Corzine resigns as CEO of bankrupt MF Global
Updated at 9:46 a.m. ET
WASHINGTON - Jon Corzine stepped down Friday from running the securities firm that collapsed after his disastrous bets on European debt. The move was announced as a criminal probe of the company appeared to be intensifying.
The firm, MF Global, said Corzine has resigned as chairman and CEO and will decline payments from a severance package worth $12.1 million, including cash and benefits.
MF Global filed for bankruptcy protection on Monday after its bets on European debt spooked investors and trading partners.
The company is under investigation by regulators and the FBI because hundreds of millions disappeared from customer accounts as it slid toward bankruptcy.
Corzine hasn't made any public appearances since MF Global's bankruptcy filing, but sources to The New York Times' Dealbook blog said that he has hired a criminal defense lawyer.
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Corzine ran the investment firm Goldman Sachs and was governor of New Jersey before joining MF Global.
He said in a statement that he feels "great sadness about what has transpired at MF Global and the impact it has had on the firm's clients, employees and many others." He said he will continue to assist the company and its board as they continue to sort out what happened in the firm's final days.
Corzine said his resignation was voluntary, and called it "a difficult decision."
Regulators say more than $600 million in client money is still missing. They say MF Global apparently moved the money out of client accounts in mere days as the company's cash dried up.
The criminal investigation of MF Global appeared to be moving forward. Corzine hired criminal defense attorney Andrew Levander of Dechert LLP, according to a person familiar with the situation who spoke on condition of anonymity because he was not authorized to discuss it. The news that he retained a lawyer was reported earlier by The Wall Street Journal.
The FBI was examining whether MF Global's actions violated criminal laws, two people familiar with the situation had told The Associated Press on Tuesday. They spoke on condition of anonymity because they are not authorized to discuss the matter publicly.
The New York Post reported that U.S. Attorney Preet Bharara in New York City also is investigating.
Securities firms such as MF Global are supposed to keep client money separate from company money. That way, clients can claim their assets easily if the company fails.
MF Global admitted to regulators early Monday that it could not find about $1 billion in customer money. The company has maintained that the money is being held up by trading partners that froze its accounts as it teetered last week.
The collapse of MF Global has begun to shine a spotlight on the top federal regulator investigating the matter.
Gary Gensler, head of the Commodity Futures Trading Commission, is leading the inquiry into how hundreds of millions vanished last week from client accounts at MF Global.
He built close ties to Corzine — and eventually worked for him — as they rose through the ranks of Goldman Sachs. Later, they collaborated on Capitol Hill to pass an anti-corporate fraud law.
Corporate governance experts said Gensler's ties to Corzine posed an apparent conflict of interest that could taint the probe's findings. And on Wednesday, Republican Sen. Charles Grassley of Iowa, who sits on the committee that oversees Gensler's agency, said "it's hard to see how the chairman could be completely objective in looking out for wronged investors when he has such strong ties to the principal of the failed firm."
MF Global says lead director Edward Goldberg and president and Chief Operating Officer Bradley Abelow will continue in their current positions.
Corzine's professional meltdown began when he bet heavily on European debt, and lost. As head of MF Global, he pushed for the $6.3 billion gamble on debt issued by Italy, Spain and other European nations with troubled economies that ultimately doomed the securities firm he took over last year.
Before filing for bankruptcy, a presale audit revealed potentially millions in missing client funds, scaring off a potential buyer. MF Global was in court Tuesday, asking a judge to allow it to borrow $8 million to finance the bankruptcy. By that night, the FBI and federal prosecutors had gotten involved.
"There is no question about his integrity," said Sen. Ray Lesniak, former chairman of New Jersey's state Democratic Party, who recruited Corzine to run for U.S. Senate in 2000. "His judgment and risk-taking is another issue."
Corzine joined MF Global last year, determined to remake his image on Wall Street after losing the 2009 New Jersey governor's race to Chris Christie, the brash and underestimated Republican former federal prosecutor. Before entering politics — first as U.S. senator then as a one-term governor — Corzine built his Wall Street credentials at Goldman Sachs, the white-shoe investment bank where he worked for 25 years.
"Jon has this avuncular professorial demeanor with his beard and sweater that masks the alpha-male, aggressive, risk-taking guy that he is," says William Cohan, the author of the book "Money and Power: How Goldman Sachs Came to Rule the World."Corzine formed his smarts and appetite for risk early on, as a trader at Goldman Sachs in the 1970s and when he supervised bond trading in the 1980s and 1990s.
In 1986, Cohan said, Corzine had figured out a way make a lot of money by betting Treasury notes and bonds against each other. However, one of the bets went terribly wrong and Goldman lost $150 million on the trades. At that time, it was a big loss for Goldman.
Though Corzine was a manager, he went back to the trading desk and over the course of seven months was able to turn a $150 million loss into a $10 million gain.
"That incident imbued him with a sense of invincibility, a master of the universe who could take hold of a bad situation and turn it around," said Cohan, who spent time with Corzine and many other Goldman partners when he wrote the book.
Corzine's trading prowess only got better when his bond trading unit made a profit of $2.7 billion in 1993 by betting on European currencies. However, in 1994, similar large bets went awry, and the firm started losing about $150 million a month, Cohan said. No one, not even the firm's chairman, could persuade Corzine to dial back the risky trades. Ultimately, the firm lost almost $2 billion from Corzine's trades.
"It was one risky gambit after another," said Cohan, "some worked, some failed, but it was a pattern that can't be ignored."