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Former Gov. Corzine Subpoened...and What the MF Global Fallout Could Mean

"Imagine if this happened at a ‘too big to fail’ institution..."

Former New Jersey governor, senator, and Obama fundraiser, Jon Corzine has been subpoenaed to testify next week about his leading role in the demise of MF Global, a brokerage firm that collapsed this fall after a disastrous bet on European debt.

The Dec. 8 hearing will be a rare moment in Washington. Congressional historians and Capitol Hill insiders cannot recall another time when a former member of Congress was summoned by his former peers to testify about a matter under federal investigation.

Corzine has also been asked to testify later this month before two other panels, including the Senate Agriculture Committee. In the case of SAC, Corzine could face tough questions from former Senate colleagues.

The House Agriculture Committee decided to issue the subpoena only because Corzine failed to reply to an informal request to appear at the hearing.

Chairman Rep. Frank Lucas, R-Okla., said his testimony is "essential to fulfill our objectives."

However, although the Obama fundraiser has been subpoenaed, customers, investors and creditors probably won’t learn anything new about the demise of MF Global or how Corzine pushed the firm off a cliff by betting its assets.

"It's a unique situation that Jon's in," said Abbe Lowell, a defense attorney who was counsel to the House of Representatives and whose clients have included former Sen. John Edwards and former Nevada Gov. Jim Gibbons.

The subpoena comes on the heels of an investigation by regulators who are looking into whether MF Global used money from customers' accounts for its own purposes as its financial condition worsened.

An estimated $1.2 billion or more may be missing from customer accounts. Regulators say MF Global moved money out of customer accounts within days as the firm's cash dried up.

If MF Global was using customer accounts to alleviate their financial burdens, then it has violated securities rules. And it might get worse: the FBI is investigating whether the firm violated any criminal laws.

“It seems crazy that the trades that blew up the firm were leveraged bets on Italian sovereign debt, but the potential theft of customer funds is where this really becomes lunacy,” writes John Ogg of 24/7 Wall St..

Even before the subpoena, Corzine had “lawyered-up” for civil suit protection.

“It might be a safe bet to put the odds that [Corzine] will ‘Plead the Fifth’ at 99.9 percent. After all, it would be in his best interest unless he can somehow claim that this whole implosion was just a misunderstanding. The odds of that ‘unless’ factor: zero,” said Ogg.

(Related: ‘Going Galt’: Hedge Broker Shuts Down Firm With Chilling Letter About the Market)

Outside of what may be very criminal behavior, the implications of the MF Global fallout could be severe.

“Imagine if this happened at a ‘too big to fail’ institution and millions of customers are suddenly told ‘we do not know where you client funds are and you cannot close out or hedge any of your positions,’” Ogg said.

"Imagine what can happen if a firm can just declare bankruptcy and then says that its customer segregated funds accounts do not add up. It would be a license to steal and the millions and millions of dollars (actually billions and billions)."

The amount that could be stolen is so great, in fact, that it could be large enough that many managers who are supposed to have a fiduciary duty might be willing to risk prison.

One last note: no one at MF Global has been charged with a crime or civil violation

The Associated Press contributed to this story.

One last thing…
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