Thursday, December 8, 2011

"10 Questions for Jon Corzine"

From DealBook:
Jon S. Corzine, the former chief executive of MF Global Holdings and a former Democratic senator from New Jersey, is being forced to return to Capitol Hill on Thursday morning.

The House Agricultural Committee subpoenaed Mr. Corzine after he resisted the committee’s request that he voluntarily answer questions.

It’s a reversal of fortune for the man once mentioned as a potential Treasury secretary. Mr. Corzine’s pain may be brief. Mr. Corzine is likely being advised by his lawyers to invoke his Fifth Amendment right against self-incrimination. We’ll soon find out if he listens to his lawyers.

If Mr. Corzine turns out to be more voluble, here are some questions the committee may want to ask:

1. You were chief executive of MF Global with day-to day responsibility for the entire operation. Yet, it appears that you were personally responsible for structuring and monitoring the $6.35 billion trade in sovereign European debt of Italy, Spain, Portugal, Ireland and Belgium — a bet that spooked investors and the ratings agencies, ultimately bringing down the firm.
You took on this responsibility despite the fact you had been a politician for more than a decade and were likely not as familiar with markets as you were when you were at Goldman Sachs. Why did you feel the need to personally trade for MF Global instead of having a trader or trading group do it? Who did you speak to structure and monitor this trade, particularly since you were preoccupied with running this entire business?

2. Your chief risk officer, Michael Roseman, warned you against this bet on troubled sovereign European debt, according to The Wall Street Street Journal. Mr. Roseman reportedly thought that the trade was too risky because MF Global did not have sufficient liquidity to sustain its positions if the firm was downgraded by the ratings agencies. Can you tell us what Mr. Roseman told you, whether his concerns were relayed to the board of directors and why you ignored his warnings?

3. As a follow-up, MF Global was heavily leveraged. After the experience of the financial crisis, when firms with high leverage ratios failed, why did you undertake a trade that appeared to consume more than half of your remaining capital?...MORE

Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.
Peter J. Henning, who writes White Collar Watch for DealBook, is a professor at Wayne State University Law School.