Jon Corzine, trying to build MF Global into a mini-Goldman Sachs, led the firm to buy huge amounts of sovereign debt. While that bet has received plenty of scrutiny following the collapse of MF Global, Bethany McLean wrote in Reuters that the accounting and the disclosure surrounding that bet have slipped under the radar. Soon after joining the firm in 2010, Corzine accumulated a massive net long sovereign debt position that eventually totaled $6.3bn, or five times the company's tangible common equity as of the end of its fiscal second quarter. According to McLean, Corzine's move was controversial within the firm, but no one overruled him. Buying European sovereign debt may not have been just a bet that the bonds of Italy, Spain, Belgium, Portugal and Ireland would prove attractive. An additional allure may have been the way MF Global paid for the purchases, and thereby, the way the accounting worked. MF Global financed these purchases, as its filings note, using something called "repo-to-maturity." That means the bonds themselves were used as the collateral for a loan, and MF Global earned the spread between the rate on the bonds, and the rate it paid its repo counterparty, presumably another Wall Street firm. The bonds matured on the same day the financing did. The key is that for accounting purposes, MF Global's filings say the transaction was treated as a sale. That means the assets and liabilities were moved off MF Global's balance sheet, even though MF Global still bore the risk that the issuer would default; that means the exposure to sovereign debt was not included in MF Global's calculation of value-at-risk, according to its filings. And that also means MF Global recognized a gain (or loss) on the transaction at the time of the sale. The filings do not say how much of the gain was recognized upfront. But if it were a substantial portion, then these transactions would have frontloaded the firm's earnings. That, in turn, may have helped cover the fact that MF Global's core business was struggling. Once the regulators and rating agencies began to zero in on all of this, it didn't matter that the trade itself may not have been that risky. The debt all matured by the end of 2012, and MF Global, of course, had financing in place until it matured. But it was European sovereign debt, after all, and the trade was huge -- and it appears that part of the concern may have been the accounting, and certainly the lack of disclosure. [Reuters, 11/2/11]