Since the Great Recession started in 2008, or more precisely, since the Lehman Brothers meltdown that year, there have been a slew of villains popping up in the financial world. The entire Wall Street, that 1%, has been vilified by the public and media. Goldman Sachs raised everyone’s shackles as its role in the subprime mortgage collapse was revealed in the news. Don’t forget the Ponzi schemers: Bernie Madoff, quickly followed by Robert Allen Stanford. Ponzi scheme frauds are particular reviled by the public, as the losses suffered by unsuspecting clients directly went to feed those committing the fraud. There is one individual whose crimes rank on par with these villains, but he may get away with not having to pay for them: Jon Corzine.
Corzine and other top executives at MF Global have been sued by account holders whose assets were misappropriated, and they well should be. Corzine presided over MF Global as the money disappeared, so there is that accountability. But contrary to the passive image he is cultivating, Corzine is far more than a CEO caught in a bad situation, a leader who was unaware of what was happening at his firm. It’s clear is that he played an active role in MF Global’s downfall and the loss of $1.2 billion of customer assets.
First, aside from people who work on Wall Street, who has even heard of MF Global before Corzine joined the firm? Very few, because it was just a small commodities firm that became a modest-sized brokerage. Corzine’s ambition was to turn the firm into a global hedge fund powerhouse, not surprising since he used to run a financial giant named Goldman Sachs. His strategy was to make bigger and bolder trading bets. During his testimony to Congress, Corzine claimed that media reports of his huge risk leverage was overstated and downright misleading, stating that he actually reduced the leverage ratio of the firm from 37.3-to-1, to 30-to-1. But what he didn’t say was that MF Global was now making huge leveraged bets on much, much riskier investments involving European sovereign debt, off the balance sheet no less, which the firm previously did not engage in. This risky trading grew exponentially at the firm, over the objections of the firm’s previous risk officer.
What makes Corzine a particular distasteful villain is that his testimony has been carefully crafted to absolve him from any misstatement and set up other scapegoats. He stated that he was not involved in “the mechanics of the clearing and settlement of trades, or in the movement of cash and collateral.” Of course, what CEO is directly involved in such back office duties? He also said that he did not intend for any funds to be moved, but allows that someone could “misinterpret” his intentions. This effectively sets someone else up to be the fall guy, the person who misread his intentions and actually moved the money.
It would be very hard to nail Corzine, as there is no direct proof that he personally supervised the movement of customer funds. But for those who follow exactly what has transpired at MF Global after Corzine took over, there is no question about his culpability. His stint as a senator and governor also nurtured cozy relationships with regulators, which he mined when he gained the right for MF Global to sell treasuries, a move that allowed the firm to borrow money with lower interest, among other benefits. He still has some pretty powerful friends in the government, and that can only help him as the investigation goes on.
In the end, Corzine’s actions at MF Global culminated in something that amounts to a monumental fraud, in which customer funds were looted to cover up the firm’s own trading losses. He also ushered in a new era of investor skittishness, of people wondering not only about the safety of their investments, but about whether their brokers are siphoning money out of their accounts. The chances that he would be found criminally responsible are pretty slim, but the hard facts show that he ranks up there with the worst evil-doers in Wall Street history.