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In Tumult of Trump, Jon Corzine Seeks a Wall Street Comeback

Jon Corzine, former chairman of MF Global Holdings Ltd., exits district court in New York, U.S., on Thursday, March 9, 2017.
Victor J. Blue | Bloomberg | Getty Images
Jon Corzine, former chairman of MF Global Holdings Ltd., exits district court in New York, U.S., on Thursday, March 9, 2017.

Jon S. Corzine is a 6-foot-2 bear of a man who has spent decades roaming expansive halls of power. He held the top job at the old Goldman Sachs office tower, a concrete pinnacle of American capitalism. And after that, he had the run of the governor's mansion in New Jersey — all 18,000 square feet of it.

On a recent afternoon, however, he squeezed into a 100-square-foot office in the Flatiron district of Manhattan — no nameplate on the door — where a pair of Bloomberg terminals consumed much of the space. His eyes fixed on one, Mr. Corzine scribbled notes about his trades on a yellow legal pad as a computer chimed an imitation closing bell.

In the final seconds of trading, Mr. Corzine watched as a tiny sliver of his day's profits slipped away, prompting him to utter a profanity or two and grumble about not ending the afternoon on more of "a high note."

It has been years since the last major high note in Mr. Corzine's career. In 2011, he faced the ignominy that came with the collapse of the brokerage firm he ran, MF Global, when about $1 billion of customer money temporarily went missing. It ranked as one of the largest Wall Street bankruptcies since Lehman Brothers'.

Now, here in his cramped office, Mr. Corzine is plotting his next and possibly final act: starting a hedge fund. And not just any hedge fund, but one designed to take advantage of the turmoil in the Trump era.

Wall Street's wheel of fortune has spun plenty of comeback stories over the years, from Michael Milken to Henry Blodget. This will be the third spin of the wheel for Mr. Corzine, who won a United States Senate seat after being maneuvered out of Goldman, and who took the reins of MF Global after losing the New Jersey governorship to Chris Christie.

If the third time's the charm, few comebacks will have had the operatic extremes of Mr. Corzine's past decade. It is a period that includes not only MF Global's demise but also his own near-death experience in a car accident and, later, the death of his youngest son.

In his first interview since the MF Global meltdown began, Mr. Corzine detailed his plans for a new hedge fund, saying that he will seek to anticipate what often seems unpredictable: how the Trump administration and other world leaders will enact policy and, in turn, move markets.

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One of his Trump trades, for example, is designed to pay off in the event of a broad decline in the stock market, not unlike what happened Wednesday when shares swooned on Trump-related worries. On the bullish side, he hopes to ride a wave of a corporate-tax overhaul while trading in big tech, banking and industrial companies poised to gain from a policy shift.

After straddling the worlds of Washington and Wall Street for decades, Mr. Corzine, a liberal Democrat with a capitalist streak, argues that he is well suited for this strategy. He has mulled a hedge fund for years, ambitions first reported by The Times in 2012, and he believes that the populist movements sweeping the Western world (not just Trump, but "Brexit") provide an opening.

"I think I can read between the lines more than a lot of people can on these issues," he said last month, on the eve of a trip to raise money for his fund with wealthy investors.

In the first few weeks of marketing, Mr. Corzine has secured commitments and indications of interest in the tens of millions of dollars, according to a colleague who is helping him reach an initial goal of roughly $150 million. At a time when the stars of the hedge fund world can raise billions of dollars in a matter of weeks, Mr. Corzine's financial ambition is modest. The real test will come, he said, if after several months the fund can demonstrate healthy returns and expand to a broader base of investors.

Wearing his trademark sweater and beard, Mr. Corzine, now 70, added, "And, you know, I am competitive."

That competitive streak may stoke a romance with risk that has trailed Mr. Corzine's career from Wall Street to Washington (and Trenton) and back again. A friend who works on Wall Street acknowledged that Mr. Corzine, even when placing a prudent bet, sometimes has trouble taking his foot off the gas — Exhibit A being MF Global.

During interviews, Mr. Corzine discussed new details about the final days of MF Global, including an interaction with Carl C. Icahn, as well as his regrets over not booking a big loss up front, a decision that came back to bite the firm. Still, he defended his tenure at MF Global. He noted that, despite a federal investigation, there was no evidence he misused the $1 billion in missing customer money, which was ultimately found and returned. This year, he reached a civil settlement over accusations that he failed to supervise employees who handled the money.

