Former Goldman Sachs CEO and Obama campaign bundler Jon Corzine’s role in the collapse of MF Global came under increased scrutiny Thursday, when the company’s former top risk officer told lawmakers that his repeated warnings about the firm’s aggressive trading strategy went unheeded.
Michael Roseman, who was forced out as chief risk officer at MF Global in January 2011, told members of the House Financial Services Subcommittee on Oversight and Investigations that he raised red flags about the firm’s decision to increase its holdings of European sovereign debt in October 2010, but was rebuffed by Corzine.
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"I discussed my concerns about the positions and the risk scenarios with Mr. Corzine and others," he said in prepared testimony. "The risk scenarios I presented were challenged as being implausible."
Evidently, Roseman’s concerns were entirely plausible. In October 2011, less than a year after he left MF Global, the firm filed for bankruptcy, becoming the fifth-largest financial firm in history to do so. MF Global has also yet to account for more than $1.2 billion in missing customer funds. Corzine has said he "simply doesn’t know" where the money went.
MF Global had been pursuing a more aggressive trading strategy since March 2010, when Jon Corzine became chairman and CEO. The centerpiece of Corzine’s high-risk approach was a $6.3 billion bet on European sovereign debt, which ultimately sank the firm.
Republicans on the committee contended that Corzine chose to replace Roseman with Michael Stockman as chief risk officer because he wanted someone who wouldn’t question his aggressive strategy. Roseman acknowledged that his views on the company’s risk-load "certainly played a factor" in his ousting.
In testimony before the House Committee on Agriculture on Dec. 8, 2011, Corzine said the decision to replace Roseman was based on the need to have a chief risk officer with a stronger background in investment banking "that was more fully attuned to the broker-dealer side of our business."
But Roseman said he "fully disagreed" with Corzine’s suggestion that his background was ill-suited to the needs of the firm.
Stockman, meanwhile, disputed the claim he was hired to be a "yes man" for Corzine, in the words of Rep. Stephen Fincher (R-Tenn.), but did say he was first contacted about the MF Global position in October 2010. That is around the time Roseman said his disagreements with Corzine became the most heated.
Stockman professed to have very little knowledge about the consequential series of events that took place in the weeks before the firm’s collapse, including the preparation of a critical document on Oct. 13, 2011 that questioned the firm’s ability to meet its obligations under extreme market conditions.
Stockman said he knew of the document, but did not participate in its preparation and had not seen it until "a day ago."
Despite the contents of that report, which Stockman said was ordered by the MF Global board of directors, the firm’s chief financial officer Henri Steenkamp told rating agency Standard & Poor’s on Oct. 24, 2011, that "MF Global is in its strongest position ever." The firm collapsed a week later.
Corzine’s role in the MF Global’s debacle has come under increased scrutiny due to his stature as a prominent Democratic fundraiser. According to the Obama 2012 campaign’s more recent bundler data, Corzine has raised more than $500,000 for the president’s reelection. He has personally contributed more than $275,000 to Democratic candidates and committees since 2007.
President Obama has described Corzine as the administration’s "Wall Street Guy." Before MF Global went bankrupt, Corzine was considered to be on the short list to succeed Timothy Geithner as Treasury Secretary. When Corzine was governor of New Jersey and up for reelection in 2009, Vice President Joe Biden told a crowd of supporters in Edison, N.J., that Corzine was one of the administration’s most trusted advisers during the financial crisis.
"I literally picked up the phone and called Jon Corzine and said, ‘Jon, what do you think we should do?’" Biden said. "The reason we called Jon is because we knew he knew about the economy, about world markets, about how we had to respond."