Ilya Marritz covers business for WNYC.
Jon Corzine stepped down Friday from running the securities firm that collapsed after his disastrous bets on European debt. The firm, MF Global, said Corzine has resigned as chairman and CEO and will decline a severance package worth $12.1 million, including cash and benefits.
“Mr. Corzine had no role within MF Global Inc. after James W. Giddens was appointed as the Securities Investor Protection Corporation Trustee for the liquidation of the broker-dealer on October 31st," Kent Jarrell, spokesman for the Office of the Trustee for the Liquidation of MF Global Inc said in a statement.
MF Global filed for bankruptcy protection on Monday after its bets on European debt spooked investors and trading partners.
The Chicago Mercantile Exchange said midday on Friday that it had moved nearly 5,300 frozen accounts held by MF Global customers to other firms, and would continue transferring accounts throughout the day. That means at least one third of former MF clients can now, or will soon be able to trade in and out of their commodity accounts.
On Thursday, the overseeing the bankruptcy of MF Global authorized the transfers, which are expected to continue through the weekend and into next week.
The move does not, however, clarify a question regulators have been trying to answer since Monday: what happened to more than $600 million held in MF client accounts, which appears to be missing?
Getting an answer is a task that falls to James Giddens, the court-appointed bankruptcy trustee. On Friday, a judge confirmed Giddens’ authority to issue subpoenas in his investigation. Giddens already has a team of forensic accountants combing through documents at MF Global offices in Chicago and in New York.
Bloomberg News and The New York Times are reporting hundreds of millions of dollars of missing client money may have been discovered in the accounts of MF Global.
But the trustee overseeing MF Global's bankruptcy is not yet willing to say all the missing funds have been found. In a statement Friday evening, he said his investigators are still studying MF Global's books, looking for the source of the apparent shortfall.
John Coffee, a professor of securities law at Columbia University, said the case illustrates the dangers in so-called proprietary trading, where financial institutions use client accounts to place trades for the company's benefit.
"If a bank that was too big to fail had engaged in the same kind of dangerous trading that MF Global did, the entire financial markets would be in shock," Coffee said.
The financial overhaul signed into law in 2010 would outlaw most proprietary trading by big banks, under a provision known as the Volcker Rule.
Several government agencies are now investigating the company, raising the possibility that MF raided the client accounts to prop up its own balance sheets. Company lawyers have denied that claim.
As of Thursday afternoon, however, Ryan Davies, a commodities trader representing a number of MF Global clients, had not heard from the trustee or any regulators.
"I'm telling my clients that again, you're going to read a thousand different things. The fact is, is that they haven't completed the audit," he said.
Davies is a principal at the San Diego-based Alternative Investment Consultants that manages or advises around 100 clients with MF Global accounts.
Davies said missing money surprised him, but he is confident it will be found. "I've been dealing with this company for a while," Davies said. "Jon Corzine has way too much to lose relative to who he is as a person, to have done something so blatant."
Even if MF Global did not mingle client funds with its own money, the company could be liable for deceiving regulators.
"If it turns out any conversations with regulators include untrue statements, then severe sanctions can follow and typically do," said Steve Thel, a professor of corporate law at Fordham University School of Law.
The Chicago Mercantile Exchange said Wednesday it audited MF Global's accounts last week, but "it now appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection."
With the Associated Press