Corzine’s American dream that turned sour

On the floor: Jon Corzine (centre) listens to traders at MF Global’s New York headquarters as he built the business last year. The broker-dealer’s collapse raises questions about the security of client funds as well as the wisdom of his eurozone strategy

Jon Corzine’s return to Washington was hardly supposed to be like this. The former New Jersey senator was widely expected to return to political office after a successful stint running MF Global, rather than being grilled about running the company into the ground.

With the 64-year-old former Goldman Sachs chief executive touted as a potential Treasury secretary, MF Global even included a highly unusual clause in an August bond offering: if Mr Corzine left the broker-dealer to go into government, then investors would receive an additional percentage point of interest.

Four months later, the bonds are trading at 33 cents on the dollar as investors, customers and counterparties of MF Global wrangle over the remains of the collapsed company. And Mr Corzine’s return to Capitol Hill is anything but triumphant – lawmakers are gearing up for two more sessions next week to question him over his role in the bankruptcy and his knowledge of missing customer money.

The “key man risk” that bondholders were worried about now appears to have been in the wrong sense. A trade that Mr Corzine acknowledges he “strongly advocated”, which brought $6.3bn of exposure to European sovereign debt, scared regulators, rating agencies and counterparties – ultimately causing the company’s October 31 collapse. But he also shared the blame with his fellow directors.

In his defence, MF Global staff say that he was not a lone wolf among sheep. People close to the broker-dealer say it had long fostered an aggressive style, some of it bequeathed from Refco, the futures broker that itself collapsed in 2005 and some of whose staff made the move to MF Global. “The corporate culture of Refco that did exist at MF Global was one that [traders] would sell their mother for an extra nickel. It was very cut-throat and it was ‘skate as close to the edge without being caught’,” says a futures trader who used to work at MF Global.

But if there was bottom-up risk-taking, it was also top-down – despite Mr Corzine’s unconventional look of beard, longish hair and sweaters that makes him seem more university academic than archetypal trader.

The corporate culture … at MF Global was one that [traders] would sell their mother for an extra nickel

– Former MF Global trader

At both Goldman and MF Global, colleagues say, Mr Corzine liked to take risks, even when others sought to be cautious. Even now, Mr Corzine defends the European debt trade, pointing out that it did not in fact make losses but agreeing that its sheer size was enough to compromise the company. He also says he does not know what happened in the final hours of MF Global that caused as much as $1.2bn of customer funds to go missing.

Jacob Zamansky, a lawyer who is representing former MF Global staff suing Mr Corzine and the board, says he is “shocked that Corzine would say he was unaware of what was going on and he chose to blame others. He’s legally responsible under Sarbanes-Oxley to know what’s going on and to maintain internal controls.”

In fact, so integrated is Mr Corzine in the Washington-Wall Street nexus that he helped draft the Sarbanes-Oxley corporate governance and accounting law created in the wake of the Enron scandal. As he left the US Senate to become governor of New Jersey in 2005, his fellow senators, including Hillary Clinton, rose to acclaim him for his work on the law. As for the man, more than one said his path from farmer’s son to Goldman and the Senate was living proof of the American dream.

Business Blog: Corzine should have followed the money

The most breathtaking aspect of Jon Corzine’s prepared testimony to a congressional committee on the collapse of MF Global is his claim to know little about clearing and settlement, writes John Gapper

For his part, as he stepped down from Congress, Mr Corzine said: “I have no serious regrets. I have sadness about not being able to walk on to this great floor but I love this place and look forward to coming back and working together on those issues that matter.”

Next week, he makes that return to the Senate after the former colleagues that celebrated his life six years ago issued a legal summons to compel his attendance.

Randy Neugebauer, a Texas Republican who leads the House financial services committee’s investigations unit and sits on the agriculture committee, has been frustrated by Mr Corzine’s answers in the first of the three hearings.

“I found Mr Corzine’s testimony rather baffling,” Mr Neugebauer says. “We didn’t really get a lot of answers. We still don’t know where the money is, and that’s troubling, and we still don’t have a great deal of detail regarding what was going on inside the corporation.

“Here’s the CEO of a company and he seemed to have – and this could be from his legal counsel – very selective recollection.”

Mistakes will continue to happen in the course of human events, and that is inevitable

– Jon Corzine

In one exchange, Mr Neugebauer pointedly asked Mr Corzine if he was “trying to pull a rabbit out of the hat” in the last few days before MF Global’s collapse by authorising the transfer of customer funds.

“I never intended to authorise anyone,” Mr Corzine replied. “So you never intended to, but you may have,” Mr Neugebauer fired back. “If I did, it was a misunderstanding because there is no intention under any context I can think of that I was authorising tapping into segregated funds,” Mr Corzine said.

At times, the questioning took on more philosophical tones, as lawmakers debated whether the collapse of MF Global exposed the need for tighter regulation, or its futility. Mr Corzine said: “Mistakes will continue to happen in the course of human events, and that is inevitable.”

Additional reporting by Kara Scannell in New York and James Politi in Washington