Saddled with huge and bad Euro Zone debt investments, Jon Corzine's invesment firm MF Holdings has filed for bankruptcy.
NEW YORK (Reuters) - Jon Corzine's bid to revive his Wall Street career crashed and burned on Monday when his futures brokerage MF Global Holdings Ltd filed for bankruptcy protection following bad bets on euro zone debt.
The firm had been scrambling over the weekend to avert bankaruptcy by finding a buyer and prospects looked reasonably promising.
But talks broke down and the firm filed for bankruptcy on Monday, October 31st. In what is perhaps an unusual move in today's climate, regulators were instrumental in preventing a buyer from being found, and MF Holdings is blaming regulators for hastening the bankruptcy. The collapse is being compared to that of Lehman Brothers and the collateral damage is expected to be contained.
But once regulators forced it to fully disclose the bets on debt issued by countries including Italy, Portugal and Spain, it rapidly unraveled with no buyers willing to step in.
The company's shares plunged last week as its credit ratings were cut to junk. The Chapter 11 bankruptcy filing came after talks to sell a variety of assets to Interactive Brokers Group Inc broke down earlier on Monday, a person familiar with the matter said. Regulators had expressed "grave concerns" about the viability of MF Global, which filed for bankruptcy only after "no viable alternative was available in the limited time leading up to the regulators' deadline," the company's chief operating officer, Bradley Abelow, said in a court filing.
The firm's failure to provide required data and information to regulators was instrumental in its downfall, and FINRA (regulatory agency) required MF to increase its capital.
One of the regulators that pressed MF Global, the U.S. Commodity Futures Trading Commission, was unhappy with the brokerage's failure to give it the required data and records.
"(T)o date we don't have the information that we should have," said a source close to the CFTC.
The bankruptcy is the eighth largest in US history and the largest to be hit by Europe's ongoing debt problems.
And in addition to bankruptcy, Corzine is facing a regulatory probe as regulators are investigating the possibility of millions of dollars missing from client accounts.
U.S. regulators are investigating whether hundreds of millions of dollars are missing from client accounts at MF Global Holdings Ltd. (MF), according to two people with knowledge of the matter.
MF Global, the holding company for the broker-dealer run by former New Jersey governor and ex-Goldman Sachs Group Inc. co- Chairman Jon Corzine, told regulators yesterday about deficiencies in accounts that it managed for clients in the futures market, the CFTC and Securities and Exchange Commission said in an e-mailed statement.
“It’s kind of considered the third rail of the brokerage industry that when you’re holding your customers’ funds in their names, you don’t touch them -- even in an emergency situation when you’re running short of cash,” Darrell Duffie, a professor at Stanford University’s Graduate School of Business, said in a telephone interview.
When accounts don’t add up, “there is a whole range of possibilities, everywhere from an accounting error, to a technical glitch, and, of course, one can’t rule out misbehavior as a possibility,” Duffie said.
The missing funds were reported yesterday by the New York Times.
Earlier this year, Corzine's firm had offered investors a greater percentage return should he leave the firm for a position in the government requiring a Presidential appointment by July of 2013. This was such an odd provision stunning Wall St. that it was dubbed the 'Obama Clause'. No word yet on whether the bankruptcy filing invalidates this clause, but Press Secretary Jay Carney has denied any knowledge of Corzine being considered for a Presidential appointment.