Records Reveal Contact Between Corzine and the Fed in MF Global's Final Days

Dec. 13, 2011: Former MF Global Chairman Jon Corzine testifies on Capitol Hill.

Dec. 13, 2011: Former MF Global Chairman Jon Corzine testifies on Capitol Hill.  (AP)

It was a humiliating moment, but Jon Corzine was determined to put the best face on it. 

On Oct. 25 of last year -- six days before the stunning collapse of MF Global Holdings Ltd., the New York-based brokerage and commodities firm he headed -- Corzine released the company's dismal results for the second fiscal quarter of 2012. Revenue, he was forced to report, had declined from the same period the year before, from over $240 million to about $205 million; and selected losses for shareholders were estimated at $191.6 million, an increase of almost $100 million from the prior year. 

One day earlier, the credit ratings agency Moody's, citing MF Global's heavy concentration on European sovereign debt, had cut MF Global's debt rating -- to one grade above junk bond status. Still, Corzine projected optimism, issuing a press release to go along with the earnings report that envisioned only a bright future for MF Global. 

"Over the course of the past year, we have seen opportunities in short-dated European sovereign credit markets," Corzine said in the Oct. 25 statement, "and built a fully financed, laddered maturity portfolio that we actively manage. We remain confident that we have the resources and expertise to continue to successfully manage these exposures to what we believe will be a positive conclusion in December 2012." 

Yet MF Global documents and telephone and email records obtained by Fox News show that on the morning of Oct. 26 -- not even a full day after the optimistic statement he released -- Corzine was contacting top officials at the Federal Reserve Bank of New York, including New York Fed President William C. Dudley. The records, supplied to congressional investigators by the New York Fed, show that over the next five days -- at which point MF Global filed for bankruptcy protection -- Corzine and Dudley spoke at least 10 times, and exchanged emails twice. There were still other contacts between Corzine, MF Global CFO Henri Steenkamp, and other New York Fed officials in the same time frame. 

Jack Gutt, a spokesman for Dudley, said the New York Fed had no comment. But sources with knowledge of the substance of these conversations told Fox News that Corzine already knew MF Global's collapse was imminent, and had reached out to Dudley for two reasons: first, to see if the Fed could help find a buyer for MF Global; and second, to assist the Fed in its efforts to minimize the fallout from what both men now realized was shaping up as a Wall Street catastrophe, the eighth largest bankruptcy in American history. 

Today, investigators for the House Financial Services Committee are poring over MF Global documents, records from the Commodity Futures Trading Commission (CFTC), and the Securities and Exchange Commission (SEC), as well as the phone, email and fax records supplied by the New York Fed, to determine whether Corzine, in his optimistic statement of Oct. 25, was intentionally misleading investors and regulators. 

It is one of the areas that lawmakers on the panel's Oversight and Investigations Subcommittee, chaired by Rep. Randy Neugebauer, R-Texas, expect to cover when Corzine appears before them Thursday afternoon. It will be the former CEO's third turn in the congressional witness chair in a week, following grueling sessions with the House and Senate Agriculture Committees. 

"We do know there was a number of contacts (between Corzine and the New York Fed) and we are learning more about what the content of those contracts were," Neugebauer told Fox Business Network on Wednesday. "But certainly that's an important thing. We know that in the last week or so, Mr. Corzine was reaching out to a lot of people, obviously trying to, I guess, somehow pull a rabbit out of the hat." 

At least seven federal probes of MF Global's collapse are underway, including three by congressional committees, three by regulatory agencies that oversee Wall Street, and one by the Department of Justice. Auditors and investigators are seeking to determine what happened to an estimated $1.2 billion in client funds that were supposed to remain segregated from the firm's accounts, and which have gone missing. At Thursday's Senate hearing, Corzine and his top deputies at MF Global -- firm president Bradley Abelow and CFO Henri Steenkamp -- all denied any knowledge of what happened to the missing funds, as well as any responsibility for the firm's failure to maintain strict segregation between client and firm accounts. 

However, the same panel heard testimony by Terry Dufffy, an executive of the Chicago Mercantile Exchange (CME), on which MF Global traded, alleging that Corzine may have known about a $175 million loan to a company affiliate in London using customer funds. Duffy said that hours before MF Global went bankrupt, an employee of the firm told regulators and a CME auditor that Corzine knew about the loan. This will provide another area of questioning for the Neugebauer panel on Thursday. 

Fox News has learned that the House Financial Services panel has quietly interviewed more than a dozen individuals, including officials from CFTC, the SEC, and the CME, as well as the last two risk officers at MF Global. Michael Roseman and Michael Stockman are both believed to have raised internal red flags at MF Global about Corzine's use of repurchase-to-maturity transactions, or "repos," to invest in European sovereign debt. Sources say Roseman was effectively pushed out of the firm in March 2011, after clashing with Corzine over the issue. Likewise, sources say Stockman grew increasingly "worried" about MF Global's rep deals on Euro sovereign debt. 

Both Roseman and Stockman, in their interviews with congressional investigators, were accompanied by counsel. Roseman was questioned a second time by a committee staffer during a rare session in New York. Another key figure who has been interrogated by the House Financial Services team is Steenkamp, the South African native who remains as MF Global's chief financial officer. 

An attorney for Corzine failed to return requests for comment. 

Fox Business Network's Peter Barnes contributed to this report.

James Rosen joined Fox News Channel (FNC) in 1999. He currently serves as the chief Washington correspondent and hosts the online show "The Foxhole." His latest book is "A Torch Kept Lit: Great Lives of the Twentieth Century" (Crown Forum, October 4, 2016).