Monday, January 9, 2012

Corzine's Fancies (or Is Jon Corzine As Corrupt As He Seems?)

If we could trust Vanity Fair to fairly evaluate an economic crime (ha!), this is what we'd get for our trouble.

And it may be as good as any evaluation we'll get at this time.

On Eve of $41 Billion MF Global Bankruptcy Filing, Jon Corzine Was Château Shopping in France

Vanity Fair

January 5 2012

In an exclusive report from three of Vanity Fair’s premier business writers — contributing editors Bryan Burrough, William D. Cohan, and Bethany McLean — the February issue delivers a sprawling account of the personal and
professional battles of Jon Corzine, the former Goldman Sachs C.E.O. and ex-politician whose helming of MF Global resulted in a notorious $41 billion filing for bankruptcy and a $1 billion loss in firm equity. According to the piece, for the fiscal year that ended in March 2011, MF Global recorded day-one gains of $85 million on the former New Jersey governor’s risky trades on European sovereign debt and other assets, thanks to an accounting ploy.

Because there were barely any expenses associated with such trades, the gains were almost pure profit. “Corzine would later tell investors that he made a $6.3 billion bet on sovereign debt, but the company’s filings made it look like he had a much bigger long position at the end of June 2011 — $11.4 billion, offset by ‘short’ positions of almost $5 billion,” Vanity Fair reports. One analyst says: “If those trades had not been there, MF Global would have been forced to sell or go out of business.”

As federal authorities searched for the brokerage house’s more than $1 billion in missing customer money, friends and former associates of Corzine weighed in on the ways his personal quirks informed his management style. “On this, Jon became a zealot,” one person says of Corzine’s European-debt trades. “He managed the process soup to nuts,” says a former employee. “He knew every number back and forth. He’d talk to the accountants and the board.

He’s not a detail-oriented guy, but on this he knew every detail.”

“I think he is the most competitive guy in the world,” says a person who was close to him at MF Global, explaining why Corzine took the job in the first place — despite prime opportunities both on Wall Street and in Washington, where he was frequently invoked as a possible Treasury-Secretary successor to Timothy Geithner.

“He knows there are people out there who don’t like him, and he wants to prove them wrong. He’s very focused on reputation and how he’s perceived. He wants to be perceived as a winner, and he will do what it takes to get there.” Says a former colleague, “He wanted to be in the game, to prove he was back, to prove he was the man.”

“There are a lot of us who consider Jon to be a friend and mentor,” says a former Goldmanite. “That group is horrified [by the scandal].” He continues: “There is another group who thinks this is par for the course.”

“At first I thought, Oh, Jon must be crushed,” says one person who knows him well. “It’s not like he was doing this [playing the accounting games] to earn a big bonus. But he needed to feed his ego that he would be perceived as being successful. And there are lot of people who are paying a much higher price than he is.”

Vanity Fair reports on Corzine’s personal life as well, saying that on October 15, two weeks before MF Global filed for bankruptcy, Corzine and his wife, Sharon Elghanayan, were at a birthday party in Paris talking about a château they were about to buy in the South of France. “It’s not in Cap Ferrat,” one person recalls Elghanayan saying, perhaps to mitigate the extravagance. “To buy any decent château is at least a couple of million euros,” explains another person who was at the party, “and that is before the renovation with the air-conditioning and the new kitchen. Sharon was very excited. She said she was flying down there on Monday morning.”

“The marriage [fell] apart, mostly because Jon was a workaholic,” a family friend says of Corzine’s relationship with his first wife, Joanne. “[She] contributed to that, too. The more Jon brought in, the more she wanted a great big life. She loved being around people who told her how important she was.” For Corzine, one of the more distressing aspects of the divorce involved David Tepper (a onetime Goldman trader) and the estranged couple’s Sagaponack house.
“For years, friends say, Corzine had felt Tepper and Joanne were becoming too close,” Vanity Fair reports. “Bad blood between the two men dated back to 1992, when Tepper, a fixture on the high-yield trading desk, was passed over for partner; he went on to form Appaloosa Management, a hedge fund, and, over time, became a billionaire.
Just days before the divorce was finalized, Joanne startled Corzine by suddenly insisting on keeping the Sagaponack house. Corzine had hoped it would become a gathering place for their children and a way to rebuild his ties to them. But Joanne insisted, and he gave in, valuing the house at roughly $9 million. That might have been the end of the story, except that Joanne has what one friend calls ‘a real nose for real estate.’ In 2010, after renting the house for a stunning $900,000 for a single summer, she sold it for $44 million. The buyer was none other than David Tepper. Corzine, friends say, was apoplectic. One suspects he grew even angrier when Tepper tore down the house to build one of his own. ‘That was just a massive fuck-you to Jon,’ recalls a friend.”

- - - - - - -
MF Global was originally a futures brokerage - they would execute orders on behalf of customers who want to buy or sell commodities futures, financial futures and more. Some of those customers would make money, some would lose.

Others - such as farmers - would be using MF Global to buy/sell futures contracts in order to hedge their business operations - to reduce risk and lock in futures prices.

The point seems to be missed that MF Global was struggling because of low interest rates in the US. A large part of their profits was not fees charged on brokerage transactions, but by skimming interest earned on the deposits of customer money.

Enter Jon Corzine who decided that the firm itself should start speculating big time. This is almost the equivalent of the Casino operator deciding to start playing on Casino's tables . . . and eventually dipping into customer money to do so.

Unfortunately, (or perhaps fortunately - it ought not be encouraged) it ain't easy to win as a speculator.

So far, the role of Jon Corzine or others in the missing customer money is not known.

If someone finds this money, please hand it in to the nearest police station.

It will be interesting to see how this plays out and if Corzine was at all complicit in the missing funds.

Read it all, friends, if you can stomach it.

No comments: