On the stand, Corzine defends bet that led to MF Global demise

By By Jonathan Stempel Markets Reuters

Jon Corzine, former CEO of MF Global Holdings and former U.S. Senator and New Jersey Governor, arrives at the Manhattan federal court house in New York City, U.S., March 9, 2017. REUTERS/Brendan McDermid (Copyright Reuters 2017)

Former New Jersey Governor Jon Corzine defended his big bet on European sovereign debt that was a major factor in the collapse of his company MF Global Holdings Ltd, and said the auditor of the futures and commodities brokerage should have flagged any accounting problems.

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Corzine, also a former New Jersey senator and Goldman Sachs Group Inc co-chairman, appeared at a trial where MF Global's bankruptcy plan administrator is seeking about $3 billion of damages from PricewaterhouseCoopers LLP for the auditor's alleged negligence.

PwC faults Corzine's decision making for MF Global's Oct. 2011 bankruptcy.

Thursday's appearance of Corzine in Manhattan federal court marked a rare return to the spotlight for the 70-year-old, after MF Global's demise upended his four-decade career and sparked Congressional and regulatory probes.

Testifying for the plaintiff, Corzine said he began ramping up the bet on debt of five Western European countries in the summer of 2010, believing the bonds were "relatively low risk" and expecting they "were going to pay in their own right."

He said he did this as part of his plan to restore MF Global to profitability and transform it into a full-service broker-dealer.

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But the administrator said PwC's accounting advice, largely on "repurchase-to-maturity" transactions related to the bonds, improperly let MF Global keep the bonds off its balance sheet.

While the bonds were later paid off, that was not a sure thing at the time.

MF Global's eventual disclosure of more details about the investment, together with an unexpected quarterly loss, spooked investors and caused a credit rating downgrade.

"It was a loss of confidence and trust in the organization" in the market after those events that caused MF Global's collapse, Corzine said.

He also said PwC had previously met regularly with him and MF Global's audit committee, and flagged nothing wrong.

"They were responsible to make sure we were not making material misstatements," he said.

Lawyers for PwC will question Corzine later in court.

Corzine testified two months after he agreed to settle a U.S. Commodity Futures Trading Commission civil lawsuit by paying a $5 million fine from his own pocket, a rare step, and accept a lifetime ban from registering with that agency.

He and other MF Global officials have also reached nearly $200 million of settlements with the administrator and former investors. Insurance covers much of those payouts.

Corzine has given more than 10 days of testimony under oath, including before Congress in December 2011.

A Congressional panel in November 2012 blamed his risky bets and "dereliction of his duty" for MF Global's demise. Separate probes uncovered no criminal wrongdoing at MF Global.

Corzine, whose looks have changed little in the last few years, said he now has a family office that focuses on charitable giving and investing his family's money.

The case is MF Global Holdings Ltd as Plan Administrator v PricewaterhouseCoopers LLP, U.S. District Court, Southern District of New York, No. 14-02197.

(Reporting by Jonathan Stempel in New York; Editing by David Gregorio)