A trustee overseeing MF Global says a risky trading strategy and "negligent conduct" by former CEO Jon Corzine and his top managers contributed to the brokerage firm's collapse in late 2011.
A report issued Thursday by the trustee, former FBI director Louis Freeh, said Corzine and his team ignored the advice of MF Global's chief risk officer regarding trading strategy.
The report said they also failed to fix gaps in the firm's system for monitoring its cash flows and customer funds.
MF Global failed after it made a calamitous $6.3 billion bet on debt issued by Italy, Spain and other European nations with troubled economies. The New York-based firm filed for bankruptcy protection in October 2011. It was the eighth-largest corporate bankruptcy in U.S. history and the biggest on Wall Street since the September 2008 collapse of Lehman Brothers that set off the financial crisis. More than $1 billion in customer money was discovered to be missing.
Freeh acted on behalf of MF Global creditors. His findings echo those of reports issued last year by another MF Global trustee and a U.S. House panel.
"The negligent conduct identified in this report foreseeably contributed to MF Global's collapse," the new report says. While the difficult economic climate at the time and other factors may have hastened the firm's failure, the risky business strategy and conduct by Corzine and his team helped fuel its demise, it says.
Corzine, a former Democratic U.S. senator and governor of New Jersey, stepped down as MF Global CEO in November 2011.
Steven Goldberg, a spokesman for Corzine, called the trustee's report "a clear case of Monday morning quarterbacking." The report "intentionally ignores" the failure of banks and other firms that were MF Global's trading partners to pay what they owed MF Global "and the profound impact this failure had on MF Global's customers," Goldberg said in a statement.
"There simply is no basis for the suggestion that Mr. Corzine breached his fiduciary duties or was negligent," the statement said.
Much of the missing customer money belonged to farmers, ranchers and other business owners who used MF Global to reduce their risks from the fluctuating prices of commodities such as corn and wheat.
To date about 89 percent of the money has been recovered for U.S. customers of the firm and around 18 percent for foreign customers, according to the other MF Global trustee, James Giddens, who has overseen the liquidation of the firm's operations and distributed recovered funds to customers.
Giddens last year joined a lawsuit against Corzine and other former executives brought by MF Global customers. MF Global shareholders also have sued Corzine and other executives.
No one has been charged in the MF Global case. Federal regulators, Congress and a federal grand jury in Chicago have investigated MF Global's failure and the disappearance of customers' money.
Corzine was co-chairman of Goldman Sachs before going into politics. He testified in congressional hearings in December 2011 that he didn't know any customer money was missing until Oct. 30, the day before MF Global's bankruptcy filing. Corzine said he never intended to "misuse" client money or order anyone else to do so. And he rebuffed an assertion that he knew about customer money that might have been transferred to a European affiliate just before MF Global collapsed.
Kent Jarrell, a spokesman for Giddens, said Thursday that if a settlement agreement Giddens' office reached last month with JPMorgan Chase & Co. is approved by the bankruptcy judge, the proportion of funds returned to customers could rise to more than 93 percent for U.S. customers and several percentage points above the range of 75 percent to 82 percent for foreign customers.
Under the deal, JPMorgan agreed to return $546 million to former MF Global customers. The bank held MF Global funds in several accounts and also processed the firm's securities trades.