Corzine and regulator worked together at Goldman

November 3, 2011 - 3:06 PM

WASHINGTON (AP) — The lead regulator investigating the collapse of Jon Corzine's securities firm, MF Global, worked alongside him for 18 years at Goldman Sachs Group Inc. The two later collaborated to pass a law intended to prevent accounting scandals.

Gary Gensler, chairman of the Commodity Futures Trading Commission, rose to become Goldman's co-head of finance before leaving in 1997. Corzine left Goldman in 1999, after serving as chairman and CEO.

The two later collaborated when Corzine was a senator and Gensler worked on Capitol Hill. As a key staffer for Sen. Paul Sarbanes, D-Md., Gensler advised Sarbanes on the accounting law that bears his name. At the time, Corzine was a Democratic senator from New Jersey.

Several experts in corporate governance said Gensler should recuse himself from the investigation to avoid the appearance of a conflict.

"I'm not sure what other options there are," said Naveen Reddy, a research analyst with the firm GMI Inc. "Gensler is a highly qualified guy, but these cozy relationships tend to taint the oversight in these big blowups."

Representatives for Gensler and Corzine declined to comment on their relationship or to say whether Gensler should recuse himself from the investigation.

At a conference last year, Gensler began his remarks by thanking Corzine.

"I had the privilege of working with Jon. . . . he played a significant role in what later became the Sarbanes-Oxley Act," Gensler said. "When the full Senate voted on the bill, if memory serves, Jon was sitting in the presiding chair, and I was staffing Chairman Sarbanes on the floor."

MF Global admitted early Monday morning that it had diverted client money as its financial woes intensified. Gensler said Thursday that keeping clients' money separate from company assets is the "core foundation" of consumer protection for investors.

"You don't put your hand in the cash register; you just don't," Gensler told a Senate panel.

MF Global filed for bankruptcy protection on Monday after a disastrous bet on European debt spooked its investors and trading partners.

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AP Business Writer Marcy Gordon and AP News Researcher Judith Ausuebel in New York contributed to this report.