Regulator leading MF Global investigation has close ties to Corzine

gensler.jpgGary Gensler, chairman of the Commodity Futures Trading Commission, is shown here speaking at a Senate Subcommittee on Investigations hearing today on excessive speculation and compliance with the Dodd-Frank Act in Washington, D.C.

Jon Corzine spent decades working with the man now leading the agency that is investigating the collapse of MF Global.

The former governor turned CEO of the derivatives brokerage that filed for bankruptcy Monday spent 18 years on Wall Street with Gary Gensler, now chairman of the Commodity Futures Trading Commission. Gensler was a partner with Goldman Sachs, rising to rank of co-head of finance before leaving the firm in 1997 for a role in the U.S. Treasury department. At the time, Corzine, a 24-year veteran of the firm, served as its CEO.

The two men met up again on Capitol Hill, when Corzine, then the junior senator from New Jersey, in 2002 helped co-author the landmark Sarbanes-Oxley Act, which imposed massive new regulations in response to accounting scandals that caused Enron, Tyco and WorldCom to implode. Gensler was a senior advisor to Sen. Paul Sarbanes (D-Md.), then chairman of the Senate Banking Committee, for whom the act was partially named.

This week’s turn of events–MF Global’s meltdown and subsequent findings by its regulators that the firm allegedly violated requirements on customer segregated funds–promises to reunite the two men once again, though on opposite sides of the table. A CFTC spokesman did not return a message immediately seeking comment on Corzine and Gensler’s connection and whether it represents a potential conflict.

Gensler was on Capitol Hill yesterday and told a Senate panel that MF Global wasn’t forthcoming when regulators sought information on customers’ funds last weekend.

"Our people went in to say ‘Can you give us the documentation? Can you give us the background material?’ Because it’s one thing to have one sheet of paper with the number, it’s another to have actually the bank account numbers and the securities," Gensler told reporters after testifying before the Senate Permanent Subcommittee on Investigations. "That was a challenge over the course of the weekend."

CFTC auditors went to MF Global offices starting Oct. 27 to investigate customer funds as the firm sought a buyer after reporting its biggest quarterly loss and having its credit ratings cut by Moody’s Investors Service.

"We immediately asked for the documentation. We had concerns over the weekend as the documentation was not forthcoming," Gensler said.

Gensler said he went to sleep at about midnight on Sunday after Interactive Brokers Group Inc. and MF Global verbally committed to a deal, including the transfer of customer positions.

"Our role at that time was to ensure the protection of the customers and that there was a party to guarantee the positions and the collateral and that that would be moved," he said.

Potential Deficiencies

MF Global filed for bankruptcy protection on Monday after that deal collapsed and the firm told regulators of potential deficiencies in customer accounts.

Gensler said he first learned of the shortfall in customer funds when he received a call from MF Global at about 2:30 a.m. on Monday. The CFTC said in a letter Wednesday that the shortfall is $633 million. Gensler told the subcommittee members that the CFTC would be looking for the cause of the shortfall.

Under CFTC regulations, brokerages must keep customer funds in accounts separate from the firm’s own collateral. CME Group Inc., MF Global’s designated self-regulator, said on Monday that the shortfall in segregated funds violates CME and CFTC rules.

MF Global was sued in New York yesterday by shareholders who contended they were misled about the firm’s financial stability. In addition, the law firm of Perkins Cole said in a filing with the bankruptcy court that it had been retained to represent Corzine in the firm’s liquidation.

Bloomberg News Service contributed to this report.

Related coverage:

Corzine's high-stakes gamble at MF Global blows up in his face as Wall Street firm collapses

Wall Street firm led by former N.J. Gov. Jon Corzine violated federal financial rules, says Chicago Mercantile Exchange

Former Gov. Corzine's Wall Street firm under investigation; hundreds of millions of dollars in question

Corzine's MF Global files for bankruptcy protection

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