Congressional report blames CEO for MF Global downfall

Jon Corzine, then the governor of New Jersey, shakes hands with the crowd at an event in 2008. (Tony Fischer Photography/Flickr)

A Congressional report investigating the bankruptcy of commodity trading firm MF Global lays blame for the company’s collapse on former MF Global CEO Jon Corzine.

Authorities have all but cleared Corzine, also a former Democratic governor and senator from New Jersey, of criminal charges, but regulators are still unraveling what went wrong before the company’s bankruptcy in October 2011.

The report (PDF), authored by the Oversight and Investigations Subcommittee of the House Committee on Financial Services, was not endorsed by the committee’s ranking Democrat, Rep. Michael Capuano of Massachusetts.

Rep. Randy Neugebauer, a Republican from Texas, chairs the subcommittee, which spent a year investigating the bankruptcy.

“Choices made by Jon Corzine during his tenure as chairman and CEO sealed MF Global’s fate,” Neugebauer said in a statement released Wednesday previewing the report’s finding. “Farmers, ranchers and other customers may never get back over $1 billion of their money as a result of his decisions.”

Farmers and ranchers often use the commodity markets to hedge their risk. When MF Global went bankrupt, regulators discovered about $1.6 billion of customer money the firm had been holding was missing. Neugebauer’s $1 billion figure seems high, however, as most customers have received about 80 percent of their missing funds. Some farmers and ranchers may still have lost hundreds of thousands of dollars.

According to the report, Corzine turned the commodity firm into an investment bank that made risky bets, mostly on European debt. The report alleges Corzine personally made many of the most risky trades, putting the company at risk.

“By acting as the de facto chief trader for the company, Corzine insulated his trading activities from the company’s normal risk management review process,” the report states.

When those trades went bad, MF Global used customer money to pay its own obligations.

Prior to the MF Global meltdown, many farmers and ranchers thought the money they stored in accounts with futures trading companies was as safe as if it was at a bank. That breach of trust has had a profound effect on the way farmers and ranchers use the futures market, which is vital in hedging against unpredictable changes in the weather and commodity prices. Commodity broker Tom Leffler said that market was shaken when I interviewed him in April.

“It’s no different than a business partner taking advantage of another partner or a spouse cheating on the other spouse,” Leffler said. “You can forgive them, but you never forget.”

According to the New York Times’ Ben Protess, federal authorities don’t plan on bringing criminal charges against Corzine, though regulators may bring civil charges.

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