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Could MF Global’s CIO Have Stopped Jon Corzine?

Regulators are not just bringing charges against Jon Corzine for nearly driving MF Global off the cliff, they're also looking at the broken brokerage’s assistant treasurer. Both may lose their license and never trade again. What does a CIO do if they know that things are not right inside a trading firm?

As the CFTC plans to bring civil charges against Wall Street titan and former pol Jon Corzine and former assistant treasurer Edith O'Brien for their actions that lead to MF Global losing $1 billion in October 2011, questions arise. What responsibility does an employee have when a CEO - especially one who counts as a Master of the Universe and expects to be obeyed - is about to break the law and destroy his company?

Although Corzine's firm has gone into bankruptcy with orders to pay off clients and creditors and been slammed with a $100 million fine, the tale of woe is far from over. The Commodities and Futures Trading Commission is bringing a civil suit against Corzine and O'Brien that will include penalties and a possible ban from trading in the future.

In a reporters roundtable, CFTC enforcement head David Meister says that Corzine was aware of the low cash balances in the turbulent days of late 2011 but he continued to pay large obligations. "Our investigation also recovered an audio recording of (O'Brien) saying to a colleague that it could be 'game over' from a regulatory perspective if the customer funds weren't returned," he told reporters.

"Mr. Corzine is charged with being more than a passive actor in the downfall of MF Global," Meister tells reporters. "He lacked good faith and ... violated his supervision obligations."

Meister then twists the knife: "Turning a profit is not the only job of the person at the top of a C.F.T.C.-regulated firm," he says. "Particularly in times of crisis, the person in control, like the C.E.O. here, must do what’s necessary to prevent unlawful uses of customer money, so that customers’ money is still there if and when the music stops."

Of course, the CEO is in charge but what role does a CIO play in a case like MF Global?

In a situation like MF Global where the CEO is a superstar with a super-sized ego to boot - remember, as governor of New Jersey, Corzine not only had his own state police he had his own national guard - can a CIO or CTO stand up to the man in charge? Does this require a Harrison Ford moment in Clear and Present Danger or is this the job of the firm's compliance officer?

This is not an indictment of the IT team inside MF Global. Not in the least. As we can tell from the post-meltdown investigation, the CIO had his hands full. "The computer company’s computer systems and employees had difficulty keeping up with unprecedented volumes of transactions," writes James Giddens, the man lucky enough to oversee MF Global"s liquidation.

But does a chief information officer have the responsibility to stop a CEO from burning down his own company? We all like to think that we could have stopped Jon Corzine but he might have been on unstoppable path. It comes down to the person.

What do you think - Could you have stopped Jon Corzine in time? Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio

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User Rank: Author
7/1/2013 | 9:47:46 PM
re: Could MF Global’s CIO Have Stopped Jon Corzine?
Phil, you ask some vexing questions. I don't think anyone could have stopped Corzine except the board of directors, but they approved of his strategy. I recall from earlier coverage that the initial chief risk officer was ousted after he rang some alarm bells on Corzine's strategy and someone who was more compliant got the job. So the CEO had the authority to handpick the CRO. Another issue is that Corzine was used to the top notch systems at Goldman Sachs. He may have assumed that MF Global's back office operations were more capable than they were.
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