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Is Jon Corzine “Too Big to Be Indicted”? Part III

Posted by Larry Doyle on November 22, 2011 4:29 PM |

This commentary runs a little long, but I exhort you to read it in its entirety as it captures the sentiments of readers who are extremely close to or actually “in the MF arena.”  Their messages are filled with real pain and anguish which is not found in the media. This is reality. I hope you will want to share this post with your friends. LD

As if $600 million in missing customer funds were not enough, recent news emanating from the debacle that defines the bankruptcy of MF Global puts the estimated misappropriation of customer funds at a cool $1.2 billion. Yes, billion with a B!

Those involved in the markets would easily ascertain that those manning the MF Global ship redirected these customer funds in an attempt to save the ship as it was going down. The customers themselves remain in a state of shock and bewilderment as to how this reality might ever have come to pass.

Meanwhile, the outrage in America burns while the lack of trust and confidence in the markets, the market makers, and those charged with protecting investors grows stronger by the day.

You don’t believe me? Read on and chew on these messages I recently received from people “in the arena”:

Larry,

MF Global’s gigantic shortfall of missing funds now appears to be double (now estimated at $1.2 billion) the amount previously revealed.  This massive crime makes the following ten points obvious to our society:

1. The absurdity is obvious when almost all on Wall Street continue to insist that there is no need for more financial regulation or for additional tighter controls on Wall Street.

2. It is obvious that self-regulation is unrealistic, even ridiculous, and all other existing regulation is highly ineffective – possibly even by design or intent.  Suspicions grow daily because the incompetence and “conflicted interest” are equally obvious.

3. Democrat Jon S. Corzine, former Governor, former Senator, and a former top Sachs honcho, was Obama’s planned Treasury Secretary for Christ’s sake!  Corzine, his Sachs cronies, and his responsible MF Global executive associates have yet to be held accountable.  It is so sickeningly obvious that  they are well-connected and protected — unlike the 99% who would go to jail for stealing small items from Wal-Mart’s shelves.

4. It is obvious that an incestuous relationship exist between Wall Street and the so-called “representatives” now existing in Washington.  The politicians are addicted to Wall Street money and will not act in the best interest of the citizens.  They are simply too corrupted, too self-serving, and have been bought.  Bribery has been legalized within the system and presently they simply sell their votes.  Many of these politicians have benefitted from insider trading for years and that too has long been ignored, even sanctioned, accepted, and protected within the system.

5. It is obvious that more-and-more American citizens will conclude that this is all “a pretend system” where they are supposed to believe the fantasy that the government system in Washington works “for the people” and they will question their continued support of such a system.

6. Obvious is the need for the SEC and SIPC, (plus FINRA also) to be revamped so that existing regulations are enforced.

7. It is obvious that the need for far greater regulations and controls cry-out to be enacted and enforced.

8. Obviously the mainstream American media is almost ignoring this huge MF Global fraud – one of the greatest frauds ever in Wall Street history!

9. Equally obviously is the fact that American citizens can only wonder about and question why the main-stream media has chosen to down-play this subject.  Obviously it follows that citizen trust in the main-stream media will continue to erode.

10. Because of the lack of past appropriate performance over decades, by all involved, it is obvious that our citizens do not expect dynamic or responsible leadership to suddenly appear or come-forth from the present lot, and address the problems symbolized by Corzine, Wall Street, MF Global, Sachs, etc., etc.

I am sure there are other horrid additional facts that MF Global now makes clear to the 99% but at this moment I can not think of them.  But I believe your readers can come-up with additional truths and realities that are made obvious by this current massive financial scandal.

Your Sense On Cents constitutes one of the greatest voices serving the best interest of America’s citizen investors.

Forrest Wallace Cato
Former Editor-In-Chief, Financial Planning Magazine

If you liked that, then you will love this one:

MF Global clients looked on as their money was stolen under the watchful eyes of your incompetent Uncle Sam.

I have traded commodity markets since the late 1970s. I have always been told — and I believed — that my money was safe, held in segregated bank accounts under the jurisdiction and regulatory supervision of an agency of the U.S. government, the Commodity Futures Trading Commission.

I have been lied to! My money was never safe. Neither was or is yours, if you are a futures trader. No matter what firm you use for futures trading — Merrill Lynch, Goldman Sachs, JP Morgan, Morgan Stanley, Citi Group — your money could disappear even though the U.S. government has been charged with keeping it safe.

The saddest part of this story is that the media had not even identified the real story – that investors can be robbed with theU.S.government as the accomplice.

