similarly, Fox Business reports that the Chief Financial Officer for North America, Christine Serwinski, “told investigators that her boss, MF Global’s chief executive, Jon Corzine, was well aware of the use and possible misuse of the customer funds during the firm’s final days." In spite of this apparent evidence, the Justice Department seems ready to give Corzine a pass.
It's probably just a coincidence that Corzine was a former client of Attorney General Holder's former law firm, Covington and Burling. Or that the head of the Justice Department's criminal division, Assistant Attorney General Lanny Breuer, also worked at Covington and Burling, which had business with MS Global during the doomed firm's final days. Peter Schweizer has documented this amazing but surely unrelated serendipity.
Schweizer adds that, in another crazy coincidence, "Tony West, who helped raise an estimated $65 million in his role as the co-chairman of Mr. Obama’s campaign, came to the Department of Justice from Morrison & Foerster" and MF Global’s trustee for the Chapter 11 bankruptcy has retained Morrison & Foerster as its general bankruptcy counsel." What a small world we live in!
Pity Mr. Corzine for all of his troubles. It's nice for him that he has friends in high places and hobbies to keep him occupied during what must be a stressful period while his failed firm is under investigation. A favorite hobby for Mr. Corzine appears to be fundraising for President Obama, for whom Corzine raised $500,000 during the first quarter of 2012. One would think that it might be illegal for someone whose firm is under criminal investigation to fundraise for the President whose Justice Department is investigating him, but politicians and special interests see no reason to be prudish in these matters.
During the ongoing presidential campaign, the President will talk and talk about how he has reformed Wall Street. All the while Mr. Corzine, the cat who ate the canary, spits out feathers and bundles more dollars for Barack.
The number of “coincidences” is appalling but politically commonplace. Thank you for “connecting the dots” for the American people in a way the media seems reluctant to pursue.