Corzine Hedge Fund Firm Granted SEC Registration With Limits

(Bloomberg) -- Jon Corzine’s application to register his hedge fund firm was approved by the Securities and Exchange Commission, which attached a series of seldom-seen conditions on the company.

The restrictions on Corzine’s firm, New York-based JDC-JSC LP, limit the former U.S. Senator’s ability to handle customer cash and invest in less-liquid assets, according to an order that the agency issued Monday.

The SEC order includes “trading parameters” that bar JDC-JSC from engaging in proprietary trading and require it to have a “reasonable basis” to expect that, under normal conditions, each of its funds could be “orderly liquidated” within five trading days. That could restrict Corzine to trading in only the most liquid of markets, such as those for currencies and large-cap stocks, said David Tawil, co-founder of Maglan Capital, a New York-based hedge fund.

“There aren’t many assets you can blow out in five days,” Tawil said in a telephone interview. “I really don’t understand what magic Corzine thinks he is going to perform in markets with these shackles on.”

In addition, each fund is required to have investors give 65 days notice in order to withdraw capital, though the firm may agree to shorten this to no less than 30 days, according to the order. Each fund also must have an independent administrator to handle client subscriptions, redemptions and cash; Corzine himself “will not be involved” in these activities.

The limits reflect events at MF Global Holdings Ltd. that unfolded after Corzine, the former co-chairman of Goldman Sachs Group Inc., became chief executive officer of the futures firm in 2010. Seeking to boost trading revenue, he employed the firm’s capital plus leverage to make at least $6 billion in proprietary bets on European sovereign debt.

When the firm got hit by a cash crunch tied to the trades in 2011, some $1 billion in client funds went temporarily missing and MF Global was forced to file for bankruptcy. The Commodity Futures Trading Commission later permanently banned Corzine from the futures industry, though he neither admitted nor denied the agency’s claims that he failed to properly supervise the firm.

Early this month, a group of executives and traders from the National Futures Association had circulated a petition to send to the SEC to deny Corzine’s application, citing his role in the MF Global bankruptcy. Hedge fund manager Kyle Bass was among those who signed the petition.

“Corzine levered the firm to make big sovereign bets on euro debt and then they misappropriated their customers’ money to pay for the margin calls,” Bass said in an email. “Why on earth should the SEC allow him to have a license to handle customer money once again?”

Steven Goldberg, a spokesman for Corzine, declined to comment.

To contact the reporter on this story: Miles Weiss in Washington at mweiss@bloomberg.net

To contact the editors responsible for this story: Alan Mirabella at amirabella@bloomberg.net, Vincent Bielski, Josh Friedman

©2019 Bloomberg L.P.