The “negligent conduct” of Jon Corzine and other officers of the MF Global Holdings Ltd brokerage contributed to the firm’s dramatic collapse in 2011, according to a report by the bankruptcy trustee.

The report by former FBI director Louis Freeh said the failure of MF Global’s officers contributed to losses of as much as $2.1 billion and adds to the growing number of reports and investigations pointing to their liability.

Freeh’s 124-page report blamed the collapse on “the risky business strategy engineered and executed by Corzine and other officers and their failure to improve the company’s inadequate systems.”

While the report was sharply critical of Corzine’s conduct, it did not focus on one of the biggest mysteries of the MF Global collapse: the misappropriation of funds from customer trading accounts.

MF Global collapsed into bankruptcy in October 2011, less than two years after Corzine, a former New Jersey governor and Goldman Sachs chief, became CEO.

Corzine sought to transform the business into a global investment bank and pursued an aggressive strategy of betting on the sovereign debt of European countries such as Ireland and Portugal.

As Europe’s economies weakened in the middle of 2011, MF Global was required to meet margin calls on its trades. Regulators have found that there was an unprecedented use of money in customer trading accounts to cover liquidity gaps as the company teetered on the brink.

Freeh’s report found that reporting systems were lacking and failed to alert the company that customer money was being used.

“These glaring deficiencies were long known to Corzine and management, yet they failed to implement sufficient corrective measures promptly,” Freeh wrote in the report.

Corzine has denied any wrongdoing and his spokesman did not immediately return a call for comment.

Freeh was appointed by the U.S. Bankruptcy Court in Manhattan to oversee the company’s liquidation for the benefit of creditors.

His responsibilities include pinpointing possible legal liabilities of the management, and he singled out the “failures” of Corzine, former chief operating officer Bradley Abelow and former chief financial officer Henri Steenkamp.

The three “contributed to the losses suffered by Holdings Ltd and FinCo, which the trustee estimates to be between $1.5 billion and $2.1 billion.”

UNPRECEDENTED

Freeh’s report follows several investigations by regulators as well as by a separate trustee appointed to recover funds for customer trading accounts. An attorney who is leading a class action on behalf of trading clients said Freeh’s report did not reflect that it is unprecedented to have a shortfall in customer trading accounts in the failure of a brokerage.

“Negligence isn’t strong enough to describe the conduct of Corzine and the other officers,” said Merrill G. Davidoff, an attorney with Berger & Montague. “I think he is understating the scope of the problem.”

Freeh’s report does not use the word “criminal,” although Edith O’Brien, an assistant treasurer at MF Global’s brokerage business, invoked her Fifth Amendment right against self-incrimination when called to appear before lawmakers last year.

Freeh said in a footnote in the document that he believed the customer shortfall was as small as $6 million and that there might even be a $120 million surplus. Davidoff said the shortfall was in the “hundreds of millions dollars.”

The trustee for the trading clients, James Giddens, has said he expects to recover at least 93 percent of their funds. His spokesman said in a statement on Thursday that the remaining shortfall would be eliminated through the lawsuits against Corzine, former officers and directors of MF Global and the underwriters that sold MF Global securities to the public.

Many of those lawsuits have been consolidated in federal court in Manhattan.

On Friday, U.S. Bankruptcy Judge Martin Glenn will be asked to approve MF Global’s plan of liquidation. General unsecured creditors of the holding company are expected to collect between 14.7 cents and 34 cents on the dollar of what they are owed, according to court documents.

(Reuters)