Auditors Find $633 Million Missing from Client Accounts at Corzine’s MF Global
In light of a recent audit by regulators which found $633 million missing from client accounts at the failed investment firm of former Governor Jon Corzine, Senator Joe Pennacchio (R-26) has asked New Jersey Treasurer Andrew Sidamon-Eristoff to determine if any state funds were affected by the collapse of Corzine’s firm, MF Global.
“It’s important that the State of New Jersey work quickly to identify any investment funds that may have been impacted by the bankruptcy of MF Global,” said Pennacchio. “While the rapid collapse of Corzine’s firm is disturbing in and of itself, the investigation of any state assets that may be at risk is given added importance by the fact that regulators have indicated that client accounts may have been inappropriately raided to support the firm’s bad investments.”
MF Global quickly collapsed following the revelation to investors that it was heavily invested in European sovereign debt, resulting in a downgrade by credit ratings agencies of the firm’s own debt to junk status, limiting its access to operating capital that it needed to survive.
According to a published report in the New York Post, regulators at the Commodity Futures Trading Commission found that there is a shortfall of $633 million in MF Global’s client accounts. CME Group, operator of the Chicago Mercantile Exchange, said in a statement that MF Global may have transferred “customer segregated funds in a manner that may have been designed to avoid detection…”
“While nearly every other financial firm was trying to limit exposure to volatile European debt that could quickly become worthless, MF Global, under Corzine’s leadership, made a foolish bet that the firm couldn’t afford to lose,” added Pennacchio. “I sincerely hope that MF Global did not dip into customer accounts to cover its bets, but if it did, we need to know if any state funds are at risk so we can begin the task of recovery.”
Pennacchio noted that as governor, Corzine made a similar bet in 2008 when he invested state funds in the teetering Lehman Brothers just before its collapse triggered a global financial crisis.
“In 2008, New Jersey lost nearly $200 million when Governor Corzine gambled on Lehman Brothers, hoping for a big return on a risky investment that ultimately failed,” said Pennacchio. “Even though he’s no longer governor, it seems we once again must make sure that New Jersey hasn’t become the victim of another Corzine gamble.”
Pennachio’s letter to Treasurer Sidamon-Eristoff follows:
November 3, 2011
The Honorable Andrew P. Sidamon-Eristoff
Office of the State Treasurer
Department of the Treasury
P.O. Box 002
Trenton, N.J. 08625-0002
Dear Treasurer Eristoff:
It is with great concern that I write you regarding MF Global Holdings Ltd, which is run by former Governor Jon Corzine.
As you are aware from various news reports over the past several days, MF Global filed for Chapter 11 bankruptcy protection in response to the rating agencies (Moody’s and Fitch) cut of the company’s credit rating to junk status, based on the firm’s exposure to its large holdings of European sovereign debt. Also, it is now being reported, since the bankruptcy filing, that MF Global may have comingled client and company funds, in direct violation of federal regulations.
Most troubling are reports in today’s news in which CME Group of Chicago, the owner of the Chicago Mercantile Exchange, stated of MF Global, “It now appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection”, and that this transfer of funds was not reported to the Chicago Futures Trading Commission as required. These actions by former Governor Corzine’s firm have resulted in a loss of $633 million in customer commodities funds, an amount equal to approximately 12 percent of the $5.45 billion of client funds held by the firm, and now the basis of a federal investigation by the FBI.
In light of these allegations and the reported unscrupulous behavior of former Governor Corzine’s firm, I respectfully would like to know if the State of New Jersey has any investments currently being held by MF Global and what our exposure may be to the loss of investor funds.
I would like to thank you for reviewing this request and look forward to your response.
Senator, District 26