The drama over the meltdown of the brokerage firm MF Global pivots around a clash between two veteran traders who rose from relatively humble roots to the very top of the futures-trading business.
One is Jon Corzine, the firm's former CEO who just testified in Congress about the mystery surrounding some US$1 billion in customer money that vanished from MF Global before it failed. The other is Terrence Duffy, the chairman of CME Group Inc, the huge Chicago exchange where MF Global did most of its trading.
At stake is not only Corzine's reputation - and whether his career on Wall Street and in politics comes to an ignominious ending - but investors' trust in Duffy, the CME and the US futures industry, which is largely self-regulated.
Corzine and Duffy barely know each other, but their businesses were enmeshed in the clubby futures trading world. The CME made money from MF Global's trading, and was supposed to watch for violations of rules designed to protect investors.
When MF Global collapsed and clients grew angry both at Corzine's firm and at Duffy's exchange, Duffy launched a public attack on Corzine at the congressional hearings.
The plain-spoken CME boss alleged that Corzine may have known of improper use of client money.
"In our opinion, someone has violated the law," Duffy told Congress last week, without specifying who that someone might be. He added that MF Global "falsified" its balance sheets to mislead CME auditors.
Duffy's statements, backed up by a 10-page, hour-by-hour chronology of MF Global's final days, provide the most detailed public accounting of the frantic dissolution of one of the country's largest futures brokerages.
The closest thing to a smoking gun presented by Duffy was his disclosure of a conference call in the wee hours of October 31, when MF Global was desperately trying to find a buyer to stave off bankruptcy. In those chaotic hours, the brokerage firm appears to have secretly dipped into customer accounts that were supposed to be kept safe by the brokerage, Duffy said.
In that call, a senior MF Global employee told CME auditor Mike Procajlo that "Corzine knew about loans that had been made from the segregated customer accounts," according to the exchange's chronology. Procajlo has declined to comment.
Corzine has repeatedly denied any knowledge of the alleged misappropriation of customer funds, which, if true, could constitute a breach of federal law. He told Congress he had no idea what Duffy was talking about. "I did not instruct anyone to lend customer funds."
Corzine's spokesman declined to comment on Sunday. Corzine hasn't been charged with any crime.
He has been named as a defendant in several civil lawsuits, in which he has also denied wrongdoing.
Whether they are confirmed or dismissed in ongoing federal inquiries, Duffy's allegations may have further damaged Corzine's public image. Some lawmakers at the hearings used the ammunition supplied by Duffy to paint Corzine as an out-of-touch Wall Street type who had hurt farmers and other small investors - but who now claimed no recollection of what had happened.
A desire to shore up the CME's image helps explain the forceful and at times personal tone of Duffy's testimony against Corzine, said federal officials familiar with the matter.
"It doesn't surprise me they are being so aggressive, they don't have a choice," one official said of CME's handling of the matter. "They have a lot of people who lost money."
Dennis Hastert, the former Republican speaker of the House who has known Duffy for years and who now sits on CME's board, says of Duffy: "His reputation, his business, everything he's ever worked for is on the line."
Noting that MF Global was one of the largest traders on the exchange, Hastert says "the whole business works on trust, and when somebody breaks that trust, it jeopardizes the system." Duffy "was not amused by the situation at all," Hastert added.
Now that Duffy has turned over his evidence to the Justice Department and the Commodity Futures Trading Commission, it appears that CME won't be doing any more investigating on its own. The CFTC has instructed the exchange to refrain from further inquiries, for reasons that remain unclear.
One possibility is that investigators simply want to avoid having too many cooks in the kitchen; another is that the exchange may have conflicts of interest in the matter.
The CFTC declined to comment. Duffy says he has no idea why the CME was asked to step aside.
In an interview, Duffy said he has "no issues" with Corzine personally, but that he felt compelled to go public with the exchange's version of events. "Anybody who's rational and who listened to our timeline, how can they say that we were derelict in our duty?" he said.
Before the congressional hearings, Corzine and Duffy had met twice, only briefly. But their backgrounds are similar, two middle-class boys from Illinois who shared a passion for trading that made them rich.
Corzine grew up on a small family farm, his father a farmer and an insurance salesman. In a personal moment in the hearings, when asked to reflect on farmers who lost money in the collapse, Corzine hung his head and said, "my father was one of those folks who'd go to a grain elevator to hedge out future crops."
Corzine got a college degree and served in the Marines before joining Goldman Sachs where he became a trader.
About a decade younger, Duffy, who is now 53, grew up on the South Side of Chicago, his father a county assessor. He took a less conventional path, dropping out of college and asking his father for a loan to lease a seat on the Chicago exchange.
The father mortgaged the family home and gave him $50,000. Duffy was then a bartender, and one story has him memorizing the many orders thirsty traders threw at him without writing them down, which got him noticed as a natural for the CME floor.
In the early days as a trader, he nearly lost all the money he'd borrowed from his father, but eventually steadied his business, worked three jobs and paid off his debts. "I didn't need a diploma to certify that I was smart enough," said Duffy.
Both Corzine and Duffy rose through the ranks of their respective organizations. Corzine rose to be CEO of Goldman, and helped pave the way for Goldman's transformation from a private partnership to a publicly traded company in the late 1990s.
At the time, Duffy was a hog futures trader in the loud and messy trading pit of the Chicago exchange. He eventually joined the board when the exchange was ripping up its structure as a nonprofit cooperative run by traders and preparing for an IPO, a change similar to the one Corzine had overseen at Goldman.
Duffy, who became chairman in 2002, helped lead the transformation. In the following years, Duffy pushed the CME to expand electronic trading and took it on an acquisition spree, buying up commodities exchanges in New York and Chicago.
Corzine's political career, stints as a Democratic senator and governor of New Jersey, is well known. Duffy's background less so - while he never ran for office, his grandfather was an alderman and he grew up steeped in Chicago Democratic politics. Duffy-junior "was immersed in good old-fashioned Democratic politics," says Hastert. "He's a South-Side Irish guy."
When he became older, Duffy began supporting some Republicans. Over the years, he has contributed thousands of dollars to the campaigns of Hastert and of current House Speaker John Boehner, according to the Federal Election Commission.
Duffy and Boehner are close friends and play golf together, Duffy said. They share tanned looks and gravelly voices polished by years of smoking, though Duffy says he hasn't had a cigarette in eight years.
Hastert says Duffy is a practitioner of pragmatic politics. He has also supported Democrats, including Hillary Clinton and Barney Frank, the co-author of the financial-reform law that would have a huge impact on the CME.
While Corzine was losing his re-election bid for New Jersey governor in 2009 and returning to Wall Street at MF Global, Duffy was spending lot of time in Washington trying to stave off unwelcome new rules in the wake of the financial crisis.
Early this fall, though, trouble began to brew at home - in the heart of the Chicago exchange. MF Global, one of its biggest clearing members, was losing investors and clients' confidence.
Corzine, true to his bond-trading roots, had placed multi-billion-dollar bets on sovereign debt of euro zone countries, bets that were not immediately losing but were disconcerting to investors and helped push the firm over the edge.
At the congressional hearings last week, Corzine spent a lot of time defending his risky investment strategy and saying he had actually lowered the firm's leverage ratios - only to be undercut, yet again, by Duffy.
"One of the things that Mr. Corzine kept saying was that he was bringing the leverage ratios down. He failed to say that he also took the (firm's) debt from $1 billion to $6.3 billion," Duffy said at the end of the hearing on Thursday, when Corzine had already left the room and couldn't respond. "I wasn't taking a swipe at Corzine," Duffy said in an interview the next day. "I was pointing out a fact."