"Are You Fired Up?"
Former Gov. Corzine's Wall Street firm under investigation; hundreds of millions of dollars in question
Published: Monday, October 31, 2011, 9:52 PM Updated: Tuesday, November 01, 2011, 5:41 AM
Regulators are investigating whether hundreds of millions of dollars are missing from client accounts at a Wall Street firm run by former Gov. Jon Corzine, a federal official said tonight.
MF Global Holdings, a large commodities brokerage firm Corzine took over last year, filed for bankruptcy protection yesterday. In federal court papers, company officials said the European debt crisis had put the firm billions of dollars in debt.
Federal regulators learned of the discrepencies in MF Global’s client accounts while monitoring the firm’s books as the company spiraled into bankruptcy. Those accounting discrepencies helped doom a last-minute deal to sell part of MF Global to another company.
U.S. officials want to know if the missing money is a bookkeeping error or if MF Global improperly shifted client funds.
"We’re trying to figure out what happened and where that money was diverted to, if it was diverted at all," the federal official said. "We are looking into it intensely. We’re trying to figure out what happened to those customers’ funds."
The official declined to be named because he was not authorized to speak publicly about the probe.
The New York Times, Bloomberg news service and other media outlets first reported the MF Global investigation last night.
A spokesman for Corzine declined to comment on the reports. Corzine could not be reached for comment.
A MF Global spokesman also declined to speak about the federal investigation. But a source at the firm said the situation is likely the result of financial miscalculations.
MF Global executives were racing over the weekend to get their books in order to sell part of the struggling company to another firm, the company source said. The speed of the process coupled with a number of clients pulling their money out of the company may have led to accounting errors. The MF Global source asked not to be named because he was not authorized to speak about the situation.
The possible sale to Interactive Brokers in Connecticut fell through and MF Global declared bankruptcy.
MF Global went to federal regulators today to say the deal was off and report a possible problem with its customer accounts, according to a joint statement by the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission.
"Early this morning, MF Global informed the regulators that the transaction had not been agreed to and reported possible deficiencies in customer futures segregated accounts held at the firm," the statement said.
The company will be liquidated, according to the joint statement. The federal Securities Investor Protection Corp. will oversee a bankruptcy proceeding that will "be the safest and most prudent course of action to protect customer accounts and assets," the statement said.
The bankruptcy is a blow to Corzine’s reputation as the former governor tries to restart his Wall Street career after a stint in politics. Corzine, 64, took over as chairman and chief executive officer of MF Global after he lost re-election to Gov. Chris Christie in 2009.
Before entering politics, Corzine was chairman and CEO of Goldman Sachs, the giant Wall Street firm he helped go public. That decision made him and other executives at Goldman Sachs wealthy. But Corzine was forced out of the company in 1999 after an internal power struggle.
He was later elected as a U.S. senator for New Jersey. The Democrat ran for governor in 2005, serving for one term before losing to Christie.
At MF Global, Corzine led the company into the European debt crisis by gambling on investments in Italy, Spain, Portugal and other debt-ridden countries, according to the Associated Press. Corzine had hoped to build the firm into a major investment bank.
Last week, credit rating agencies downgraded MF Global and its stock fell 66 percent. Investors started to pull money out of the company and the firm fell into deep debt.
Some Wall Street pundits said MF Global’s bankruptcy could affect credit markets and make financial companies reluctant to lend to each other.
"It appears their exposure to risk was particularly acute," but the impact on markets will likely be muted, Karen Shaw Petrou of Federal Financial Analytics told the AP.