Decisions made by the former head of bankrupt MF Global sealed the firms fate and led to the investment firms collapse and over $1 billion in missing customer funds, according to details released Wednesday from a report and investigation conducted by a House Financial Services Committee panel.
According to the panels preliminary report, the firms former CEO, Jon Corzine, a former co-chairman of Goldman Sachs(GS) who later became a senator and governor of New Jersey, created an authoritarian atmosphere. In addition, the report said that Corzine insulated the firms trading activities from the company's normal risk management review process.
The report comes after New York-based MF Global filed for bankruptcy roughly a year ago on Oct., 31, 2011, leading to $1.6 billion in missing customer funds.
The firm failed after disclosing sizable exposure to derivatives in European sovereign debt and after questions emerged about whether the futures brokerage firm tapped into customer-segregated accounts for its own proprietary trading. Read about how after MF Global, lawmakers debate future reform
Details revealed Wednesday say that Corzine failed to maintain systems and controls necessary to protect customer funds.It added that Corzine dramatically changed MF Global's business model without fully understanding the risks.
Specifically, the report notes that Corzine's decision to focus much of the firms investments in European sovereign debt was a problem because they carried enormous default and liquidity risks. It added that he failed to develop a corporate strategy for managing the risks.
The report details were released by the House Financial Services Committees subcommittee on investigations, which is headed by Rep. Randy Neugebauer, Republican of Texas. Neugebauer said in a statement that the report is essentially an autopsy of how MF Global collapsed and what can be done to prevent future problems.
The panel said in a statement that its investigation of MF Global involved three hearings, more than 50 witness interviews and the review of more than 243,000 documents.
The full report is expected to include recommendations that Congress should consider legislation to impose civil liabilities on directors of certain types of investment firms who sign financial statements or authorize transfers from customer accounts. Read about how the Commodity Futures Trading Commission floated post MF Global protections
Such legislation could restore investor confidence in the derivatives markets, the report said.
Corzine resigned from MF Global on Nov. 4, 2011, roughly 20 months after becoming the firms CEO.
The full report is scheduled to be released by the committee on Thursday.