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This article was originally published on ValueWalk.com by Mark Melin. For additional behind the scenes insight, see commentary provided at the end of this article.

As former MF Global CEO and Chairman Jon Corzine prepares for the next chapter of life, building a hedge fund in high-profile fashion by speaking at the SALT Conference last Friday and to The New York Times in a major article in published in the Sunday edition, some of the most interesting and meaningful issues and stories remain little discussed. Was MF Global and the goal to take on Goldman Sachs Corzine’s boldest decision? Why did customer assets leave the firm after regulators ordered a halt to all transfers? How can a “case be cold” before the primary suspects were even questioned? These are just a few of the many open questions in a Jon Corzine story you likely have not heard.

The Corzine story mostly in the public domain

What is known about Corzine points to a man of historic proportion, almost bigger than life, who overcame several obstacles to rise from a hardscrabble existence on a generally non-descript central Illinois farm to become one of Wall Street’s most influential political players.

After brief stints at banks in Chicago and Columbus, Ohio, Corzine got the call to the big leagues, joining Goldman Sachs in 1975 and moving to New York City with his young family.

Throughout his generally charmed early career he exhibited a willingness to take bold risks and was associated with a magic trading touch that started when he was a clerk on the Goldman bond desk. In perhaps one of Wall Street’s most historic initial trading stories, in-between fetching coffee and taking messages for traders, Corzine noticed a mistake his vacationing boss had made. Looking at the market conditions, he liked the mistaken position and sensed an opportunity. Rather than correct the mistake, he stuck with the incorrect position, netting a cool $10 million profit on his first trade but violating protocol and regulations.  Such daring actions became a template for his life, as Corzine was known to take huge risks and endure dramatic losses while waiting for a position to turnaround.

After a series of profitable trades, many of which required patience and endurance, Corzine was made partner in 1980, just 33 years after his birth, among an elite group of young guns to achieve such an honor in the firm’s history. As he began to climb the ranks of leadership, he was historic for several reasons, not the least of which was the new trading culture he represented and ushered into Goldman, a trend replicated across Wall Street.

Corzine was a character the traditionally conservative and staid investment partnership was unaccustomed to having in senior leadership posts. While the conservative investment bankers had always run the firm, Corzine was an aggressive trader with a different mindset. When he took over as co-CEO and chairman in 1994, it benchmarked the integration of a trading culture into a prestigious club of investment bankers. Hedging their bets, however, Goldman tapped the head of its Chicago office, Henry Paulson, a distinguished investment banker with a gentlemanly reputation, to serve as Corzine’s equal, taking the position of co-CEO and chairman.

The two ultimately clashed and Corzine was asked to leave just as the investment partnership firm was transitioning to a public firm, a key undertaking Corzine engineered that netted him a reported $400 million in the process after the IPO. Paulson would later serve as US Treasury Secretary, a position that Corzine was considered for under the Obama administration.

Goldman’s going public made Corzine a vastly wealthy man, but being asked to leave the partnership left a sour taste, like being jilted by a lover. He had something to prove, but his golden touch would start to wane.

After climbing to the pinnacle at Goldman and being shown the door, Corzine decided to make a successful run for US Senate. He was in office January 3, 2001, just as the “dot-com bubble” in technology stocks was bursting. The registered Democrat proceeded to post a record that looked very much like that of a respected liberal reformer, co-authoring the Sarbanes-Oxley Act while advocating for universal healthcare and gun registration. He served 5 years of a 6-year term before deciding to run for New Jersey Governor, a race he won in 2005. He held this position for one term until losing a bitter election to Republican Chris Christie, another momentous defeat in an otherwise gilded career.

It was here Corzine made the fateful MF Global decision.

His second wife, New York City psychotherapist and socialite Sharon Elghanayan, advised him to just take time off rather than making a career decision after a major loss, but Corzine didn’t listen, the New York Times article noted.

With a generous, if a less challenging offer from quantitative hedge fund D.E. Shaw on the table, Corzine chose the real challenge at MF Global, and the derivatives industry nor Corzine would never be the same.

Why did one of the most powerful political figures to ever grace Wall Street decide to take over MF Global, at the time a money-losing firm which noted Wall Street author William Cohan had described as a “third tier” derivatives brokerage?

Was Corzine uniquely qualified to “take on Goldman Sachs?”

After a spectacular history trading at Goldman Sachs, Corzine, however, was starting to pile up a string of high-profile losses. At the time he could have selected options easier than the MF Global. But Corzine, in keeping with his bold trader personality, decided to take the MF Global job and go for a little discussed historic brass ring.

