WASHINGTON -- The European debt crisis has claimed its first big casualty on Wall Street, a securities firm run by former New Jersey Governor Jon Corzine.
MF Global Holdings Ltd., which Corzine has led since early last year, filed for bankruptcy protection Monday. Concerns about the company's holdings of European debt caused its business partners to pull back last week, which led to a severe cash crunch, the company said in its filing.
Corzine, the former head of investment banking giant Goldman Sachs Group Inc., oversaw MF Global as it amassed $6 billion in debt issued by financially strapped European countries such as Italy, Spain and Portugal. Their bonds paid bigger returns than U.S. Treasury debt because bond investors believed that they were more likely to default.
That bet eventually doomed the company. A regulator complained last month that it was overvaluing European debt, forcing it to raise more money, according to the papers it filed with U.S. Bankruptcy Court for the Southern District of New York.
MF Global's bankruptcy is the eighth-biggest ever in the U.S., according to the research firm BankruptcyData.com. It's bigger than Chrysler LLC's in 2009 and smaller than those of financial-crisis casualties Lehman Brothers Holdings Inc., Washington Mutual Inc. and CIT Group Inc.
Last week, MF Global reported its biggest ever quarterly loss, and rating agencies downgraded its debt. Its stock plunged 66 percent. Spooked business partners required it to post more money to guarantee its trades.
Soon short of cash, MF Global looked for outside investors or buyers, but no alternative emerged before regulators' Monday deadline, the company told the court. Trading in shares of MF Global Holdings Ltd. was halted early Monday.
In a statement, the Securities and Exchange Commission and the Commodity Futures Trading Commission said that they and other regulators had been closely monitoring MF Global's situation for several days "in anticipation of a transaction that would include the transfer of customer accounts to another firm."
MF Global told the regulators early Monday that it hadn't reached an agreement on a deal and it reported "possible deficiencies" in customers' futures trading accounts, the two agencies said.
They said they have determined that a bankruptcy proceeding overseen by the industry-funded Securities Investor Protection Corp., whose mandate is to protect investors when a brokerage firm fails, "would be the safest and most prudent course of action to protect customer accounts and assets." SIPC, which can provide up to $500,000 for each customer of a failed brokerage, announced separately Monday that it is beginning the liquidation of MF Global under its customary procedures.
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