Mr. Corzine also spoke publicly for the first time about the death of his son Jeffrey, who was by his side during his time at MF Global and who invested his own money in the firm. Jeffrey's death in 2014 led Mr. Corzine to name the hedge fund JDC/JSC Opportunity Fund, using his son's initials and his own as he resumes his trading career.

"He is a legendary trader who has spent his life deeply interested and involved in markets," Henry M. Paulson Jr., the former Treasury secretary who worked with Mr. Corzine atop Goldman in the late 1990s, said in an interview.

While MF Global investors might view some of Mr. Corzine's trades as dangerous, his friends credit his risk-taking with scoring some of his life's surprising victories: walking onto the basketball team at the University of Illinois having come from a tiny farming town, winning a Senate seat when he had never held even local office, and then voting against the Iraq war long before public opinion was on his side.

Sharon Elghanayan, his wife and a psychotherapist, put it this way: "It's not risk to him. It's conviction."

Back in the Spotlight

Soon after MF Global imploded in the fall of 2011, Mr. Corzine was walking down Fifth Avenue when, he said, a stranger unleashed an expletive-filled assault. These days, venturing outside is no longer perilous.

Strangers greet him on the street as "Governor." And most Sunday mornings, Mr. Corzine and Ms. Elghanayan walk to the 3 Guys Restaurant on the Upper East Side to eat breakfast among the financial upper crust. Gary D. Cohn, the former Goldman executive who is now a senior economic adviser to Mr. Trump, and Michael R. Bloomberg, the former mayor, are said to frequent the restaurant, where, for the price of a $20 Reuben and fries, Wall Street titans can see and be seen.

Now, Mr. Corzine is going to be seen on a much bigger stage. On Friday, he will appear at the SALT Conference in Las Vegas, the premier hedge fund schmooze-fest, where he will join Joseph R. Biden Jr., Ben Bernanke and the singer Jewel, as well as hundreds of fund managers and reporters.

That appearance coincides with Mr. Corzine's fund-raising tour. And while it's early days yet, there are signs his pitch is resonating with some investors.

After securing commitments from family and friends, he recently returned from a trip to the Middle East, where he met with a number of wealthy investors. He also plans to visit Latin America and Hong Kong.

When the fund-raising concludes, Mr. Corzine hopes to have collected just shy of $150 million, the amount at which private funds must register with the Securities and Exchange Commission. That sum will include several million dollars of his own money.

In addition to trading, Mr. Corzine will help clients decipher the inner workings of Washington, particularly for investors feeling bewildered in the age of Trump. Sure, he has not worked in Washington in a dozen years. But he says he has a social network encompassing Goldmanites (Lloyd C. Blankfein, the current chairman and chief executive, and Mr. Cohn, for example) and a younger crew of Wall Street insiders whom he recruited to MF Global, including Omeed Malik, a Bank of America executive who oversees a unit that helps hedge funds open their doors.

Mr. Corzine is joining the business at a shaky time. Some major investment firms, including Fortress Investment Group, have shut down funds, while another notable trip-up came from Marc Mezvinsky, Hillary Clinton's son-in-law, who closed his fund last year after a failed bet on an economic revival in Greece.

But others are raking in money, and Mr. Corzine argues that this moment provides him a leg up. He can interpret a poll better than your average trader, he said, and scan the news media knowing "which reporters are full of" it, he added, using an expletive.

If all goes according to plan, Mr. Corzine expects to open his fund in the fall. He hopes to hire a half-dozen employees, up from the current two: Sean Roberts, a trader and investment professional he first hired at MF Global, and Nancy Dunlap, his longtime lawyer.

The fund will hire at least one more lawyer, he said, because "I can't afford a reputational issue."

Growing Up With Risk

Mr. Corzine said he was not stamped as a risk-taker at Goldman Sachs or on Capitol Hill. He traces the trait much earlier, to his hometown, Willey Station, Ill., population 40, where every year his father would plant corn and soybeans hoping they would sprout and praying that the weather would not destroy them.

"I grew up with risk," Mr. Corzine said.

Yet his father avoided financial risk, refusing to ever use a credit card, scarred by his own parents losing a fortune in the Great Depression. And his father stuck to farming, frustrating a young Mr. Corzine, who had hoped his father would venture into local politics.

Years later, after a stint in the Marine Corps Reserves and graduation from the University of Chicago's business school, Mr. Corzine learned risk-taking for himself Wall Street-style.