The independent derivatives brokerage had been slowly bleeding red ink when Corzine took over with the bold plan to “take on Goldman Sachs” and transform the sleepy brokerage from the then little-known listed derivatives industry into a globally respected investment bank.

The decision to compete against the big banks cannot be overstated in its boldness. The big bank category, particularly Goldman Sachs, is widely viewed by insiders as untouchable. But if there was one person who had the political clout, the drive and balls of steel to engineer success, it was Corzine. As it turned out, the stakes were never higher in his life: Win and accomplish a historic feat on Wall Street never before imagined; fail as he did and flirt with potential criminal charges.

Befitting his trading mentality, Corzine took the reigns at MF Global in March 2010. He quickly proceeded to leverage the firm trading risky European sovereign bonds in the midst of an approaching debt crisis. He was a trader at heart and personally reminded me at times of my former boss and mentor in the derivatives industry, a former floor trader, who would trade off his cell phone during business meetings and could endure unfathomable risk.

While Corzine shared traits with many inside the derivatives trading community, he was something the industry had never seen before. There was a set of guiding principles and a respect for regulators that had been well cultivated over the years to keep the industry in check. The aggressive use of a brokerage firm’s assets for proprietary trading stunned the vastly more conservative derivatives regulators and industry executives who oversaw the action from the front row, mouths agape. The raw political power he displayed both during his tenure at MF Global and afterward was stunning. But with all his power, he couldn’t stop MF Global from ultimately finding its demise.

Sovereign bonds result in liquidity trap

As the firm descended into a liquidity spiral due in the fall of 2011 on the back of a risky sovereign bond trade – a classic Corzine trade – investors, regulators, knowledgeable employees and the MF Global board of directors became concerned. The trade had grown from a $1.5 billion position in September of 2010 to $7.4 billion in August of the firm’s final year and it was losing money.

Seeing the writing on the wall, a “Break the Glass” planning document was ordered prepared and delivered on October 11, 2011.  It instructed management how to respond to a credit downgrade and a liquidity crisis, estimating in such an event the firm would have “sufficient liquidity to manage through one month under a severe stress event,” a Congressional report noted.

Those exact set of circumstances occurred less than two weeks later with a Moody’s downgrade on October 24, triggering a Breaking of the Glass.

Regulators, aware of the trouble, were eager not to have a failure of a derivatives brokerage stain what a spotless record on what was then categorized by some as one of “the most secure account types” in the world. The presumed security of the derivatives account structure allowed firms like MF Global to compete, to a certain degree, with large banks, who were known to claim the only truly safe accounts were held under their protection.  MF Global held the accounts of farmers and ranchers, mostly “middle class” customers, but they also of small and mid-sized pension funds, foundations, family offices and hedge funds. Koch Industries, one of the most powerful Republican backers, had significant accounts at MF Global. They were able to escape MF Global more than a month before the firm’s bankruptcy, however, while said to have closely watched details unfold, including a suspicious bond offering.

Regulators order MF Global not to transfer assets, did Corzine listen?

When it became clear MF Global might fail, regulators were scrambling to stay on top of the situation. Early in the week, Corzine had received personal calls from CMEGroup CEO Terry Duffy that were ignored.  CMEGroup was MF Global DSRO regulator on the derivatives industry side of the equation, with the Commodity Futures Trading Commission having final authority. Both CMEGroup and the SEC, which regulated the securities side of the industry, had ordered MF Global not to engage in asset transfers out of brokerage without permission. CMEGroup’s request, documented in Congressional testimony to have been received Thursday, October 27, was followed the by assets being transferred out of the customer accounts on Friday. Assets were also transferred out of an SEC regulated account after the order not to transfer was given, leading to a top SEC official to categorize the move as “unacceptable,” a Congressional report noted.

Those paying attention would learn through a drip of official reports and Congressional testimony that MF Global didn’t tell regulators about the transfers and they submitted a report that contained incorrect balance statements which kept regulators in the dark over the asset transfers. The rare oversight, a manual adjustment to customer segregation reporting, was dismissed as a mistake.

Among the asset transfers, there was one in particular that stood out. MF Global had requested that funds from a clearly marked customer segregated account be transferred from that account, held at JPMorgan, to MF Global’s proprietary account, also held at JPMorgan. The note on the asset transfer said “per [Jon Corzine’s] instructions,” although pinning responsibility on Corzine, or acknowledging he was aware of the illegal asset transfers, has never been officially determined.

Transferring funds from a customer account into a private account violates one of the most sacred investor protection laws in existence. When assets are transferred out of customer segregation, derivatives regulations mandate the subject header for the transfer must clearly indicate the funds were from a customer segregated account so that all involved know the gravity of the situation. Throughout the voluminous reports on the incident, from Congressional reports to those from the Bankruptcy Trustees, this critical component of the asset transfer protocol was never noted to be incorrectly executed.

