Don't Expect Loose Lips From Corzine At MF Global Hearing

Corzine has been far from the public eye since MF Global's Oct. 31 bankruptcy filing.

Jon Corzine spent five years as a U.S. Senator, but he is about to spend some uncomfortable moments sitting across from the current crop of Washington lawmakers starting Thursday when he is due to appear at the House Agricultural Committee��s hearing into the collapse of MF Global, the brokerage firm he led from March 2010 until shortly after its Oct. 31 bankruptcy filing.

While Corzine is also likely to appear before other House and Senate committees investigating the MF Global collapse, his first D.C. appearance on the matter is scheduled Thursday as the lone member on the second of three panels befor the House Agriculture Committee.

Stuart Slotnick, a lawyer at Buchanan Ingersoll & Rooney, thinks Corzine is unlikely to answer many, if any, questions about MF Global.

��The case is under FBI investigation, there are allegations of more than $1 billion in customer money missing and he was in a position to know about it,�� Slotnick says. Even if Corzine knows nothing about whether or how MF Global commingled customer funds as it faced a liquidity squeeze, Slotnick says he will not testify because of two potential pitfalls.

First, ��he could say something that incriminates him for the future,�� and second, he risks testifying to something that is not true and ��could get indicted for perjury.�� Considering those risks, and the fact that anything he says could be used in subsequent civil litigation by customers or counterparties of MF Global, Slotnick says he would be surprised if Corzine does much more than plead the Fifth Amendment. In fact, Corzine is already the subject of a lawsuit, along with other executives and board member, brought by two former employees who say they lied about the firm’s finances.

It is hard to k! now how the scale is tilting between Corzine’s “desire to clear his name versus his lawyer’s desire to not have him answer questions” Slotnick says. Either way, expect a lot of “speeches disguised as questions,” from the lawmakers and not much in the way of detailed responses from the former senator and New Jersey governor.

Corzine��s appearance Thursday will come as investigations swirl around the brokerage he led on its way into bankruptcy. A leveraged bet on European sovereign debt proved to be the start of the firm��s undoing was attributed to Corzine��s bullish stance on policymakers in the region doing enough to stave off the worst-case scenario and the rebound in asset prices that would likely result. That scenario may yet come through, but MF Global won��t be around to see it.

��It��s great to have the courage of your convictions,�� says Eric Lewis, senior partner at international insolvency specialists Lewis Baach, but he calls MF Global��s big European bet, a contrarian play in a highly-volatile market funded by short-term borrowing, ��an accident waiting to happen.��

Lewis, who has worked on international insolvency cases like that following the Bernie Madoff fraud, said he has ��never seen a case where people dabbled in client funds by mistake.��

Instead, what typically happens is ��people are illiquid and under pressure �C no one ever thinks they are insolvent �C and thinks they just need to buy more time.�� (See “Big Bets Are Still All The Rage On Wall Street.”)

Among the others appearing at Thursday’s hearing will be regulators, including the Commodities Futures Trading Commission, exchanges like the CME Group and CBOE, and counsel for the trustee in charge of liquidating MF Global.

While Lewis stresses that he does not have the facts about what went on at MF Global, whether customer money was improperly cared for or if Corzine had any involvement or knowledge, he does question that there may not have be! en enoug h ��dynamic tension�� between risk managers and risk takers at MF Global.

You don��t get to be the boss at Goldman Sachs Group, which Corzine was until he was pushed out, ��without being smart,�� says Lewis. The bet on European debt may have been Corzine��s ��great white whale,�� — “things didn’t go so well for Captain Ahab either,” Lewis quips — and those in a position to pull back the reins could have been blinded by his pedigree.

��One bad idea without leverage doesn��t hurt,�� Lewis adds. ��With leverage, it can kill you.��

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