Top Regulator Steps Aside in MF Global Probe

A leading regulator said he will not participate in the investigation of MF Global because he has ties to former New Jersey governor Jon Corzine, who recently resigned from the New York broker-dealer that filed for bankruptcy last week.

Gary Gensler, who oversaw MF Global’s commodities business and is now the chairman of the Commodity Futures Trading Commission, worked under Corzine in the 1990s when the former New Jersey politician was the CEO of Goldman Sachs.

At a conference hosted by the Securities Industry and Financial Markets Association in Manhattan on Monday, Gensler said he “didn’t want my participation in any way to be a distraction” to the probe of MF Global after some recently suggested Gensler's work for Corzine, and his contributions to one of Corzine's political campaigns, could constitute a conflict of interest.

Gensler said he made the decision to recuse himself last week.

The CFTC is the chief regulator for futures and options markets and would have been responsible for oversight of many of MF Global’s trading divisions.

The move may have more than gestural significance, said a former CFTC official, Michael Greenberger, who now teaches at the University of Maryland Law School.

Noting that the CFTC's five commissioners vote to approve new rules, Greenberg said that "by removing him from decision making, it's possible that when the commission has to act, it will be deadlocked 2-2. And I think that's unfortunate."

According to multiple news reports, while at MF Global, Corzine lobbied Gensler to oppose new rules that would have strengthened the so-called "segregation" of customer trading accounts. In essence, the rules would have made it more difficult for firms like MF Global to use customer funds as a source of financing.

"My view is if Gensler is voting on that, they will have segregated accounts," Greenberger said, adding that the outcome now is less certain.