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10/30/2018 Raiding Customer Assets at MF Global - Markkula Center for Applied Ethics

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Who Was Responsible?

James O'Toole

The Commodity Futures Trading Commission recently filed a complaint against Jon Corzine,

CEO of MF Global, charging him with directing one of his mid-level managers, Edith O'Brien,

to transfer millions of dollars of customer assets to cover a bank overdraft that threatened to

sink the firm. If he did so, the former head of Goldman Sachs, U.S. Senator, and governor of

New Jersey broke the law. However, Corzine's lawyer claims his client is not guilty as

charged because "it never dawned on" him that when he, the boss, approached his

subordinate with a subtle request to "find" $175 million that that call would cause her to

"violate the golden rule" of protecting customer assets.

Corzine faced a dilemma: his bold efforts to transform MF Global—"a plain vanilla

commodities firm"—into a full-blown investment bank a la Goldman, would collapse if it

didn't quickly deal with overdrawn accounts at JPMorgan Chase, the firm's principle bank,

which was threatening to stop doing business with MF Global. Moreover, Corzine's lawyer

says that Corzine "never directed Ms. O'Brien or anyone else regarding which account

should be used to cure the overdrafts, and he never directed that customer funds should be

used for that purpose. Nor was he informed that customer funds had been used for that

purpose."

O'Brien, a life-long middle manager, does not dispute the fact that Corzine never explicitly

ordered her to take the funds from customer accounts. She seems to admit that she knew

what she was doing was wrong, but she had no choice because customer accounts were

"the only place where we had the $175 million" needed to cover the overdraft. MF Global

has subsequently declared bankruptcy.

Questions:

Did Corzine act appropriately? How would you characterize his behavior legally, ethically,

and managerially? What other choices did he have?

Did Ms. O'Brien behave appropriately? Realistically, what other choices did she have?

Should the actions of either Corzine or O'Brien (or both or neither) be considered criminally

negligent? Unethical? Bad judgment? Other?

What role should (or might have) the firm's Ethics and Compliance Officer played in this

drama?

James O'Toole is senior fellow in business ethics at the Markkula Center for Applied Ethics.

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