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“The People v Jon Corzine et al”

Posted by Larry Doyle on March 26, 2012 8:40 AM |

If you were away over the weekend, as I was, or somehow missed the news late Friday afternoon, you may awake this morning unaware that the smoking gun in the fiasco known as MF Global may have been unearthed and now points directly back at one Mr. Jon Corzine.

How is it that neither The Wall Street Journal nor the Financial Times are prominently highlighting ongoing developments in this story in their morning newspapers? You don’t think our news flow is ‘managed’? What a joke, but that is another story for another time. Thank you to Bloomberg for keeping us current in what I believe should be the the eventual case of “The People v Jon Corzine et al.”

While Corzine may look for and receive cover from friends in Washington and on Wall Street, friends of Sense on Cents know the power of truth and transparency provide the greatest disinfectant against the stench of financial chicanery, aka misappropriating customer funds. Mr. Corzine himself may need a little extra personal disinfectant as he is likely sweating a little harder this morning. Why is that? Bloomberg reports late last evening that MF Global’s Corzine May Be Liable if Customer Risk Known:

Jon S. Corzine, MF Global Holding Ltd.’s former chief executive officer, may face potential legal liability if investigators show he knew customer money might be used when he ordered $200 million transferred to a U.K. account as his brokerage neared collapse, former prosecutors said.

The ex-Goldman Sachs Group Inc. (GS) co-chairman gave “direct instructions” to move money from a U.S. account to meet an overdraft with JPMorgan Chase & Co. (JPM) just days before MF Global’s bankruptcy, according to a memo by congressional investigators. Such accounts may have contained assets belonging to both customers and MF Global.

“It’s not whether he specified,” John Moscow, a former chief prosecutor in the office of Manhattan District Attorney Robert Morgenthau, said yesterday in an interview. “The economics of the situation were he was out of money. The bottom line is, he was taking a risk with somebody else’s money.”

In a casino, said Moscow, now with Baker Hostetler LLP in New York, “if I put your money on the table, I’ve committed larceny as soon as I expose it to risk.”

Edith O’Brien, a treasurer for New York-based MF Global, said in an e-mail quoted in the Congressional memo that the $200 million transfer was “Per JC’s direct instructions,” according to a copy of the memo obtained by Bloomberg News.

Michael Clark, a former federal prosecutor who has handled financial fraud cases, said the government may be able to show “that Corzine and the staffers knew at that time the request was made that it necessarily meant they’d have to pull funds without authorization from other customer accounts.”

Clark, now with the law firm Duane Morris LLP in Houston, said the actions of Corzine’s employees may make him vulnerable to litigation.

“The law recognizes that a principal can be liable for the actions of his agents under such circumstances,” he said.

Proving intent to abuse customer money “can be shown by direct evidence, such as documented instructions or staffers’ testimony, or by circumstantial evidence of intent showing he was willfully blind in that he chose to ignore what otherwise would have been obvious to him under the circumstances,” Clark said.

If Corzine asked employees to take funds temporarily from client accounts, the lawyer said, “the liability is more direct since that violates fiduciary and other legal duties owed to customers and the government.”
Gerald Shargel, a criminal defense lawyer in New York, agreed with Clark, saying if Corzine is found to have directed the transfer of funds, a case for fraud could be brought based on a manager’s breach of fiduciary duty to clients.

Even if Corzine didn’t specify to O’Brien that she use client funds, but demanded that “needed” funds be transferred to JPMorgan while knowing there wasn’t enough company funds to make up the amount, the government may have a strong case, Shargel said.

If Corzine knew there wasn’t enough money to complete a transfer without dipping into client funds, there would be circumstantial evidence that could make a stronger case than testimony from O’Brien saying she was told specifically to take client funds, he said.

“When you have a web of circumstantial evidence, it’s stronger than a direct-evidence case: it doesn’t depend on memory, opportunity, bias, or hostility from an employee, who might be trying to get out from their own problems,’’ Shargel said.

You do not need to read The Wall Street Journal, the FT, Bloomberg, or Sense on Cents to know that a compelling case can be made against Corzine and other MF Global execs. All we need to do is listen to the customers of MF Global who continue to be unable to access THEIR money. We have heard from customers previously. I would call on them again to voice their opinion on the civil and criminal liability of Mr. Corzine et al.

Please help us send a message to the WSJ, the FT, Washington, and Wall Street that customer funds are sacrosanct and that those who would violate that sanctity MUST pay in spades.

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.

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