The spectacular fall of ‘key man’ Corzine

The spectacular fall of Jon Corzine will be on display Thursday when the former New Jersey senator and governor testifies before a House panel on the bankruptcy of his former firm, MF Global.

Just months ago Corzine, a Democrat, was seen as a possible successor to Treasury Secretary Timothy Geithner.

{mosads}So confident was MF Global in Corzine that its bond sale in August included a “key man” provision that gave investors an extra 1 percent in interest if Corzine left the firm “due to his appointment to a federal position by the president of the United States and confirmation of that appointment by the United States Senate prior to July 1, 2013.”

Corzine, who co-headed Goldman Sachs before running for the Senate, now is likely to plead the Fifth Amendment in front of former colleagues, not plead for their confirmation.

The MF Global bonds were worthless before a single payment was made to investors, and the firm has become the highest-profile casualty of the European debt crisis.

Its failure, driven largely by bad bets Corzine made on European debt, has brought Corzine’s reputation in Washington and Wall Street close to ruin.

“Am I surprised? Sure … When he took over MF Global, I expected him to make a success of it,” said Deborah Howlett, who served as Corzine’s director of communications during his last two years as governor.

“I don’t think he expected it. I don’t think anybody expected it,” said Howlett, who now runs New Jersey Perspectives, a progressive think tank focused on fiscal policy issues.

Corzine is readying for a gantlet of Congressional grillings; three separate panels are considering subpoenas to force him to testify in the next two weeks.

Regulators are poring over MF Global’s financials in a hunt for up to $1.2 billion in customer funds that have gone missing and might have been improperly used to prop up the firm.

Lawmakers who have heard from constituents with money tied up in or missing from MF Global accounts are demanding answers from Corzine. The House Agriculture Committee, which has jurisdiction over the financial derivatives dealt by MF Global, was the first to subpoena Corzine, but will not be the last.

The House Financial Services Committee is also mulling compelling Corzine’s testimony, and will vote on a subpoena Wednesday.

“We had given his lawyer a couple of opportunities, and deadlines had come and gone to come and voluntarily do that,” said Rep. Randy Neugebauer (R-Texas), who chairs the panel’s subcommittee on Investigations.

Calls to MF Global on Monday were not returned, and Corzine’s representative declined to comment. Corzine has refused any public comment since stepping down from the firm on Nov. 4.

Corzine cannot count on help from Democrats.

The House Agriculture Committee approved its subpoena in a rare voice vote, highlighting the bipartisan interest in taking Corzine to the woodshed.

“His testimony is essential to fulfill our objectives of our constituents,” said Chairman Frank Lucas (R-Okla.).

Even in the Senate, former colleagues are lining up to ask Corzine tough questions.

“A matter of this magnitude requires a thorough investigation, and that investigation must obviously include testimony from company executives,” Sen. Debbie Stabenow (D-Mich.), the chairwoman of the Senate Agriculture Committee, said in a recent statement. Her committee will vote Tuesday on whether to compel Corzine to testify.

Stabenow, who was sworn in to the Senate alongside Corzine in 2001, faces a tough reelection bid next year.

“I would expect that MF Global executives would come speak with us voluntarily, but if they will not, then we must be prepared to take necessary action,” her statement said. 

Fallout from the MF Global collapse is not limited to Corzine and its customers. On Monday, the Commodity Futures Trading Commission (CFTC) unanimously agreed on an “MF Global” rule aimed at protecting customer dollars. The rule allows firms to use customer dollars to invest in low-risk products like Treasury bonds, but bans their use for riskier investments, including the debt of foreign nations.

MF Global was brought down primarily by billions of dollars in investments in bonds from troubled European nations, a move that was reportedly pushed by Corzine. The CFTC rule also prohibits firms from using those funds to lend to entities within the same company in another attempt to keep customer accounts intact.

“I believe there is an inherent conflict of interest between parts of a firm doing these transactions,” said CFTC Chairman Gary Gensler. 

Gensler, who previously worked with Corzine at Goldman Sachs and as a staffer on the Senate Banking Committee, recused himself from all matters related to the firm after it went bankrupt.

The rule was originally proposed in the summer, but its finalization was delayed after Wall Street executives, including Corzine personally, lobbied against it.

{mossecondads}Corzine went to MF Global after he lost reelection as governor of New Jersey. After serving one term, Corzine was run out by Republican U.S. Attorney Chris Cristie, who won 48.5 percent of the vote to Corzine’s 44.9. 

His return to Wall Street months after the defeat was largely seen as a step down from his Goldman-era heights, as MF Global had struggled in recent years and had several leadership shakeups, due in part to a rogue trading scandal.

Now Corzine is being called to explain how he drove the firm to even lower lows.

“This is kind of the embodiment of his decline,” said Brigid Harrison, professor of political science and law at Montclair University. “At one point he was on top of the world … now I think this is probably amongst the most humiliating moments of his life.”