Corzine’s Crime of the Century
How a top Obama bundler broke a never-broken law of commodities trading.

John Corzine


Last week, a court approved a settlement deal among commodities firm MF Global’s bankruptcy trustees that will reimburse its customers for 93 percent of the value of their accounts, from which about $1.6 billion had disappeared during the firm’s bankruptcy. But even if they eventually see 100 percent of their funds returned, the firm’s misappropriation of customer funds under the leadership of Jon Corzine will remain a shocking example of financial malfeasance. It looks like Corzine could have gotten away with the crime of the century.

If you aren’t familiar with Jon Corzine, he is the man Vice President Joe Biden called first during the financial crisis because he considered Corzine “the smartest guy I know about the economy and finance.” Corzine spent much of his career at Goldman Sachs, becoming chairman in 1994. After Goldman Sachs went public, Corzine was forced out of the chairmanship, but he left with a $250–400 million payout. He quickly parlayed that money into a New Jersey U.S. Senate seat, and then the governorship of New Jersey in January 2006, before losing to Chris Christie in the next election.

Three short months later, he took over as chairman and CEO at MF Global, a commodities broker. Corzine planned to transform MF Global into an investment bank that some thought could become the next Goldman Sachs. That is where Corzine began to run into trouble.

Most investors have their accounts at either a bank or a traditional brokerage house. Banks have offered deposit insurance for the past 80 years, and brokerages have done so for the past 40. Since such institutions can dip into investors’ funds at any time, they pay fees to a government-operated insurance fund for protection in the case of bankruptcy.

But no such entity exists for commodities brokers such as MF Global, because they are not permitted to use clients’ funds in this way. The Commodities Exchange Act of 1936 says:

Customer funds to be segregated and separately accounted for

(a) All customer funds shall be separately accounted for and segregated as belonging to commodity or options customers. Such customer funds when deposited with any bank, trust company, clearing organization or another futures commission merchant shall be deposited under an account name which clearly identifies them as such and shows they are segregated as required by the Act.

In fact, the predecessor of MF Global had acquired its commodities accounts from the 2005 collapse of REFCO, which at the time was the largest independent firm in the futures industry. Despite huge losses and a large scandal, there was no invasion of REFCO’s accounts. Given that, how has no one been charged with a crime for the actions taken at MF Global in late October 2011? It is clear that funds from private commodity accounts were used illegally. Have Jon Corzine’s connections put him above the law?

Samuel Tenenbaum, clinical associate professor of law at Northwestern and a director of the Investor Protection Center, has followed this case since its inception. He believes that the two relevant agencies in this case, the Securities Exchange Commission (SEC) and the Commodities Future Trading Commission (CFTC), will not bring criminal charges, despite the fact that “clearly the law was broken.”

The Commodity Customer Coalition (CCC), which was formed in the aftermath of the MF Global bankruptcy and now has 10,000 members, agrees that the law was broken. The group’s cofounders, James Koutoulas and John Roe, authored a white paper on the MF Global matter. Their work examines the critical point in late October of 2011, when, they state, Mr. Corzine was informed that MF Global was overdrawn by $175 million with J. P. Morgan. According to the paper, Corzine personally ordered MF Global treasury official Edith O’Brien to transfer $200 million in customer funds from segregated accounts to MF Global in the U.K.; $175 million was then transferred to J. P. Morgan to clear the overdraft. When Corzine appeared in front of the House Subcommittee on Oversight and Investigations to explain the scandal, he was no longer the “smartest guy in the room.” Corzine admitted that he issued the order, but denied knowing it was customer money.