Saturday, June 9, 2012

The Last Days of MF Global

By Peter Elkind with Doris Burke

At about 9:30 p.m. on Tuesday, October 25, David Schamis, a director of a once-obscure futures brokerage company called MF Global, placed a call to his friend, Jacob Goldfield.
Goldfield, 52, was a former trading superstar who had spent 15 years at Goldman Sachs—brilliant and impeccably connected (Bob Rubin and Larry Summers loved him), but equally quirky and unassuming. Raised in the South Bronx, he'd majored in physics at Harvard before dropping out of law school there to start at Goldman, where he made partner in record time.
After leaving the partnership with a fortune in 2000, Goldfield helped manage U.S. Senator Jon Corzine's blind trust and spent a year and a half as chief investment officer for George Soros' $11-billion hedge fund. Now on his own, he periodically journeyed west to Stanford, where he conducted economics research at a university think tank.
Goldfield was a crisis junkie. He exuded a childlike fascination with economic events, especially disasters. He found himself summoned to the scene of each new meltdown—AIG, Bear Stearns, Lehman Brothers—by desperate men seeking his aid in the often-hopeless struggle to save a balance sheet under siege. Sometimes he stood to make some money, if a private rescue actually went through. Sometimes it was just volunteer work. Goldfield did it for his friends, or simply because he found it interesting.
Goldfield held a singular notion of how to think about a financial crisis. He viewed it as a predator, intelligent and merciless, hunting you. If you didn't move fast enough, you'd meet a swift and certain end.
Now MF Global needed his advice.
The collapse of MF Global in October 2011 was a remarkably powerful event: It destroyed the reputation of a famous man; it elevated a firm that no one had ever heard of to infamy; and it shattered public trust in the belief that brokerage customers' money is always safe.
In the months that followed, America's eighth-largest bankruptcy has become a spectacle and public scandal. Jon Corzine, the former U.S. senator, governor, and chief of Goldman Sachs who rode MF Global into the abyss, finds his legacy in tatters. And the hunt for the money continues, with investigators chasing $1.6 billion in customer cash that went  missing—something that'snever happened before on Wall Street.
A six-month Fortune investigation into the failure of MF Global reveals a mismatch of tragic proportions: how a too-small company came together with a too-big CEO. Combining their mutual shortcomings—in ambition, controls, and discipline—simply proved toxic.
This story is based on more than seventy interviews with regulators, industry executives, legislators, lawyers, friends and family of Corzine, and people at all levels of MF Global. Fortunealso gained access to hundreds of pages of confidential board minutes, internal reports, company emails, and other documents.
275-page report just released by James Giddens, the bankruptcy  trustee pursuing the missing money, confirms and amplifies many of the findings in Fortune's investigation. It concludes that there is a basis for civil claims against Corzine and two of his deputies for "breach of fiduciary duty and negligence." (Update: In a statement, a Corzine spokesman responded: "We simply do not agree with the Trustee's suggestion that Mr. Corzine was negligent or there is any other basis to sue him.") But while the aftermath of MF Global's failure is the dusty stuff of courts, lawyers and accountants, Fortune's exploration of its fall reveals a distinctly human drama.
The MF Global saga unfolds like a Hollywood disaster movie. It begins with a larger-than-life protagonist, accompanied by the classic elements of hubris, the pursuit of redemption, and the pressure to please Wall Street; it picks up speed as warning signs are foolishly ignored; and it ends with a frantic, nightmarish week of desperation and chaos—the week of the call to Jacob Goldfield—that climaxes on Halloween.
What was MF Global anyway?
Of all the places on Wall Street for Jon Corzine to land—at 63, after one career at Goldman Sachs (GS) and a second act in high-octane politics—it's hard to imagine a less likely spot.

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