Jon Corzine has had almost as many next acts as a six-hour opera by Wagner, but this time it appears as if he is finally about to take his curtain call and depart the Wall Street stage for good.
The Commodity Futures Trading Commission brought charges against Corzine last week tied to the collapse of his futures trading firm, MF Global, in late 2011. The CFTC said Corzine had misused nearly $1 billion of customers’ money to prop up its operations in the midst of a liquidity crunch. “Corzine bears responsibility for MF Global’s unlawful acts,” the regulator said in its civil complaint (PDF), which also charged the company’s former assistant treasurer, Edith O’Brien.
In an agreement with the CFTC that’s still subject to court approval, MF Global has agreed to make sure its commodity customers get back the amounts owed to them as of October 31, 2011, when it declared bankruptcy. It has also agreed to pay a $100 million penalty. The CFTC doesn’t have the authority to bring criminal charges against Corzine, but it is looking to ban him from the futures and options industry, a ruling that would be tantamount to ending his Wall Street career.
It would be an ignominious end to the career of someone who had once reigned over New Jersey as its governor, and, before that, over Wall Street as the senior partner of Goldman Sachs. Corzine, 66, has been brought low for alleged misdeeds running a relatively insignificant trading firm a fraction of the size of Goldman. And he’s being charged by a regulatory agency that is regarded by some of its peers, as well as those it regulates, as a toothless and mildly irritating group.
Corzine is more accustomed to clambering up professional ladders than sliding down them in disgrace. He grew up on a farm in Willey Station, Ill. before graduating from the University of Illinois at Urbana-Champagne and earning an MBA from the University of Chicago. He went on to work at the Continental Illinois National Bank and then BancOhio National Bank, but it wasn’t long before he made his way to Goldman as a bond trader.
Corzine reportedly arrived at the white-shoe firm wearing a sports jacket, but by late 1994, he had climbed all the way to the top job. He had reached the pinnacle of Wall Street, in spite of the fact that the trading businesses he supervised had been hit by big losses from shorting the British pound at almost the same time he was appointed to succeed departing chairman Stephen Friedman. Those risky trades reportedly lost Goldman almost $2 billion.
The firm was in the midst of a crisis when Corzine took over. It was losing money and rating agencies were edgy. Yet Corzine managed to rebuild confidence and profits in relatively short order, and he turned his attention to finding a solution to the Long-Term Capital Management crisis, as that hedge fund business teetered in 1998, threatening to destabilize the global financial system. Corzine helped to prevent the web of counterparty relationships created by the hedge fund from turning into a toxic mess that would cause the implosion of the financial system.
Then he hit his first major setback: co-CEO Hank Paulson, who had been promoted to share the job with Corzine in June 1998, staged a palace coup. Corzine was out as co-CEO, even if he would go on to make $400 million when the company went public, after his departure, in 1999.
ACT II: POLITICS
What to do for an encore? For some Wall Streeters, it’s simple. You scoop up your winnings and retire gracefully from the fray. Many traders and investment bankers, like Corzine himself, come from relatively modest backgrounds. The millions they earn over two decades or so is enough money for them to live a lifestyle they may never have realized was possible when they were growing up. They have enough to ensure their families will never want and enable them to pursue their dreams – of setting up a non-profit, of spending months each year on photo safaris, of playing at the world’s best golf courses.
But there is a small group, to which Corzine belongs, who have a much tougher time letting go. Often, they have a background in trading: Just ask a trader what it’s like to walk away for the day on a down trade or with their positions in the red. The kind of adrenaline that drives a top-tier trader is hard to relinquish, and so Corzine simply redirected it, this time into politics.
In relatively short order, he was elected to the U.S. Senate in what was the costliest campaign in the history of that body. After an active term – co-authoring the Sarbanes-Oxley bill was one highlight – Corzine opted to run for governor of New Jersey and won that election, spending a relatively meager $38 million in the process. But his 2009 re-election campaign ended in defeat to Chris Christie. It was the first time a Republican had won a statewide election in New Jersey in 12 years.
For Corzine, it was on to Act III.
RECREATING GOLDMAN SACHS
By 2010, after the collapse of Lehman and the depths of the financial crisis, Wall Street was changing. Corzine, like other displaced senior traders and investment bankers, saw an opportunity on its fringes, hoping to transform niche firms into the next generation of top-tier financial institutions. In other words, while Corzine himself never used the words publicly, he had in his mind the idea that he could recreate Goldman Sachs.
What he did say, in an interview with a New York Times reporter at the time he took the job, was that he wouldn’t have done so “if I thought MF Global were going to be the same company in five or 10 years.”
Well, it wasn’t. Within two years, MF Global melted down, thanks in large part to big bets on European sovereign debt, some of them placed by Corzine himself, just as the continent’s fiscal crisis was worsening. Probably, Corzine felt that the only way to transform MF Global into a power player was by taking big, risky bets. As he had admitted, he didn’t want to head up a small second- or third-tier player on the fringes of Wall Street, and be patronized by some of his former subordinates and peers. But while trading bets that went south back at Goldman in the mid-1990s failed to derail his rise, those that he tried to oversee nearly two decades later proved his undoing.
Even worse, Corzine may win the one prize that no one on Wall Street wants: The title of the first Goldman Sachs banker to end up being held accountable for what critics view as the industry’s varied misdeeds over the last decade or more. While his erstwhile colleagues at Goldman were able to settle the fraud charges levied against the firm by the SEC in connection with the Abacus deal, it is going to be far, far tougher for Corzine to dodge the CFTC’s claims that he violated a core principle of the financial system: segregating client funds from those of the firm.
If the CFTC’s allegations, contained in a civil action filed against Corzine in federal court late last month, are true, Corzine knew, or should have known that the $1 billion or so in missing client funds that went AWOL had been used to try and stave off MF Global’s collapse. (Corzine, via his lawyers, has publicly declared he disputes the CFTC allegations and plans to contest them in court.) The CFTC, perhaps in an effort to show that it, too, has a set of impressive teeth that it is prepared to sink into disgraced Wall Street bankers, appears to have obtained a few smoking guns, in the shape of taped telephone conversations and e-mails involving O’Brien, MF Global’s former assistant treasurer. Either Corzine “did not act in good faith or knowing induced these violations,” the CFTC claims.
AFTER THE FALL
This time, there’s little chance of a rebound or a triumphant Act IV. A palace coup, a near-fatal car crash in 2007, a political defeat: those fall into the category of acts of fate. Being accused of violating one of the core tenets of Wall Street – that customer funds are sacrosanct, and must be protected by an impenetrable firewall – is something else. Even if he is later exonerated by a court, or reaches one of those “don’t admit to anything but pay a fine” settlements that are so common in Wall Street regulatory cases, Corzine’s future on the Street is non-existent.
If he has any of his own money left at the end of this process, he may be able to sit at home and entertain himself by investing it. But amongst his erstwhile peers, his status has gone straight to “persona non grata,” and, in his late 60s, there is little likelihood that he’ll be able to pull off a Michael Milken type of rebirth and rebuild his name through a devotion to charitable activities. For while Milken spent time in jail for a criminal offense – something that for now doesn’t appear on the horizon for Corzine – he was in a better position to recover: Not only was he younger, but during his time at the top of the Street, he was known for creating a market – junk bonds – that really hadn’t existed in any significant way before him. Corzine doesn’t have that kind of Wall Street legacy. For all his past successes, he may end up being known better for his defeats.