A new report by former FBI Director Louis J. Freeh detailing MF Global’s misuse of Italian bonds before its October bankruptcy subjects embattled Obama bundler Jon Corzine to further scrutiny.
What the reports from Mr. Freeh and Mr. Giddens have in common is the portrait they paint of MF Global and its leadership. The firm that emerges from their pages is one that was constantly flying by the seat of its pants, prone to risky decisions with few controls to keep it in check. While the chaos in the last days of the firm is well known, what the reports show is that aggressive behavior was taking place well before the market took its toll. ….
Given the market turmoil, the Financial Industry Regulatory Authority, or Finra, demanded that MF Global set aside extra money in case the trades soured. … While MF Global did move some cash around to protect against losses, the firm also transferred roughly $3 billion in holdings of Italian bonds from its brokerage arm to “FinCo,” an unregulated entity of the firm, according to Mr. Freeh’s report. By doing so, MF Global met its requirements without having to raise money.
The Italian bonds constituted half of MF Global’s risky European investments, which led investors to abandon the firm. Freeh’s report explains that this European entanglement amounted to “$6 billion in the debt of Belgium, Ireland, Italy, Spain and Portugal, representing about 14 percent of its assets and nearly five times the equity of the firm.”
Former CEO Corzine, who “lobbied the S.E.C. to back down,” received $8.4 million in cash and stock options while the company fell apart in October. Formerly the Democratic governor of New Jersey, he has already raised more than $500,000 for Barack Obama in the 2012 race. Given Corzine’s relationship with the president, Rep. Michael Grimm (R., N.Y.) called for an independent counsel to investigate the former CEO’s behavior during the firm’s collapse.