In 1976, Goldman hired him for an entry-level job. Within a few years, he took over the government bond trading division and ascended to the top of Goldman in 1994, as senior partner. He soon set the firm on a path to becoming a public company.

That process unfolded in fits and starts as Mr. Corzine faced opposition from some partners. He won overwhelmingly, but after a number of other disagreements with fellow managers, what happened next was cutthroat even by Wall Street standards. He returned from a family ski trip to learn that he had been ousted.

The 2011 book "Money and Power: How Goldman Sachs Came to Rule the World" details how Mr. Corzine, without telling Mr. Paulson or other top executives, met once with the chief executive of Mellon Bank about a potential merger, a move that aggravated tensions and may have contributed to his ouster. Mr. Paulson, who declined to discuss the events surrounding Mr. Corzine's departure, then took over the firm.

In an interview, Mr. Corzine acknowledged meeting the Mellon bank chief, and said he had a duty to explore other options before the I.P.O. He paused, and then added: "Maybe they're right. Maybe I should have told people I was going to do that."

It did not take long to move on. Within months, he was running in New Jersey for the United States Senate.

After dropping about $60 million of his own money on the race — along with some cash from Charles Kushner, the father of Jared Kushner, now Mr. Trump's son-in-law — Mr. Corzine cruised to victory.

In the Senate, he helped lead an effort to provide a tax holiday for the families of 9/11 victims, and was one of only 23 senators to vote against the Iraq war. During that period, he also sought a divorce from his wife of 33 years, whom he met in the second grade.

Mr. Corzine was dating a New Jersey union leader at the time, and although the relationship ended, the romance raised eyebrows as his ambitions were expanding: Mr. Corzine planned a run for New Jersey governor.

He prevailed at the polls, but a little over a year later, he nearly died. Rushing to a meeting, Mr. Corzine's driver was traveling 91 miles an hour when he lost control of the sport utility vehicle. Mr. Corzine, who was not wearing a seatbelt, was induced into a coma.

"It happened like this," Mr. Corzine recalled, snapping his finger.

A month after waking up, he was back working on his liberal agenda. Mr. Corzine eventually won early childhood education for underprivileged children. He established paid family leave. And he abolished the death penalty, the first state in a generation to do so.

Even in deep blue New Jersey, those changes were not enough to secure him a second term. As he has committed to memory, "I lost by 3.61" points.

'Single Greatest Mistake'

Ms. Elghanayan advised Mr. Corzine to "wait, don't do anything" after the campaign loss. It was advice that Mr. Corzine declined to follow.

In an interview, he said he had chosen between offers at the prominent hedge fund D. E. Shaw and the second-tier brokerage firm MF Global. D. E. Shaw offered more money and prestige. MF Global offered the chairman and chief executive roles. He chose MF Global.

By the time he arrived, the firm had recorded three consecutive years of losses, and Mr. Corzine concluded that a bolder approach was needed. He became one of the firm's most profitable traders of its own money, and convened a weekly meeting with other traders to solicit "best ideas."

One idea was to buy European government debt at a time when some countries with the euro currency were experiencing a crisis, a trade that was well underway before Mr. Corzine arrived. He saw an opportunity to expand the firm's use of a technique that would produce steady returns from the trade while the European Union effectively pledged to backstop the eurozone sovereign debt. Just in case, Mr. Corzine had an insurance policy, taking a short position against the euro, a fact he now wishes he had trumpeted louder to investors.

The investment was paying off, helping the firm return to profitability. But Mr. Corzine's strategy had its critics. One of MF Global's risk officers questioned the trade, and so did regulators.

"History has proven that the trade was entirely correct," said David Gelber, an MF Global board member who until now had not spoken publicly about the firm's collapse. "But I think we were too introverted. We knew it to be safe, but we didn't appreciate the reaction of the outside world to the size of these positions."

Investors were on edge.

In October 2011, Mr. Corzine said, the firm's auditors forced it to write down the value of an unrelated future tax benefit. That caused a huge quarterly loss, an oft-ignored explanation for the firm's decline. Amid confusion at the time, investors generally conflated that loss with the eurozone sovereign debt trade.

Mr. Corzine called his decision not to take the write-down earlier his "single greatest mistake" at the firm.

But the final blow arguably came that same week in late October from the rating agencies, when Moody's cut its assessments of MF Global twice in a matter of days, citing the European trade and "increased risk appetite." This prompted a run on the firm.

