WASHINGTON -- He set out to create a mini-Goldman Sachs. In the end, he built a mini-Lehman Brothers.
Former New Jersey Gov. Jon Corzine's resignation Friday from the securities firm he led capped a week of high drama and swift failure.
MF Global collapsed into bankruptcy Monday, and Corzine has since hired a criminal defense attorney amid an FBI investigation into the disappearance of hundreds of millions of dollars in client money.
In another twist, a top regulator recused himself from the investigation of MF Global because of his longstanding ties to Corzine. Commodity Futures Trading Commission Chairman Gary Gensler, whose agency is leading the effort to locate the missing client money, had worked for Corzine at Goldman Sachs.
MF Global's implosion, which came after Corzine made a big, risky bet on European debt, revived memories of the 2008 banking crisis and the ruin of the much bigger Lehman.
As Corzine, 64, stepped down as chairman and CEO, he said he felt "great sadness about what has transpired at MF Global." Corzine, who ran the investment firm Goldman Sachs years before joining MF Global, said his resignation was voluntary and called it "a difficult decision."
Regulators said more than $600 million in client money is still missing. They said MF Global apparently moved the money out of client accounts within days as the company's cash dried up.
The FBI is examining whether the firm's actions amounted to a crime, two people familiar with the situation told The Associated Press. They spoke on condition of anonymity because they were not authorized to discuss the matter publicly. The New York Post reported that U.S. Attorney Preet Bharara in New York City is also investigating.
News reports Friday had raised the possibility that the missing money could be in an account at JPMorgan Chase & Co., which acts as a middleman when MF Global trades securities.
But by Saturday it was clear that the JPMorgan account did not contain the missing client money, according to a federal official with direct knowledge of the inquiry, speaking on condition of anonymity because he wasn't authorized to discuss the probe. The official said it would have been improper for clients' money to end up in the JPMorgan account.
Corzine's resignation doesn't untangle him from MF Global's affairs. The trustee overseeing the liquidation of its brokerage gained permission Friday to subpoena top executives, including Corzine.
Corzine has hired prominent defense attorney Andrew Levander of New York, according to a person familiar with the situation.
Securities firms such as MF Global are supposed to keep their own money separate from their clients'. That way, clients can retrieve their assets easily if the company fails.
MF Global has maintained that the missing customer money is being held up by trading partners that froze its accounts as it teetered last week.
The Corzine era at MF Global began in March last year.
Seeking to raise MF Global's profile and expand its business, he sought help from former Goldman Sachs colleagues in New York and Washington
In February, he successfully lobbied the Federal Reserve Bank of New York to make MF Global one of only 22 banks authorized as primary dealers of U.S. Treasury securities. The New York Fed's president and CEO, William Dudley, was a partner at Goldman until 2007.
Corzine later lobbied his company's main regulator, the CFTC, on new rules, including one related to the handling of client money. He held a call with former Goldman colleague Gensler in July, according to public records.
Corzine also saw investment opportunity as the European debt crisis unfolded. European bonds were paying higher returns than debt issued by other nations. Corzine believed European leaders would back their countries' bonds and prevent them from losing value.
So MF Global decided to buy European government debt. By the end of 2010, the firm had placed big bets with borrowed money. To raise the money, it turned to a common financing technique called repurchase agreements. In the end, it proved fatal.
On the surface, a repo agreement seems like a wise way for a firm to borrow. In exchange for cash, the borrower sells its lender a security, such as a government bond, with a proviso: It will buy back the security when the loan comes due.
The security acts like collateral. If the price of the security doesn't move much, the loan seems safe.
But in MF Global's case, the securities were European government bonds. And by June, regulators were growing worried about those bonds.
The Financial Industry Regulatory Authority, a private regulator that oversees brokers, demanded that MF Global hold more of a financial cushion against possible losses on its European bets. One fear: If the bonds fell in value, lenders would demand more collateral from MF Global. That could lead others to demand collateral.
It would all amount to a classic -- and deadly -- bank run. As it turned out, that's just what happened.
Fear among MF Global's lenders and trading partners mounted, and panic set in. MF Global's stock price plunged. The firm lost business. Customers began pulling their money out, leaving the firm with little cash of its own.
Those trades weren't the first time MF Global suffered from faulty risk management. It was fined $10 million in 2009 by the CFTC for failing to spot a rogue trader.
After MF Global's bankruptcy filing, the CFTC voted unanimously to launch a formal investigation and to issue subpoenas for company records, according to the official familiar with the probe.
Two questions overhanging the company: Will the Securities and Exchange Commission and the FBI find evidence that this scramble for cash led MF Global to break the law and raid customers' accounts? And will Corzine himself become a focus of the criminal investigation?
At the same time, MF Global's fall shined a spotlight on Gensler, whose agency is leading the investigation of MF Global. Gensler long ago built close ties to Corzine -- and eventually worked for him -- as they rose through the ranks of Goldman Sachs. Later, they collaborated on Capitol Hill to pass an anti-corporate fraud law.
Gensler recused himself from the investigation to give people confidence that his relationship with Corzine wouldn't influence the investigation's findings, according to a spokeswoman for Sen. Charles Grassley, R-Iowa, who had called on Gensler to step away.
"The recusal is appropriate to help ensure the agency's work on behalf of wronged investors isn't tainted by any bias or appearance of bias toward the principal of the failed firm," Grassley said in a statement.