http://compliancesearch.com/compliancex/current-affairs/1066-mf-global-employees-fired-due-to-mf-jon-corzine%E2%80%99s-ego-and-risk-taking/Today marks the end of MF Global.
Two hundred and thirty years after its founding, all 1,066 employees were fired.
MF Global, until recently, was a 230 year old global firm, a member of over 70 financial exchanges, one of the largest brokers by volume of executed or cleared transactions on futures and derivatives and a primary dealer in US Treasury securities.
Then along came Jon Corzine.
Corzine was appointed CEO through his long-term Goldman Sachs friendship with JC Flowers, whose private equity firm was a major owner of MF Global.
It didn’t seem an issue to his buddy from their Goldman days together that while Jon appeared to the world as a rumpled, bearded, professorial-looking, friendly uncle type he was really an ambitious, ruthless risk taker.
The following few examples illustrate just how much of a risk taker Jon Corzine is in nearly all aspects of his life.
He was blamed by many for causing Goldman Sachs to incur large trading losses in 1994 and ultimately forced out by his rival Henry Paulson.
While Governor of New Jersey, Corzine was in a nasty car accident that put him in the hospital. He had his driver speeding at over 90 miles an hour and was not wearing a safety belt.
Also during his tenure as the Governor of New Jersey, within weeks of his divorce from his wife of 33 years, Corzine was in a relationship with the President of the Communications Workers of America Local 1034, a union that represents nearly half of all New Jersey state employees. The relationship ended with Governor Corzine paying her millions of dollars.
The mundane world of MF Global, which relied upon the non-glamorous business of earning lots of small commissions from executing and clearing trades and collecting interest from cash collateral received from clients, was not sufficiently exciting and sexy enough for him.
Mr. Corzine announced to the world that he was going to create a mini Goldman Sachs. A firm that would rely on aggressive trading to make huge profits.
Unfortunately, given MF’s history of serving as a middle-man executing and clearing trades, it did not have the infrastructure and risk management systems anywhere near the level of Goldman’s.
Corzine wanted to “take advantage of dislocations” in the sovereign debt market by buying what it saw as relatively low risk paper.
He aggressively pushed his traders to purchase over $6 billion of European sovereign debt from some of the euro zone’s troubled countries, including Italy, Spain, Portugal, Ireland and Belgium.
This exposure was enormous — equal to about five times the company’s net worth.
The risk taking may have been in his blood, or maybe it was the incentive to personally benefit from the 2.5 million options he received as a signing bonus, the MF Global stock he bought in the open market or his need for redemption after getting kicked out of Goldman and the Governor’s Mansion.
Whatever the motivations, the outcome was clear. The trade – monster purchases of European debt (primarily Greece and Italy’s) – performed horribly. The wrong-way bet blew up the 230 year old company.
Employees were fired without warning.
To add insult to injury this is one of the worst job markets in recent history for Wall Street professionals.
The firings come as the bankruptcy trustee, James Giddens, diligently works to find $600 million in missing customer money.
Federal agencies, including the CFTC, SEC and the Department of Justice, are investigating whether the money missing from customer accounts may have been improperly mixed with the firm’s funds.
Meanwhile Corzine retained a top lawyer and professed that he would not accept over $9 million in severance pay. And that is just the problem: he had nothing to lose and everything to gain. With a signing bonus of 2.5 million options, Corzine could have cleaned house with a few bold (lucky?) investments. If things had turned south he had even less than nothing to lose; he had a $9 million severance package on standby. Let’s wait and see if he sticks to his word by keeping his hand out of the $9 million cookie jar.
This raises an even bigger question. Clearly Mr. Corzine has a faulty ethics compass, to say the least, but there are some institutional forces at play in his decisions to take risks. To what extent were his actions purely reflective of his own personal greed and lack of morals and to what extent were they products of a system that incentivizes blind, risk-taking behaviors? Though, this is a question for a whole separate article.
Focusing on Jon Corzine for the time being, the situation could have been worse. As a former democratic governor and large donator to democratic races, Mr. Corzine was considered a top contender for Treasury Secretary of the United States.
While it is dreadful what happened to MF Global, imagine what he would have done as the Treasury Secretary of the United States of America.
Jack Kelly is a contributing writer and Publisher of CompliancEX.