The media’s focus is on MF Global being the first major casualty of the European debt crisis, on the wild risk-taking endeavors of Jon Corzine and men like him, and on the release of funds by the trustee to brokerage houses to keep futures positions from defaulting. The media has missed the real story. So, what’s new?

There will always be massive blow ups due to foolish over-leveraged speculative positions taken by financial firms. There will always be another debt crisis, such as we are experiencing in the EU. There will always be another CEO who makes a foolish decision that takes his or company into the scrap heap of corporate history.

Perhaps a little explanation of how futures trading works is in order.

Speculators, farmers, money managers, commercial users of certain raw materials, etc. open accounts with Futures Commission Merchants (FCMs), such as was MF Global and is Merrill Lynch Futures et al.

The funds are deposited into segregated accounts at major banks and are to remain in this safe keeping arrangement. When a trade is made in, let’s use Soybeans futures as an example, the Chicago Mercantile Exchange (CME) requires a margin deposit for the trader to hold the leveraged position. So, the CME notifies the FCM that a margin deposit needs to be transferred from the segregated bank account to the CME. The CME’s clearing corporation then becomes the holder of these funds and the guarantor of the futures contract.

The FCM is simply the agent for the trader and is not allowed to dip into the segregated accounts for its own use or to comingle segregated funds with its own bank account.

The blog site The Golden Truth carried a good explanation of CFTC rules this past week in a story titled, “More on Legal Stealing — The Infamous CFTC Rule 1.29.”

According to the Commodity Exchange Act (the overarching law governing futures trading) customer funds at futures commission merchants “shall not be commingled with the funds of such commission merchant or be used to margin or guarantee the trades or contracts…of any customer or person other than the one for whom the same are held.”

CFTC Regulation 1.25 provides that:

“No futures commission merchant and no clearing organization shall invest customer funds except in obligations of the United States, in general obligations of any State or of any political subdivision thereof, or in obligations fully guaranteed as to principal and interest by the United States. Such investments shall be made through an account or accounts used for the deposit of customer funds and proceeds from any sale of such obligations shall be re-deposited in such account or accounts.”

Yet, when MF Global blew up not all segregated customer funds were accounted for. MF Global had, in fact, dipped into the segregated accounts of their clients and used the money as collateral for its own bad trade in European sovereign debt.

The amount of customer segregated account money missing is subject to debate. Some sources say $600 million is missing, other sources estimate the amount is closer to $1.5 billion. There is a chance much of this money will not be recovered and the customers will end up holding empty bags. And therein is the real story.

The U.S. government’s Commodity Futures Trading Commission is charged with insuring that customer segregated funds remain segregated and are not accessed by FCMs for their own use. There were questions for months prior to MF Global’s explosion as to the safety of the segregated funds of its customers. In fact, only when pressed to prove the existence of these segregated funds did the cow dung hit the fan.

Plain and simply, MF Global’s customers have been robbed, and the CFTC is an accomplice. There is another way to say it. Money placed in the safety of segregated accounts to serve as a reserve in the trading of regulated commodity futures is not safe. And if money at commodity brokerage firms is not safe, ultimately no other money is safe. What if the futures firm had been Citi Group or JP Morgan? Those customers would have been left holding the bag as well.

Let me say it as clearly as I know how – if commodity brokerage firms can rob money from its customers’ segregated bank accounts, then customers of any financial firm – be it stocks or fixed income or life insurance or real estate trust or whatever – can be left holding an empty bag.

“Oh,” you might say, “but stock brokerage and banking customers are protected by the SIPC and FDIC and futures are not.” My word to you is this – don’t be so naive!

Segregated funds in a futures trading account were supposed to be guarded by the U.S.government. And the Uncle Sam is currently MIA.

If segregated funds in a futures account are not safe, what makes you think your money in a pension fund or real estate IRA or annuity is safe? Don’t fool yourself! MF Global is the tip of a very dangerous iceberg.

Readers, do not miss this next point. If someone were to now ask me if there money was safe in a segregated bank account related to an an FCM, I would have to say, “No, it is possible for segregated bank deposits to be stolen by your FCM despite the fact the federal government has a congressional and administratve mandate to protect your funds. The law is an empty sham.”

If you , the reader, can’t see how the MF Global situation is a serious leak in the dike, then you are blind. The U.S. government’s regulatory duty to proect investors is worthless. Suck on this truth, whether you own stocks, annuities, life insurance policies, fixed income instruments or whatever, the U.S. government has taken the position its regulatory obligations are worthless.

And the media is clueless on what the MF Global situation really means. Here is how (Mayor) Bloomberg/Business Week reported on the matter:

“…MF Global’s failure is contained within a relatively small circle of owners, lenders counterparties and customers. This isn’t to minimize the large and painful losses, but there are no public losses and, so far, little systemic fallout.”

