Exclusive: A Corzine Hedge Fund? Don't Hold Your Breath

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Published September 12, 2012

| FOXBusiness

What’s next for disgraced former MF Global chief Jon Corzine?

According to friends interviewed by the FOX Business Network, Corzine has told them he won’t be starting a hedge fund as some have speculated, at least not anytime soon.

“He’s trading his own money,” said a person close to Corzine who works on Wall Street, “and waiting everything out.” As for the recent reports that Corzine might soon start a hedge fund, it’s not in the cards, at least anytime soon, and probably never, this person says.

“I don’t think he’s going to start a hedge fund,” the person says.

What is in the cards for Corzine in the coming months and possibly years ahead is preparing for numerous shareholder lawsuits, and the very real possibility of civil regulatory charges stemming from MF Global’s collapse last year, and the $1.6 billion in customer money that remains missing from the firm.

Corzine, the former CEO of Goldman Sachs (GS) before he embarked on a career in politics as New Jersey governor and US Senator, understands the challenges he faces, friends add. As a result, he’s maintaining a low profile; a prominent Wall Street Democrat who has raised money for president Obama, after MF Global imploded last year, he has remained largely out of politics including the current presidential election.

He’s also been staying out of the Wall Street limelight. Starting a hedge fund that would be registered with the Securities and Exchange Commission would require significant disclosures involving what legal action he faces, something Corzine would want to avoid, friends add.

The legal action facing Corzine is likely to heat up in the coming weeks. As reported first by the FOX Business Network, a former MF Global top executive, Christine Serwinksi, told regulators Corzine knew about the use and possible misuse of the customer funds at the heart of several sweeping investigations. (Corzine has denied ordering the misuse of customer funds; his spokesman didn’t return numerous calls for comment.)

While the Justice Department is having trouble coming up with a criminal case against Corzine, several significant civil cases loom. The Commodity Futures Trading Commission, MF Global’s lead regulator since it specialized in commodities, has launched a probe that could lead to fines, and other actions, such as barring Corzine from the securities industry for life.

Bankruptcy trustee James Giddens has agreed to join forces with attorneys representing investors  who lost money in MF Global’s demise, and as a result will share resources as part of a likely joint lawsuit to recoup money from senior executives at MF Global they believe are responsible for the firm’s bankruptcy.

Rather than attacking Corzine’s personal wealth, the strategy is to somehow tap into the insurance policy that covers Corzine and other top executives, known as D&O insurance. The reason: Corzine and his senior staff don’t have enough money to cover the massive possible liability.

In addition to the $1.6 billion in customer money that went missing during the firm’s final frantic days last October, former shareholders are likely to claim tens of millions of dollars more in liabilities for losses they incurred holding onto MF Global stock as the firm fell into bankruptcy.

Corzine is also likely to take a beating in an upcoming report to be made public by the House Financial Services subcommittee on Oversight and Investigations. The report is likely to be finished in the next month, and its findings are likely to cast Corzine’s management of the firm in a harsh light, particularly for his role in the misuse of customer money that led to the $1.6 billion shortfall that still remains.

MF Global’s problems began when the firm announced a large quarterly loss last October, and that it had been engaging in highly speculative trading -- buying bonds tied to struggling European governments, mainly Italy and Spain.

The result: Rating agencies downgraded the firm’s debt, and lenders began pulling lines of credit and refusing to trade with the company. Over a week of panic inside the firm, MF Global tapped into segregated customer accounts for its funding needs and to remain in business. These accounts are supposed to remain separate from the firm’s operations, and there are strict guidelines for when a firm can tap into customer money on just a temporary basis.

The House report is likely to say that losing the customer money was “avoidable,” according to a person with knowledge of the matter, and that Corzine’s poor management “put the money at risk.”

“There’s no way Corzine is starting a hedge fund,” said one Wall Street executive. “Given his legal problems, can you imagine how much he will have to disclose?”

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