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Gary Gensler, the regulator overseeing the investigation of Jon Corzine's collapsed securities firm, built close ties to Corzine as they rose through the ranks of Goldman Sachs. Later, they collaborated on Capitol Hill to pass an anti-corporate fraud law.

When Corzine ran for New Jersey governor, Gensler gave $10,000 to the state Democratic Party, which was trying to get Corzine elected.

Now, Gensler, head of the Commodity Futures Trading Commission, is leading an inquiry into how hundreds of millions vanished last week from client accounts at Corzine's firm, MF Global.

At a Senate hearing Thursday, Gensler had harsh words for Corzine's company.

"You don't put your hand in the cash register; you just don't," Gensler said.

He said MF Global's failure to separate clients' money from its own assets violated "the core foundation" of investor protection.

But Gensler's long and deep ties to Corzine pose an apparent conflict of interest that could taint the probe's findings, experts say. Some say he should remove himself from the case.

"The appearance of a conflict is there, there's no question," said Jay Lorsch, a professor at Harvard Business School. "It might be wise for Mr. Gensler to recuse himself from this particular investigation."

A similar appeal came from Sen. Charles Grassley, R-Iowa, of the Senate Agriculture Committee, which oversees Gensler's agency.

"It's hard to see how the chairman could be completely objective in looking out for wronged investors when he has such strong ties to the principal of the failed firm," Grassley said in a statement Thursday night. "It seems recusal would be the best outcome for investors."

Gensler gave $10,000 to the New Jersey Democratic Party in August 2005 as Corzine ran for governor, election records show. Corzine was elected later that year.

The donation followed years of collaboration between the two men on both Wall Street and Capitol Hill. Gensler and Corzine had worked alongside each other on Goldman's trading floor after they joined the firm in the 1970s.

Gensler 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 worked together again when Corzine was a senator and Gensler worked on Capitol Hill. As an advisor to Sen. Paul Sarbanes, D-Md., Gensler helped Sarbanes craft the accounting law that bears his name. At the time, Corzine was a senator from New Jersey.

Speaking at a Princeton University conference last year on the day before Corzine's wedding, Gensler described working with Corzine as a "privilege."

He recalled that when the full Senate voted on the Sarbanes-Oxley accounting law, "Jon was sitting in the presiding chair, and I was staffing Chairman Sarbanes on the floor."

Surveying the audience at Princeton's Financial Institutions and Regulation Colloquium, Gensler quipped, "Jon, your life has changed a lot since our days together on a trading floor if this is your idea of a bachelor party."

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

But the investigation's high profile and Corzine's connections make it especially important that those involved avoid any appearance of a conflict of interest, experts in corporate governance said. To do so, Gensler should step away from the case, they said.

"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."

MF Global filed for bankruptcy protection on Monday after a disastrous bet on European debt spooked its investors and trading partners. It was the eighth-biggest U.S. bankruptcy and the largest collapse on Wall Street since Lehman Bros. It also was the first major U.S. firm to fall because of bets on European debt.

Gensler and other regulators forced it to file after MF Global acknowledged that hundreds of millions in clients' money was missing. The FBI is examining whether the company broke criminal laws.

Securities companies are required to keep clients' money separate from their own assets. That way, clients don't have to worry about their cash if the company fails.

Corzine maintained close ties to Washington even after leaving for the New Jersey governor's mansion. He is a top fundraiser for President Barack Obama who has helped raise at least $500,000 for Obama's re-election since April, according to records released by the campaign.

In an April securities filing, MF Global offered investors in its bonds an extra 1 percent interest if Corzine left "due to his appointment to a federal position by the President of the United States."

Officials with the Obama campaign and the Democratic National Committee said any contributions from Corzine would be refunded if he's charged with any wrongdoing _ criminal or civil _ in the investigation. That would also apply to any MF Global employees who might be charged in the probe, if they contributed to the president's re-election efforts, the officials said.

The chairman of the Republican National Committee said that the Obama campaign should return all the money that Corzine helped raise.

Examiners from the Securities and Exchange Commission have been reviewing the company's operations since last week, Chairman Mary Schapiro said Thursday.

SEC examiners have been reviewing MF Global's finances and the events leading up to its bankruptcy filing, officials say. And staffers from the agency's trading and markets division have been monitoring the liquidation proceeding.

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AP News Researcher Judith Ausuebel in New York and AP Business Writer Marcy Gordon and Associated Press writer Ken Thomas in Washington contributed to this report.

Daniel Wagner can be reached at http://www.twitter.com/wagnerreports

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