BBW has it wrong on at least three counts.

First, “there are public losses.” Excuse me, editors of BBW, what drug have you been snorting? No public losses? A financial services firm regulated by the U.S. government dips into the segregated bank accounts of its customers under the nose of Uncle Sam, and you say “no public losses?” These were not people invested in MF Global. They were not MF Global shareholders. They were people who used MF Global as a middleman for trading regulated markets. Further, I say the loss of confidence in a substantial element of this country’s financial system is a public loss. The value of contracts traded onU.S. futures exchanges dwarfs the value of stocks traded on the NYSE. I say that when a farmer from the middle ofIowa loses money he dedicated to lock in next year’s crop, it is a public loss.

Second, there are crimes involved. MF Global stole its customers’ money. We have financial grand larceny. BBM points out that it does not want to minimize the loss while it completely ignores the crime. Great journalism!

Third, “little systemic fallout?” Again, excuse me! When a branch of the U.S. government fails to perform its congressional mandate it is the very definition of systemic failure.

So, what needs to be done? Let me make four points.

First, the U.S. government needs to make whole the segregated account holders. If the U.S. government can bail out Deutsche Bank, AIG, Fannie Mae, Michigan’s unions, Freddie Mac and a corrupt solar company to the tune of more than a trillion dollars (only to have the executives of said organizations grant themselves millions in bonuses) then it can take responsibility for its screw up in not protecting the public from MF Global, as it was charged to do.

Second, CFTC Rule 1.29 (and any counterpart in other financial markets) must be purged immediately by Congress. While they are at it, perhaps they will also correct a little issue on insider trading. Chances are that no member of Congress had a futures account with MF Global — after all, they make too much money trading stocks. A secure and impenetrable lock box must be placed around customer funds.

Third, the SIPC or similar quasi government insurance program needs to cover the futures industry. Keep in mind, in the end SIPC and FDIC insurance may be empty promises given the government’s lack of responsibility on future market segregated accounts.

Fourth, MF Global’s segregated fund account holders need to hope that some large state teachers’ union had pension money in a managed pool at MF Global. If this is the case, the BOGI men will come to the rescue in a flash.

Let me add a fifth recommendation. The director of the CFTC and all senior regulators responsible for the MF Global fiasco need to be put out to pasture immediately. I doubt Congress or the Administration have the guts to do this.

Andrew Abraham
Abraham Investment Management

These messages speak for themselves. What do they say? Those in America who still have a shred of trust and confidence in the markets, our government, and the financial regulatory system at large are losing that faith quickly.

Do you blame them? I would ask why they may have maintained that faith to this point. That said, our country demands that we stand up, speak out, and save our nation for our children and their children.

Enforce the laws and regulations which are on the books. Indict and prosecute those who have trampled on our laws and regulations. Beyond that, throw the bums out who have engaged in the incestuous behaviors which have brought our nation to its knees.

Truth, transparency, and integrity must be elevated and embraced if America is ever to return to glory.

Larry Doyle

Related Sense on Cents Commentary
Is Jon Corzine “Too Big to Be Indicted”?
Is Jon Corzine “Too Big to Be Indcited”? Part II

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.

 

 

  • Bill

    Larry, a few thoughts. I believe it was Abbie Hoffman who said, “Never steal anything small.” I’m sure Mary Schapiro could get to the bottom of this in short order. Just kidding.
    Need to set up a special FINRA arbitration process. Just think how much Corzine could have stolen had his pal Obama given him the keys to the Treasury. Almost as much as Obama and Chu have with their green energy frauds.

    Bill

  • coe

    What’s the old saying – power corrupts…and absolute power corrupts absolutely…the commentators are dead on…there is a separate set of rules – i.e. no rules – for the rich, powerful, and politically connected…how can Geithner be Treasury Secretary when he flubs his taxes – what a disgrace…but let’s all look in the mirror – the “people” elected Obama, the “people of NJ” elected Corzine – the people elected the current seatholders in Congress…illegal behavior is rationalized at these levels…it’s a national disgrace and yet another symptom of the decline and fall of our civilization…are we all really so blinded by the cult of celebrity to turn a blind eye to how far we have fallen in the ethics category…we need a great leader, a great reformer to take charge, throw the bums out, and earn our trust again!

  • lizzy

    Between the Sixty Minutes expose of Congress and the collapse of M F Global we have had some nasty shocks. Why aren’t heads rolling? All we hear is Obama blathering about Republican obstruction while the financial system crumbles. These letters state forcefully our loss of confidence in our institutions.

