Thursday, February 13, 2014

MF Global: Billions Lost (2014)

MF Global Inc. logo

MF Global, under the leadership of Jon Corzine, used investor funds for personal business funds for personal use. When SEC fines began to roll in in 2008, investors began to attempt to pull their money. That was when the company was forced to admit that over 1 billion dollars apparently vanished from the company. The current location of this money is split. 700 million dollars of it is in Europe, tied up in MF Global's subsidiary. Trustee James Giddens says that he is "reasonably confident" that the funds will be recovered and returned to their owners, however, there is still the chance they will not be able to be redistributed to their original owners. Another 220 million dollars is now in limbo, stuck between the ownership of the securities customers and the commodities customers the funds were transferred to. The last section of money is lost in transfers to business partners, a large portion of which now belongs to J.P. Morgan.
Jon Corzine used his bold decision-making tactics in order to propel MF Global into profitability. His risky actions set off a lot of red flags that would later lead to the discovery of missing funds in the company. He admitted defeat on October 31, when the company filed for bankruptcy. Over the next few months, the eighth largest bankruptcy filing in the United States evolved into a large public scandal. Ironically, Corzine and his company were finally in the spotlight, but not for the right reasons.
There are four different ethical models that we can use to objectively observe the ethical position of the decisions made by Corzine in his attempt to pull MF Global out of debt: Utilitarian ethics, Kantian ethics, Individualism ethics, and Virtue Theory. The stakeholders, in this case, were everyone involved in the company because it ended up going bankrupt. The CEO, investors, and employees are the most prevalent because their reputations, positions, and funds were at risk.

MF Global CEO, Jon Corzine

In Utilitarian ethics, the consequential view defines the goal of decisions made as bringing the most good to the greatest total number of people. It is hard to say if Corzine acted ethically under this theory. His only motive in his decision appeared to be to use his big-time CEO experience in this small-time company to propel it into profitability. His plan was to reallocate investor money in order to get a high payout from risky investments himself. However, it is a very real possibility that his intentions were strictly to get a pay day for himself. One could argue that had this paid off, there would have been a great profit for all the stakeholders in the company, including the investors whose money was being used as investment capital. Although the investors, employees, and CEO suffered in this situation, other stakeholders, such as J.P. Morgan gained a great deal of money through the transferring of these funds. The good of the greatest amount of people did not benefit from this decision, but there is no evidence that Corzine made any decision with any other intent than to bring an end result of profitability to his employees and investors. Because this theory does not take into account morality, I would classify the investment decisions made as ethical under Utilitarian ethics; however, transferring investor money to Europe or to J.P. Morgan has no ethical premise.

KantianismKantian ethics, or principle-based ethics, does not focus on the end result but the motivation of the decision. In order to be ethical, decisions made bust be “from duty and not simply self-seeking.” This makes the decision a little clearer cut because as a CEO, it is Corzine’s job to turn a profit for the rest of the stakeholders in the company. He did have the intention of reversing MF Global into the black with his risky investment strategy. However, making 1.6 billion dollars disappear from the legal ownership of company investors was nothing but self-seeking. I can only argue that under Kantian ethics, business decisions regarding the intent to turn risky investments into company profits as very possibly ethical, but all other decisions regarding fund transferring as unethical.

James Gidden, MF Global Trustee
I believe that Individualism ethics is the most interesting to look at in this case. The economic theory is summed up by the equation: individualism=egoism+rights-based constraints. In this sense, all of Corzine’s decisions are half ethical. His selfish sense of entitlement is apparent through his decisions in that he thought he could handle a high-risk level in a smaller market in order to turn a profit in the company. However, using others money in order to pursue company objectives is definitely illegal as well as the disappearing act of 1.6 billion dollars. Individualism also looks at the goal of all businesses as maximizing profit. Corzine made it clear with his high-risk attitude that he would do whatever it took in order to create a profit in the end. With the fact of profit involved, I would say his intentions were ethical from an individualism standpoint, but the high illegal content that they displayed to cause any defense of ethical behavior to be erased.

Virtue TheoryVirtue theory looks at the individual as good or not. Something that is good can be defined by 4 virtues in a business: courage, honesty, temperance, and justice. It also takes into account if the thing fulfills its duty well. As a CEO, Corzine caused a failing business to go into an unrecoverable bankruptcy, and eventually caused his own demise. He did not perform his job effectively from a business standpoint. He would be defined as medium courage and low honesty, temperance, and justice. He was not afraid to take risk to better the company, but his poor ideas caused these risks to actually be unethical actions. He also did not treat the investors fairly because he did not discuss the fund transfers with them before he performed his risky actions. He also had expectations that were far too high for the level of business that he was operating. There seemed to be a gap between reality and ambition that caused a lack of rationality in his decisions. Although he did work hard, his ideas were poor and he did not produce a quality environment or a profit in the course of his actions.

ConclusionAll in all, Corzine did not act ethically and caused the majority of stakeholders to suffer in his wake. There is really no explanation to defend the lack of ethics that he displayed with an outstanding billion+ dollars. He made many risky decisions with an intention to turn the company into a profitable one, but in the end, he turned a favorable small company into one known mainly for the controversy that he caused to surround it.

Lucchetti, Spector, Aaron, Mike. "The Unraveling of MF Global." Wall Street Journal 31 12 2011, n. pag. Web. 13 Feb. 2014.

O'Toole, James. "$1.6 billion in missing MF Global funds traced." CNN Money 24 04 2012, n. pag. Web. 13 Feb. 2014.

Salazar, Heather. Business Ethics and Virtue. Powerpoint Slides

Weil, Jonathan. "The Justice Department's MF Global Scandeal Dates to 1932." Bloomburg Politics 27 07 2012, n. pag. Web. 13 Feb. 2014.

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