Once-Ascendant Corzine Returns to Congress as Suspect in MF Global Failure
Jon S. Corzine
Chris Ratcliffe/Bloomberg
Jon S. Corzine, who once straddled the heights of finance and politics as co-chief executive officer of Goldman Sachs Group Inc. and a Democratic governor and senator from New Jersey, is set to appear today before the House Agriculture Committee.
Jon S. Corzine, who once straddled the heights of finance and politics as co-chief executive officer of Goldman Sachs Group Inc. and a Democratic governor and senator from New Jersey, is set to appear today before the House Agriculture Committee. Photographer: Chris Ratcliffe/Bloomberg
This isn’t the usual way a former U.S. senator returns to Capitol Hill -- on the receiving end of a subpoena.
Jon S. Corzine, who once straddled the heights of finance and politics as co-chief executive officer of Goldman Sachs Group Inc. (GS) and a Democratic governor and senator from New Jersey, is set to appear today before the House Agriculture Committee. It’s the first of three panels that compelled him to testify about the collapse of MF Global Holdings Ltd., the firm he was trying to build into a Wall Street powerhouse.
Lawmakers, federal regulators and the Justice Department are all investigating MF Global’s demise and trying to find as much as $1.2 billion in customer funds that have gone missing.
Corzine, 64, who has been publicly silent since he issued a Nov. 4 statement resigning from the bankrupt firm, must weigh his potential legal liability in deciding whether to answer lawmakers’ questions or invoke his right against self- incrimination. While he hasn’t been accused of any wrongdoing, analysts said they’d advise Corzine to keep quiet.
“It is much better to suffer some public shame than go to jail,” said Mark Corallo, a public relations specialist in Washington who as a Republican congressional and Justice Department staff member worked on numerous high-profile investigations.
“While it’s a natural tendency of a public figure to worry about his image, he should be much more concerned about his legal status,” Corallo said.
Vanished Funds
Lawmakers have pledged to ignore Corzine’s resume and his Capitol Hill ties when they grill him about his stewardship of MF Global and the funds that vanished on his watch.
“We need to demonstrate to the American people that nobody is above the law,” Representative Randy Neugebauer, a Texas Republican who is set to question Corzine at today’s hearing, said in an interview.
Corzine will face the committee as the first ex-senator in 103 years to be subpoenaed by Congress. Adding to the day’s political tension is his background as a former top fundraiser for President Barack Obama. Lawmakers also have been hearing from some of the 1,000 people who lost their jobs in MF Global’s failure and from some of the thousands of customers, including farmers, who used the firm to trade futures.
“It’s not going to be easy for him,” said Mark Oesterle, a counsel at the Reed Smith law firm in Washington, who was the Republican chief counsel on the Senate Banking Committee.
‘Troubling’ Images
Images like Corzine leaning back “talking to counsel or even pleading the Fifth, would be especially troubling in light of his background as a former senator and governor,” Oesterle noted.
With the election just a year away, national politics are also playing a role in Corzine’s troubles. The National Republican Congressional Committee yesterday seized on the issue, demanding that “Democrats return their scandal-tarnished campaign cash” that Corzine “earned by shortchanging American farmers and families.” This year, Corzine gave campaign contributions to Democrats including $15,000 to the Democratic Congressional Campaign Committee and $5,000 to Obama’s reelection, according to the Center for Responsive Politics.
Democrats, meanwhile, have distanced themselves from their former colleague. Senator Debbie Stabenow, the Michigan Democrat who heads the Senate Agriculture Committee and served alongside Corzine, pushed her panel to subpoena him. And in a House Financial Services subcommittee meeting yesterday, all seven Democrats that attended voted with eight Republicans to compel Corzine to appear.
Loss to Christie
“I don’t know if this subpoena will actually produce much but we have an obligation to do it, and we will” said Michael Capuano, a Massachusetts Democrat, at yesterday’s vote.
Until his November 2009 loss to Republican Chris Christie in the New Jersey governor’s race, Corzine’s image had been largely one of success.
Corzine spent 24 years at Goldman Sachs, rising to become chief executive officer and then co-head of the firm with Henry Paulson. Paulson, who later became Treasury secretary, ultimately pushed Corzine out in an internal power struggle.
He left Goldman Sachs in 1999 with an estimated $400 million as the firm went public. He quickly turned to politics, winning election to the Senate in 2000. After five years in Washington, Corzine became New Jersey’s governor in 2006.
Appointment Cheered
Corzine was named chairman and CEO of MF Global in March 2010 and he quickly began to remake the staid futures brokerage firm into a smaller version of an investment bank, much like the Goldman Sachs he had grown up in.
The financial industry cheered Corzine’s appointment at MF Global; the firm’s stock rose 15 percent the week he was hired. The firm had reported a loss in the four quarters prior to Corzine’s hiring.
Central to his strategy for turning around MF Global, Corzine promised to bulk up principal trading, or the use of the firm’s own capital to make deals for itself and clients.
In the latter half of 2010, within months of taking the helm, he started buying Italian and Spanish bonds, as well as those of Portugal, Ireland and Belgium.
By the time of MF Global’s demise, Corzine had bet $11.5 billion on European sovereign debt, almost twice the net amount disclosed to investors.
Board Resistance
Corzine overcame resistance from directors, senior traders and risk managers to accumulate the bonds, according to two people with knowledge of the situation. He used short-term hedges, or offsetting trades, to cut the net risk reported to shareholders to $6.4 billion, according to an Aug. 3 regulatory filing by the company.
Corzine has been out of the public eye since he resigned from MF Global days after it filed for bankruptcy protection. He has hired attorney Andrew Levander, a partner in the law firm Dechert LLP. Steven Goldberg, a spokesman for Corzine, declined to comment yesterday on his appearances before Congress.
Corzine has the constitutional right not to answer questions where his response could lead to criminal charges being filed against him. Congress could also offer Corzine immunity from prosecution for his testimony, though white collar defense lawyers said that wasn’t likely to happen.
Congressional immunity “normally presents significant problems” for prosecutors, said Robert Bennett, a partner at Hogan Lovells in Washington.
‘Tainted’
If a person has testified with immunity, the government in bringing its case would have to show that it was “not connected to” or “tainted” by the congressional testimony, Bennett said.
Attorneys who specialize in congressional investigations said they expect Corzine’s silence will continue.
“Given the pending criminal inquiries, I’d advise him to take the Fifth,” said Mark Paoletta, former chief counsel for the House Energy and Commerce Committee who is now a partner at the Dickstein Shapiro law firm in Washington. “There’s too much potential downside to testifying.”
Lawmakers, in interviews last night, said they hoped that would not be the case.
“I hope he is coming to answer questions, but he, like every American, has the Fifth Amendment protections that are available to him,” Representative K. Michael Conaway, a Texas Republican, said in an interview yesterday. “We’re trying to craft questions that we think he can answer without his lawyer setting his hair on fire.”
To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net.
To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net
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