  • EM

    MF Global illustrates the impact on the consumers from the incestuous relationships between regulators, Congress and so called investment advisors. How can such enormous sums escape the normal responsibility of trusteeship?

    Let’s see who might have been protecting the interest of the American Investor…maybe it was Mary Schapiro, current head of the SEC.

    She started with the SEC as a director in 1988. Then she assumed responsibility for the Commodity Futures Trading Commission from 94 to 96. Did she tighten commodities trading and trusteeship? No!

    In 96 she was transferred to become head of NASD (now FINRA) where no response was made to the whistle blowing on her (friend or acquaintance) Bernie Madoff.

    Then in 2009 she transitioned (taking about $10 million with her as a “going away” present from FINRA to oversee the entire SEC.

    It was under her “leadership and direction” that Jon Corzine was excused by FINRA from taking the examinations when he returned to investing from his sojourn in government. Maybe he was worried about passing the Ethics questions.

    During her tenure at FINRA she had the chance to follow-up on the Madoff issues, or those of Allen Stanford. She didn’t.

    Do they have classroom CE courses in these agencies on “The Unimportance of Ethics” or perhaps on “Benefits of Ponzi Schemes.”

    Will we see handcuffs on Corzine – not likely! Unless they are golden handcuffs like the $400 million he received when Goldman Sachs went public.

    Does Corzine have friends in high places? Maybe even higher than the White House? Possibly as high as George Soros. Corzine has participated with Soros, along with Bernanke and Geithner in meetings of the Bilderberg Group, a network of leaders in the fields of politics, business, and banking, from 1995–1997, 1999, 2003 and 2004.

    What will be next? How about another failure of Fannie Mae and Freddie Mac who are back at their old habits of offering and encouraging real estate mortgage loans in excess of market falue of the properties!

    • Bill

      Don’t forget the royal treatment Schapiro got on capitol hill when she “testified” about having put in charge of the Madoff matter an SEC attorney invested in Madoff.

  • LD: Recommended

    Fox News’ Charlie Gasparino reports,

    Investment bankers who found the now famous co-mingled client accounts leading to the disappearance of client money when examining MF Global’s books in the days before its bankruptcy chalked it up to errors stemming from sloppy bookkeeping as the firm fought to remain solvent during its tumultuous final days.

    But the investigators currently looking at MF Global’s messy implosion, specifically the disappearance of as much as $1.2 billion in client money, are now coming to a far different conclusion: that people at the firm likely violated securities laws in the handling of these customer accounts, and that those violations could ultimately turn out to be criminal in nature, the FOX Business Network has learned.

    Read more: MF Global Workers Likely Violated Securities Laws,

  • LD: Recommended

    Bloomberg’s Jonathan Weil reports,

    There’s more at stake here than the missing $1.2 billion. Besides MF, other companies that use Pricewaterhouse’s New York office as their auditor include Goldman Sachs Group Inc. and JPMorgan Chase & Co. Both banks presumably are too big to fail, meaning taxpayers would be on the hook if they ever blew up. A Pricewaterhouse spokesman, Caroline Nolan, declined to comment on the firm’s work for MF.

    If Pricewaterhouse can’t spot control weaknesses at a relatively small shop like MF, which had $41 billion of assets, it’s a bit much to expect that the firm would catch anything materially amiss at Goldman, which has $949 billion (GS) of assets, or at a serial acquirer such as JPMorgan, with $2.3 trillion (JPM) of assets.

    Read it all at MF’s Missing Money Makes You Wonder About Goldman

  • fred

    LD,

    What if the White House monitored your site?

    If I could ask President Obama one question, party politics aside, I would ask him what he truly believed was wrong with our system of government?

    Then I would look him straight in the eye and ask him a follow up question…

    Why in the name of God and for the sake of your children’s children’s future aren’t you doing everything you can to fix things? Re-election, party politics, how trite!

    There should be a special place in hell reserved for those who are given the opportunity to make a significant positive difference in the course of human history but fail to act.

    Everyday, it seems new examples of vital, ‘systematic’ leadership failure are brought to light and every day the ‘great wizard’ just pulls the curtain shut and gets back to his grand manipulation.

    Enough! Let’s start the healing process, let’s address the issues exposed at MF Global, let’s begin with Mr. Jon Corzine.

    • LD

      Fred,

      You are spot on with your statement. Our nation is faced with a whole host of crises of epic proportions yet we will have to suffer through Campaign 2012 on center stage with the people’s business relegated to the back burner.

      The President’s job is to lead our nation. He is failing miserably on this front. To wit, the reason for my commentary today.