Mr. Corzine argued that Moody's was well aware of the European trade. But he also acknowledged that he had overlooked and failed to communicate with the analyst Moody's had recently assigned to MF Global, leading him to wonder now whether "that's one of my mistakes."

Those next few days, Mr. Corzine worked through each night and slept on his office floor. Sensing things were improving, he went home to shower in the predawn hours of Oct. 28 when the phone rang with bad news: The firm had overdrawn a JPMorgan Chase bank account.

Mr. Corzine returned to work and phoned a back-office employee who handled wire transfers. He told her to meet JPMorgan's demands, declaring that it was "the most important thing" to do because otherwise the bank would halt business with MF Global, court records show.

She complied. But in doing so, she transferred customer money to JPMorgan, not MF Global's own money, violating a cardinal rule of the brokerage industry. It was one of several wire transfers to a bank or clearinghouse that included customer money.

Mr. Corzine, who later hired the defense attorney Andrew Levander, said he was unaware that the money belonged to customers, citing an email he received at the time indicating that it was the firm's.

As that problem unfolded, Mr. Corzine had another pressing assignment: selling the firm and its various holdings.

By Oct. 30, Interactive Brokers was planning to buy the firm, while Mr. Corzine met with Mr. Icahn, the billionaire investor, who was interested in the euro positions. Mr. Icahn promised to make a decision by morning, Mr. Corzine recalled.

Both deals fell apart (investors who later bought the euro positions reaped a huge profit) when the firm discovered a roughly $1 billion shortfall in its customers' assets. MF Global went out of business.

"The MF Global episode provided a very stark example of a failure to supervise a broker dealer," said Christopher Whalen, the chairman of Whalen Global Advisors and a longtime Wall Street analyst. "Wall Street is filled with examples of people who are really smart and have great skills as bankers and traders but maybe are not the right people to run an enterprise."

The Trump Trade

When Mr. Corzine turned 70 on New Year's Day, he took his children and grandchildren to the Caribbean for a celebration. The birthday was not the only significant event that week.

Days later, the Commodity Futures Trading Commission announced that Mr. Corzine had agreed to pay $5 million to settle accusations that he had failed to supervise MF Global. A criminal investigation fizzled years earlier, and the customer money was long since recovered and returned.

With all of that behind him, Mr. Corzine was free to start a hedge fund, a business that need not operate under the gaze of public shareholders or rating agencies.

Although the settlement imposed a lifetime prohibition from registering with the trading commission — effectively preventing his fund from trading more than a small amount of other people's money in the futures industry — stocks, bonds and most currencies are fair game. And that could leave plenty of room, he says, for the Trump trade.

Mr. Corzine would hardly be the only hedge fund manager seizing the moment in Washington. Some expect a correction in the stock market as investors come to terms with turmoil in the White House.

Mr. Corzine worries that the administration will make "a serious foreign policy mistake," he said, which would be "horrible for markets." He said that he planned to place a major bet that the market would fall but added that, as an American, "I'm hoping that I'm wasting money."

His thesis is not solely that the Trump presidency will fail, but also that, with policies like tax reform, "the functional element of Washington may create opportunities, too."

The fund, he said, will help him expand philanthropic efforts at a time when his personal fortune is a fraction of what it once was. Mr. Corzine's net worth has shrunk to less than $40 million today from about $500 million at its height, friends say. He forfeited money in the divorce and spent well over $100 million funding his own political campaigns and many millions more on legal bills, expenses and charity, including donations to the National September 11 Memorial & Museum.

On Wednesday, he joined the board of Covenant House, a charity that works with homeless children, a cause he took up soon after the death of his son, a photographer who regularly distributed food to the homeless. Discussing his son, who committed suicide at the age of 31, Mr. Corzine said, "I take, in my heart, some responsibility," fighting back tears.

"Until you've lost a child, it's impossible to understand how deeply someone who's suffered that loss will go to save other children from a similar tragedy," said Kevin Ryan, the head of Covenant House, who was the children and families commissioner in New Jersey under Mr. Corzine. "I think the loss of Jeff fuels and haunts and inspires Jon."

Now that he is focusing on opening his new fund, Mr. Corzine wakes up at 4 a.m. for the opening of European markets and lands in the office by the 9:30 a.m. opening bell in New York.

"There are some people who look forward to using the blessing of what happens with the 70-plus life," he said, by "catching up on things that they weren't able to do. I want to do that in a context where I feel like I'm still contributing."

Watch: Corzine in the crosshairs