It's with no little schadenfreude that I read that Jon "where's my seatbelt?" Corzine (past co-head of Goldman Sachs, New Jersey state governor, head of collapsed financial firm MF Global) is finally facing some legal demands for compensation as a result of the MF Global collapse:
[ex-FBI director Louis] Freeh said the officials breached their fiduciary duties to shareholders and failed to act in good faith, wiping out more than $1 billion in value by the time of MF Global's October 31, 2011, bankruptcy.I find it interesting that Corzine - a Democratic politican and fund-raising bundler for the Democrats - has not faced any public inquiry or admonishment for the MF Global collapse. There's certainly no reason to think him involved in criminal wrongdoing, since it sounds as if MF Global's commingling of client funds as it tried to stay afloat happened a fair way down the management tree, but he certainly seemed to be pursuing a reckless course of investment. Betting the farm on European sovereign debt back in 2011 was an "interesting" choice of investment. Did Corzine and his board actually realise that a realistic shift in risk could wipe out their firm? If so, they were reckless. If not, where in the name of all that is holy were their risk controls?
"The company's procedures and controls for monitoring risk were lacking and in disrepair," Freeh said in the lawsuit, filed on Monday night in U.S. Bankruptcy Court in Manhattan. "Corzine engaged in risky trading strategies that strained the company's liquidity and could not be properly monitored."
Corzine is supposed to know how to manage risk. His alma mater, Goldman Sachs, is famous for being scrupulous about risk which is presumably how they avoided going down the bad mortgage debt plughole back in 2008:
Our first question was direct: Who’s the best risk manager on Wall Street? Hands down the answer was Goldman Sachs.Either Corzine wasn't paying attention in all the Goldman Sachs board presentations on risk, VaR etc. and relied on someone else knowing what was going on (Hank Paulson, perhaps?), or he understood risk but didn't think it applied to MF Global, or he understood risk, knew it applied to MF Global, but didn't care to act on this.
The New York Times for one thinks that Corzine may end up having to pony up some dough:
That [Delaware law] means Mr. Freeh can seek to recover for a breach of the duty of due care by showing gross negligence on the part of the leaders of MF Global.Corzine's 2011 testimony to Congress appears to lean towards option 2 ("I understood risk but got it wrong") but I would agree that probably the last thing Corzine wants is his decisions being aired in detail in court. Freeh is probably in with a good chance of a settlement. Sadly this means that we the public will be denied the chance of a financial post-mortem on exactly how someone as experienced as Corzine could screw up risk so badly.
That is still a high standard, requiring something akin to proving recklessness by Mr. Corzine. But unlike a suit against the directors, which would probably be dismissed quickly, this claim has a reasonable chance of surviving a motion to dismiss that would allow it to proceed toward a trial. A public airing of MF Global's plunge into bankruptcy is probably the last thing Mr. Corzine wants, so the settlement value of the case is higher.
Mind you, it may explain why he didn't properly assess his personal risk from not wearing a seatbelt.