When the asset transfer from a customer segregated account into MF Global’s proprietary account arrived at JPMorgan, who was MF Global’s custodian holding segregated funds, it was said to have been immediately flagged and properly handled by the bank’s compliance staff. After gathering a bank lawyer as a witness, the head of JPMorgan compliance immediately called Corzine to flag the issue. What happened afterward was a documented game of cat and mouse with JPMorgan executives demanding MF Global sign a letter stating the assets in question were not being transferred out of a segregated customer account and MF Global avoiding the issue. MF Global executives never signed the letter and the firm went into bankruptcy several days later.

The timing of the bankruptcy itself was odd. It occurred in a 2 AM meeting Halloween morning, a week after the credit downgrade with key regulators who had experience at winding down failing derivatives brokerage firms left out of the loop. Remember that MF Global’s internal Break the Glass document said the firm should have the liquidity to last for a month, a view expressed by accounting and legal observers at the time. After the bankruptcy was settled, and all claims paid out, there was sufficient extra capital indicating the firm didn’t need to rush into a bankruptcy and create a cloud of confusion surrounding what are now known as illegal asset transfers.

And this was just the start of the MF Global odyssey.

An oddball group defends investor protections

As Christmas 2011 approached, those who deposited their investment capital in MF Global accounts were being told by officials in the bankruptcy trustee’s office they might only receive 60% of their customer deposits, and they might be returned in six months if they were lucky. For many farmers, ranchers and retirees who had trusted the segregated account to be the most protected in the world, they faced a Christmas without gifts – and some had difficulty putting food on the table or keeping their farming business alive. For some MF Global customers, resolving the situation was a matter of life and death of their business and way of life. For those inside the derivatives industry, upholding one of the most important regulations protecting free markets and customer funds was equally as important.

Very little appeared to be officially done to defend segregated account holder interests. An active if somewhat oddball resistance movement had formed to fight what had started to become a display of raw political power against mostly middle-class interests who didn’t have a political lobby that could twist arms and block investigations. A group of dedicated individuals from around the US – with many global participants as well –formed on a voluntary basis to fight to have laws and regulations upheld.  Insiders also viewed this as, in part, a battle between Duffy and Corzine, with the fate of the listed derivatives industry and the sanctity of its account holder protections resting in the balance.

A personal story: How can a “case be cold” before the suspects were questioned?

The investigation into wrongdoing at MF Global was blocked, CMEGroup’s Terry Duffy stated during December 15 Congressional Testimony. Months after this little-known bombshell, the Bankruptcy Trustee entrusted with running the investigation declared the “case was cold” on February 9, 2012. This was an odd statement given that in Congressional testimony two months later we would learn that the primary suspects had not even been questioned. How can a case be cold before the suspects had even been questioned?

The blocking of an investigation into what can be argued was the most important case in derivatives industry history hit me particularly hard. I became a journalist the month MF Global occurred and reported a number of the oddities and was aware of transgressions all before they were public. Federal investigators were aware I sent an email to an MF Global senior executive asking if Corzine was involved in illegally tampering with customer segregated funds all before any of it was public. My reporting was admitted into the Congressional record, discussing the early morning meeting where bankruptcy was declared – all of which occurred while MF Global was said to have the liquidity to continue operations for another week if not a month.

I was also the only person not directly involved in MF Global to have delivered evidence to Federal investigators.

Delivering evidence was a much more involved process than I initially imagined. I had significant help from many people behind the scenes, including a senior regulatory official and a former White House official, and likely would not have navigated the labyrinth that is Washington DC without such assistance.

My evidence didn’t focus on Corzine, per say. It was targeted at someone who had critical evidence and, I was separately told, investigators wanted to hard question but were being prevented from doing so. I received indications dedicated investigators were eventually freed up to engage in hard questioning of the suspect in what was described to me as one of the most historic interrogations in New York FBI history. I would later formally discuss the blocked investigation with an FBI official. What we do know is the Commodity Futures Trading Commission, which had its own dedicated team looking for needles in a haystack, later told The Wall Street Journal the case against Corzine was “open and shut” in the summer of 2016 nearly a half year before the final settlement.

The case never went to court and Corzine settled with the CFTC, paying an unprecedented fine out of his pocket – corporate insurance typically covers criminal wrongdoing fines. Even though the fine was only $5 million and Corzine is generally unaffected by his indiscretions in the case, the punishment needs to fit the crime, one senior regulator told me. More importantly, MF Global is not about Corzine or some witch hunt. There are larger issues at stake.