  • LD: Recommended

    I recently received the following from an individual deeply involved with the MF Global mess,

    Last week’s headlines was that 60% of client segregated funds would be released. The truth could not be further! There are loopholes and contingencies in order that the vast majority have not seen a penny of their segregated accounts. People holding treasury bills in their accounts were denied getting their money.

    I have 11 accounts, 9 of them had close to $1,000,000 in cash and I did not get my 60% because in 2 of my other accounts I had 2 small Japanese Yen positions. This is an outright lie and PR stunt of Trustee Giddens and reporters need to take the lead.

    Besides clients not getting their money, the truth of relationship of Trustee James Giddens and his long relationship of JP Morgan is a conflict of interest. In the interim market volumes have been declining and confidence in the US financial markets has fallen. Please look at the 3 links for more information.

    http://myinvestorsplace.com/2011/11/27/mf-global-trustee-giddens-statement-years-of-investigation-and-close-cooperation-with-jp-morgan/

    http://myinvestorsplace.com/2011/11/28/missing-funds-and-fees-likely-to-go-higher-with-mf-global-bankruptcy/

    http://myinvestorsplace.com/2011/11/27/honorable-judge-martin-glenn-subpoena-the-billing-records-of-trustee-giddens-regarding-jp-morgan/

  • RP

    Let’s hope this goes somewhere,

    House Panel Subpoenas MF Global’s Corzine

    The Senate Agriculture Committee and a House Financial Services panel have also called on Corzine and others to testify later this month.

    In addition to the governorship, Corzine had served as a U.S. senator from New Jersey as well as being a CEO of Goldman Sachs in the late 1990s. He took over as head of MF Global last year.

    Lucas told reporters on Friday that the House Agriculture Committee requested that Corzine appear, and received a letter from Corzine’s attorney saying he would not be available on December 8, the requested date.

    Not be available??

    …and why not??

  • fred

    LD,

    What I find curious was why MF Global was allowed to have such a large ‘unhedged’ sovereign debt exposure that it became insolvent. Were MF Global’s problems a result of the 50% greek debt writedown plan that didn’t trigger credit default swap (CDS) redemptions thus leaving MF Global unhedged and exposed?

    Backing up for a moment, maybe the ‘Clinton Miracle (CM)’ economy wasn’t such a miracle. Did the CM rely on the Greenspan Put and financial engineering (CDS issuance), prompted by the Long Term Capital(LTC) debacle? Wasn’t LTC’s ‘sure thing trade’ unhedged sovereign debt long/short pairs trades capturing interest rate spread differentials? LTC relied on the premise that sovereign treasuries would never default but choose instead to monetize. It took Fed intervention in the form of neg real rates to save the day.

    Armed with the Greenspan Put, later to be renamed the Bernanke Put, AIG and other ‘too big to fail banks’ created and began to sell CDS to global creditors (and to each other) to hedge sovereign debt exposure. W/o adequate reserves, CDS issuance fees went straight to the bottom line grossly inflating our trade surplus. It really wasn’t much of a stretch to extend the CDS concept to residential mortgages (MBS) issued by quasi governmental agencies with little or no default risk.

    Maybe this weeks Fed action was aimed at stopping CDS redemption triggers from another sovereign default (w/o a 50% writedown agreement like the Greek debt). Is CDS exposure fully reserved for by US banks? More stress tests!

    Was MF Global just the tip of the iceberg? What happens if more states opt out of the robo signing class action, more unreserved CDS risk exposure? WOW, when do these CDS expire?

  • LD

    Did Bill Clinton have an advisory relationship with MF Global to burnish Jon Corzine’s standing and professional reputation?

    Did “Bubba” collect $50k per month in the process?

    A former MF Global employee accused former president William J. Clinton of collecting $50,000 per month through his Teneo advisory firm in the months before the brokerage careened towards its Halloween filing for Chapter 11 bankruptcy.

    Teneo was hired by MF Global’s former CEO Jon S. Corzine to improve his image and to enhance his connections with Clinton’s political family, said the employee, who asked that his name be withheld because he feared retribution.

    “They were supposed to be helping Corzine improve his image as a CEO—I guess you can tell how that went,” he said. Corzine resigned as CEO and chairman November 4.

    Before Corzine joined MF Global in May 2010, the firm was a smart and well-run commodities broker, a culture that was turned upside-down by his leadership style, he said.

    “The traders would be shaking their heads,” he said. “They would come back to their desk and say, ‘Well, I thought we were going to do this—but Corzine would come by and do something else all by himself,’” he said.

    The Teneo contract with MF Global lasted at least five months, he said. “The board cancelled it after Corzine resigned.”

    Read on…Claim: Clinton Collected $50k per Month from MF Global






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