Corzine relationship complicates CFTC probe of MF Global

Federal markets regulator Gary Gensler could reflect fondly on his association with Wall Street mogul and former politician Jon S. Corzine.

The two had known each other for years, working together at Goldman Sachs and then in Congress, where Corzine was a senator and Gensler was a Senate aide. Invited by Corzine last November to speak at Princeton University about financial regulation, Gensler reminisced about their days crafting legislation and got in a friendly jab about Corzine’s upcoming wedding.


“Jon, your life has changed a lot since our days together on a trading floor if this is your idea of a bachelor party,” Gensler said.

Now, the relationship has taken on an entirely different cast. Gensler, as chief of the Commodity Futures Trading Commission (CFTC),  is one of the key regulators probing the brokerage firm MF Global that Corzine led into bankruptcy.

Corzine resigned Friday as head of MF Global, but he had already lost control of the firm to a trustee.

According to regulators, hundreds of millions of dollars are missing from customers’ accounts, and it falls largely to Gensler’s agency to figure out what happened. The FBI and other authorities also are investigating.

For Gensler, the collapse of MF Global poses a variety of questions. How could it have happened? Did the CFTC intervene too abruptly this week when it helped put the firm under the control of an independent trustee — or not soon enough?

And, given his past association with Corzine, should Gensler play any role in the probe?

The meltdown at MF Global is another in a series of challenges for Gensler, who has undergone one of the more dramatic transformations in the regulatory arena.

During the Clinton administration, he and other administration officials resisted efforts to regulate the complex instruments known as derivatives, which later contributed to the financial crisis. Now, Gensler is forcefully leading efforts to impose restraints on the industry.

MF Global’s bankruptcy could give him new momentum, or it could become a troubling diversion.

In a statement, Sen. Charles E. Grassley (R-Iowa) said that, for the sake of investors, it seems Gensler should recuse himself from the MF Global case.

“It’s hard to see how the commission chairman could be completely objective in looking out for wronged investors when he has such strong ties to the principal of the failed firm,” Grassley said.

At a hearing this week, Sen. Tom Coburn (R-Okla.) jousted with Gensler over regulatory policy and then raised the issue of MF Global.

“I’m very interested in how in the world did that get past you all,” Coburn asked.

Gensler had tried to increase protections for brokerage customers.

Last year, the CFTC proposed tightening restrictions on what brokerage firms can do with customers’ funds. But the proposal met opposition from members of the industry, including Corzine. MF Global wanted the freedom to continue engaging in transactions by which it can essentially borrow funds from customers’ accounts.

http://www.washingtonpost.com/business

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