Mr. Corzine's ability to rebuff the chief risk officer and the board of directors shows why ultra transparency should be required of all financial institutions.
If market participants had access on an on-going basis to MF Global's asset, liability and off-balance sheet exposure details, they could have assessed the risk of the Eurozone trade. As the risk of the trade to the firm increased, they could have exerted market discipline by requiring higher returns on their investments.
Seeing his cost of funds increase would have acted as a break on increasing the Eurozone debt trade.
MF Global Holdings Ltd.'s executive in charge of controlling risks raised serious concerns several times last year to directors at the securities firm about the growing bet on European bonds by his boss, Jon S. Corzine, people familiar with the matter said.
The board allowed the company's exposure to troubled European sovereign debt to swell from about $1.5 billion in late 2010 to $6.3 billion shortly before MF Global tumbled into bankruptcy Oct. 31, these people said. The executive who challenged Mr. Corzine resigned in March.
The disagreement shows that concerns about the big bet grew inside the company months before the trade rattled regulators, investors and customers.Inside the company, they had access to the information on the trade. Outside of the company, the information on the trade was limited.
The executive, Michael Roseman, whose title was chief risk officer, also expressed concerns directly to Mr. Corzine in meetings of just the two men and with other people present, people familiar with the situation said.
Mr. Roseman contended MF Global didn't have enough spare cash to withstand the risks of its position in bonds of Italy, Spain, Portugal, Ireland and Belgium. He also presented gloomy hypothetical scenarios of what could happen if MF Global's credit rating was downgraded because of the exposure.
Mr. Corzine, who started betting on the bonds shortly after arriving as chief executive in March 2010, responded to Mr. Roseman's concerns that some of the scenarios were too extreme and likely impossible, people familiar with the matter said. The former New Jersey governor and Goldman Sachs Group Inc. chairman said MF Global's exposure was limited, adding that the likely profit was worth the risks, these people said.
Boardroom disagreements in which the CEO's decisions are questioned by a lieutenant are rare. The situation at MF Global is even more unusual because it came just six months after directors hired Mr. Corzine to turn around the struggling brokerage firm.