MF Global CEO Jon Corzine quits as big bet fails

By Jonathan Stempel and Christopher Doering

Sat Nov 5, 2011 12:29am EDT

(Reuters) - Jon Corzine, one of Wall Street's best-known stars, stepped down as MF Global Holdings Ltd's chairman and chief executive after his bets on European debt drove the futures brokerage into bankruptcy.

The departure was announced on Friday, hours before conflicting reports surfaced about the whereabouts of $633 million of missing customer money, whose disappearance derailed MF Global's effort this week to quickly sell a variety of assets.

JPMorgan Chase & Co said late on Friday it had no information about whether balances in MF Global accounts at the bank contained any of the missing customer funds. It also declined to disclose the balances of those funds.

"The accounts and their balances have been and continue to be wholly transparent to MF Global and the recently appointed (brokerage) trustee," JPMorgan said in a statement.

Earlier in the day, Bloomberg News had said customer funds had been found in a JPMorgan custodial account holding $658.8 million, citing two people with knowledge of the matter.

Corzine, a former chief of Goldman Sachs & Co, characterized his abrupt departure from a company he once joked as "too small to care about" as "difficult" but voluntary.

It was effective on Friday, four days after MF Global sought bankruptcy protection, a company spokeswoman said.

Corzine, 64, joined MF Global in March 2010 as his ticket back to Wall Street, after stints as a U.S. senator from New Jersey and one-term governor of that state. He had run Goldman from 1994 to early 1999.

But when MF Global's $6.3 billion bet on sovereign debt from Belgium, Ireland, Italy, Portugal and Spain went public, counterparties and investors headed for the exits.

"He was seeking redemption," said Robert Fagenson, former vice chairman of the New York Stock Exchange. "When you're not dealing with a Goldman Sachs-type of balance sheet, though, you can't take Goldman Sachs-type bets."

MF Global's decline accelerated last week as the New York-based company revealed more details about its European exposure, posted a larger-than-expected quarterly loss, and was downgraded by major credit rating agencies to "junk" status.

Many investors were also spooked by MF Global's roughly 30-to-1 leverage ratio, based on more than $40 billion of assets and just $1.4 billion of equity. Corzine himself has said that much leverage is unacceptably high.

The bankruptcy is the seventh-largest in U.S. history, according to BankruptcyData.com and Reuters data.

"My how the mighty are fallen," said Jim Rogers, a prominent commodities investor. "It is inconceivable to me he would do this after Refco," he added, referring to a brokerage that failed in a 2005 accounting scandal.

CFTC'S GENSLER OUT

Corzine's departure comes as the head of the U.S. futures regulator working on a sweeping review into the business practices of MF Global has said he will not be participating in any further parts of the inquiry.

Gary Gensler, the chairman of the Commodity Futures Trading Commission, and Corzine worked at Goldman Sachs at the same time and held prominent positions. They both left the investment bank in the late 1990s.

"I don't know if there is an official refusal but he's said he's not going to participate in the MFG inquiry. He's done with it," a source who has participated in meetings on MF Global told Reuters on Friday.

Gensler has not participated in meetings during the last few days, and has chosen to not participate in the review because he doesn't want to create an appearance of a conflict of interest, the source said.

MF Global's problems this week triggered steep declines in stocks of other financial companies, such as Morgan Stanley and investment bank Jefferies Group Inc.

Jefferies, seeking to soothe investors, said on Friday it had a net short position in sovereign risk of Greece, Ireland, Italy, Portugal and Spain. Its shares closed up 0.5 percent on Friday, but lost 18 percent for the week.

"The idea that you might be holding European debt is very frightening" to markets," said Franklin Edwards, a Columbia Business School professor specializing in futures markets, regulation and governance. "There is so much uncertainty."

It is unclear how Corzine's resignation might affect the various ongoing investigations. Neither MF Global nor Corzine has been charged with wrongdoing.

Corzine said he intended to "continue to assist the company and its board in their efforts to respond to regulatory inquiries and issues related to the disposition of the firm's assets.

James Giddens, the trustee overseeing the liquidation of the company's MF Global Inc unit, is working with CME Group Inc and others to move about 50,000 accounts to new clearing firms.

Giddens said his team is "securing" MF Global offices in Chicago and New York, plans to work through the weekend to transfer large accounts, and will try through next week to transfer individual accounts. Corzine's departure will not affect that process, a spokesman for Giddens said.

CME late on Friday said it expected to finish transferring all customer segregated positions by the end of the day, for a total transfer of positions in about 15,000 MF Global accounts and $1.45 billion of associated clearing collateral.

'GREAT SADNESS'

In his statement, Corzine said his departure is best for MF Global and its stakeholders.

"I feel great sadness for what has transpired at MF Global and the impact it has had on the firm's clients, employees and many others," he said.

MF Global said Corzine is not seeking severance. He had been entitled to $12.1 million in severance, prorated bonus and other benefits if he were let go without cause, a July 7 regulatory filing shows. The severance portion was $9 million.

Corzine has hired prominent white-collar defense lawyer Andrew Levander of the law firm Dechert to represent him in cases that might stem from the bankruptcy filing, a legal source briefed on the matter said on Thursday.

Chief executives often step down as their companies face federal probes or bankruptcy. Leaving might also give him greater flexibility in dealing with authorities.

"If you're no longer with the company, it gives you freedom to respond from the perspective of solely protecting your own interest," said Barry Pollack, a partner at law firm Miller & Chevalier specializing in white-collar defense.

Chief Operating Officer Bradley Abelow and lead director Edward Goldberg will stay in their positions, MF Global said.

STALLING REFORMS

Brokerages are required to keep customer money segregated from their own cash. Questions about the integrity of MF Global client accounts have also attracted the attention of the Federal Bureau of Investigation.

"To the extent there were diversions of funds in segregated accounts, or funds that were lost, it would certainly violate regulatory rules and perhaps even rise to the level of securities fraud," said Edwards, the Columbia professor. "We just don't know the facts."

It is unclear why regulators such as the Securities and Exchange Commission, Commodity Futures Trading Commission and Financial Industry Regulatory Authority did not do more to rein in MF Global's risk-taking, coming so soon after the 2008 financial crisis.

Last year's Dodd-Frank financial reforms have yet to take full effect, and would likely have done little to avert MF Global's collapse. But Corzine played a key role in stalling reforms designed to stop firms from using customer funds for proprietary trades.

"Many firms, including MF Global and Senator Corzine specifically, have asked us to hold back on tightening up our regulations," CFTC Commissioner Bart Chilton said in a Friday speech.

Corzine's original decision to join MF Global surprised many on Wall Street.

He has referred to himself as a "recidivist banker," and said he was willing to join a small Wall Street company because financial regulatory reform would force big banks to shrink. (Reporting by Jennifer Ablan, Suzanne Barlyn, Nick Brown, Matthew Goldstein, David Henry, Jed Horowitz, Herb Lash, Jennifer Merritt, Marcy Nicholson, Jeanine Prezioso, Jonathan Stempel and Dan Wilchins in New York; Alexandra Alper and Christopher Doering and Sarah N. Lynch in Washington, D.C.; and K.T. Arasu, Karl Plume and Theopolis Waters in Chicago; Editing by Edward Tobin and Tim Dobbyn)