The real issues behind MF Global

To knowledgeable insiders who looked at nothing but the open source, documented facts in the case, MF Global wasn’t so much about MF Global. It was about a new level of control over the key pillars of a democracy. When investigations are blocked and the media is prevented from reporting on key facts, the form of government has changed.

The larger issue is control over key pillars of democracy. This is what haunted those who knew what was going on from the inside, and they fought to defend the system like those fighting the American revolution. There were many people inside and outside of government who lent assistance to the MF Global cause from behind the scenes. In the course of working on the issue, a Presidential appointee and Congressional aide visited Chicago. We met while several journalists watched from a distance and I was told of a plan inside government to address the problem. Since that day I have witnessed a number of critical benchmarks being hit in the fight to address elite financial crime.

Of all the organizations I interacted with over the course of what is now a seven-year odyssey, one stood out as a beacon of democracy and justice above all else. The Federal Bureau of Investigation and its independence is something that a liberal democracy cannot do without, as MF Global demonstrated. The story has generally not been reported – even the basic documented facts outlined in this article are not widely known. But a recent statement sums it up. “The good people of the FBI cannot be stopped,” acting FBI director Andrew McCabe said in Congressional testimony following the dismissal of former director James Comey. As current events unfold, do voters really understand how important FBI independence is to their freedom and livelihood? This isn’t a political issue. Justice is purple and it must be defended vigorously. MF Global customers have many people to thank for defending them and having their assets returned to the rightful owners. Oddly, those that deserve the most credit are least likely to seek such praise.

Frontline documentarian speaks

Nick Verbitsky is a documentary filmmaker whose most recent work for PBS Frontline, “To Catch a Trader Small Enough to Jail,” focuses on financial crime. He grew up with a family close to Wall Street, the traditional investment banker types who, like many in financial services, are abhorred by the turn to criminality that many say started in the mid-1990s and is so well documented in many of the PBS Frontline reports, including “The Warning” and “The Untouchables.” What is happening jeopardizes the many good people working at banks and all over the financial services industry and only benefits a very narrow few.

As he reads the about Corzine’s comeback, he shakes his head and tweets: “This won’t be held as an epitome of what’s wrong with Wall Street, but it should.”

Verbitsky is a media insider dedicated to shining light where little light is typically directed. “The allegations against Corzine at MF Global were as bad as they get,” he told ValueWalk, as violating customer investors protections were “the worst thing a firm like MF Global could do.”

There are larger issues that Verbitsky ties together:

And, what happened? Corzine reached a cash settlement he could easily pay-and all the blame was placed upon a low-level employee, who apparently was able to commingle these funds with no one knowing. Forget about the fact that Corzine SHOULD HAVE KNOWN, or, at minimum, demanded robust controls to make sure this didn’t happen, but, of course, HE COULDN’T HAVE KNOWN-right?  It’s the old “I can’t monitor everything employees do” that we normally hear from those at the top making big money and avoiding responsibility.

So, Corzine’s settlement was struck in January 2017 and he’s ALREADY out starting a new firm, he’s not barred from managing other people’s money.  It’s the very definition of failing upward-while the little guy gets the blame.  It’s totally outrageous.

This is the problem that Wall St has-when sub-standard behavior is tolerated, IT BECOMES THE NEW STANDARD.  People think we got to this point by some unseen force that drives behavior to these depraved levels — it doesn’t.  It is nurtured by an unwillingness to set/expect/enforce standards of propriety.

MF Global is not a negative story

Corzine never personally gained from what has been officially determined as illegal asset transfers out of MF Global. This is a reason cited by certain insiders when explaining why he never faced serious accountability. That standard wouldn’t hold up for the vast majority of Americans, but, I’m told, it was a standard used to keep Corzine out of jail.

While many consider MF Global as a negative story – the powerful on Wall Street can control judicial system and media to an unprecedented degree – I see hope. In MF Global, I witnessed see many well-known and not so well-known journalists making a stand, much of it behind the scenes. I witnessed regulators doing their job against significant headwinds. Congressional aides were critical in helping from behind the scenes as well as political leaders on both sides of the aisle who assisted. I saw democracy work for average Americans. And then there are the benchmarks I currently see being hit and I see brave people willing to make a stand for the pillars of democracy. Yes, MF Global was a tragedy, but there is also a message of hope. A message that is currently being blocked from reaching a wider audience.

Insight / Analysis / Opinion: 

Please, I could go on about this topic forever. The key point is this: Who benefits from blocked investigations? Who is on the list of those who can have investigations blocked and how is that list comprised? Based on my knowledge, no hedge fund managers and not even Michael Bloomberg are on the blocked investigations list. Only one type of Wall Street criminal makes that list.