Former MF Global Holdings Ltd. Chairman and Chief ExecutiveOfficer Jon S. Corzine's risky business strategies andmismanagement helped accelerate the futures brokerage's demise,according to a report by bankruptcy trustee Louis Freeh.

The 124-page report blames Corzine and his management team forbungling an expansion of the company's traditional business modelwhile ignoring deficiencies in its risk controls. Corzine's“aggressive trading strategy” that invested heavily in Europeansovereign debt produced no significant revenues, and he and ChiefFinancial Officer Henri Steenkamp knew that the company's controlswere flawed as early as May 2010, according to the filing today inU.S. Bankruptcy Court in Manhattan.

Capital and liquidity assumption “were fatally flawed, eventhough Corzine and other members of his management team knew abouttheir deficiencies many months before they were stretched to theirlimits” in October 2011, lawyers for Freeh said in the report.

The parent company of brokerage MF Global Inc. filed forbankruptcy on Oct. 31, 2011, after a wrong-way $6.3 billion tradeon its own behalf on bonds of some of Europe's most-indebtednations. The company, once run by former Democratic New JerseyGovernor and Goldman Sachs Group Inc. Co-Chairman Corzine, listedassets of $41 billion and debts of $39.7 billion.

When Corzine joined MF Global in March 2010, the company wasalready struggling. Corzine moved to diversify the company awayfrom traditional investment of client funds and make it a brokerdealer and full-scale investment bank. By September 2010, he hadbegun asking the board to increase the company's risk limits toinvest in more European sovereign debt. He increased MF Global'sposition from $400 million to $8.3 billion between mid-September2010 and the end of August 2011, according to the report.

In the week leading up to its collapse, MF Global needed to relyon its Operations, Risk, and Treasury Department systems, whichwere fatally flawed, Freeh found. The failure of Corzine and othermembers of his management team, including Chief Operating OfficerBradley Abelow and Steenkamp, to address the deficienciescontributed to the company's demise, Freeh found.

“In the end, the scale of the company's trading put pressure onthe company's deficient controls without producing anysignificantly improved revenues,” Freeh said in the report.

Estimated Losses

Freeh estimates the losses to MF Global and its financesubsidiary from $1.5 billion to $2.1 billion. The trustee for thecompany's operating brokerage, MF Global Inc., estimated ashortfall of $1.6 billion in customer funds, and has beendistributing payments to former customers in a wind-down proceedingthat is separate from the Chapter 11 liquidation of the parentcompany.

Freeh's findings come five months after U.S. House Republicansalso faulted Corzine's leadership in a report released in November.That report, reached by majority Republicans on a FinancialServices subcommittee, described a lack of coordination between theCommodity Futures Trading Commission and Securities and ExchangeCommission, primary regulators for MF Global's U.S. operations.

The SEC didn't include the CFTC in several meetings in 2011about the brokerage's capital and business strategy that would havebeen helpful for oversight, according to the Republicans' report.The CFTC didn't inform the SEC that the broker was using analternative method of calculating customer funds. Freeh's reportdidn't focus on the shortfall as it is outside the scope of hisauthority, lawyers for the trustee said in the court filing.

MF Global Holdings is scheduled to seek court approval of itsfinal plan to liquidate tomorrow, which will pave the way for theeighth-largest bankruptcy in U.S. history to wind down under courtprotection. The plan is supported by Freeh and will repay creditorsthrough income from potential lawsuits.

The holding company's Chapter 11 case is In re MF GlobalHoldings Ltd., 11-bk-15059, U.S. Bankruptcy Court, SouthernDistrict of New York (Manhattan). The liquidation of the broker isIn re MF Global Inc., 11-bk-02790, in the same court.

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