Sense on Cents

Do you think it is believable that a financial firm’s CEO, CFO, and COO could all be ignorant in knowing where and how a billion dollars of customer funds may have gone?

You don’t? Neither do I, although if we were to take these aforementioned individuals’ statements to that effect on face value, we would be led to believe that the downfall and demise of MF Global was somehow just one big mistake.

I hope and trust that Americans are not so naive, and that our Congressional leaders will be appropriately rigorous in pursuing and unearthing the truth in this investigation.

To this end, I had previously suggested those investigating the MF Global bankruptcy should engage noted financial sleuth Harry Markopolos. Whom else might we want to listen to? 

Terry Duffy.

Yesterday, Mr. Duffy, executive chairman of the CME Group, the world’s largest futures exchange and the auditor of MF Global, dropped a bombshell on this fascinating financial finagling. Duffy zeroed in on the question of “where’s the money” while testifying in front of Congress yesterday. Bloomberg captured Duffy’s comments in reporting, MF Global Probe Said to Weigh Illegal Use of Funds to Make Margin Payments:

One working theory for the missing money is that it was taken from customer accounts and not replaced with equal collateral, as mandated by law, according to the people familiar with the investigation. Then, they said, after the funds were moved to the broker-dealer unit of MF Global, the funds may have been used to pay margin on the repurchase agreements.

Under U.S. law, futures brokers are required to keep customer money segregated from their own accounts so that if a firm fails its clients can quickly move positions and cash to a new company. MF Global’s bankruptcy is “unprecedented” in that for the first time, customer funds have gone missing, said Terrence Duffy, executive chairman of Chicago-based CME Group Inc. (CME), the world’s largest futures exchange and auditor of MF Global.

Corzine knew of $175 million in loans involving customer segregated funds at the bankrupt broker, said Terrence Duffy, executive chairman at CME Group Inc. Auditors at CME, which had authority to oversee MF Global, learned from an employee of the brokerage that Corzine knew about the loans involving a European affiliate, Duffy told committee members.

REALLY? Is that right? So now according to Mr. Duffy, Mr. Corzine was aware of loans involving customer segregated funds. Is that consistent with Corzine’s testimony provided last week? Or did Mr. Corzine ‘thread the needle’ by testifying that there was no willful “intent” to jeopardize the sanctity of segregated customer funds.

I look forward to the further questioning of Mr. Corzine.

Please somebody remind Mr. Corzine that while testifying in front of Congress he is under oath.

I repeat now for the fifth time, Is Jon Corzine “Too Big to Be Indicted”? (Parts I, II, III, IV)

You can’t make this stuff up.

Larry Doyle

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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.

This entry was posted on Wednesday, December 14th, 2011 at 7:13 AM and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.