Business As Usual: What the Collapse of MF Global Reveals about Financial Reform in the USA

Submitted by Elaine Magliaro, Guest Blogger

Nomi Prins, a former investment banker who once worked for Goldman Sachs and Bear Stearns, recently appeared on Democracy Now! Amy Goodman questioned Prins about the collapse of MF Global and John Corzine’s testimony before Congress.

Corzine has claimed that he never directed anyone at MF Global to misuse investors’ funds.  A witness named Terry Duffy, however, has testified that “Corzine was aware of loans that may have used customer money.” Duffy is chairman of the Chicago Mercantile Exchange.

In her interview with Amy Goodman, Prins spoke about a clip of Corzine’s testimony that she and Goodman watched: “We’re listening to someone try and dodge his way out of responsibility and accountability, which is very much what all of the CEOs on Wall Street have done through the subprime crisis and through past crises.” Prins added, “And for him to sit there in front of Congress and talk about ‘not intending’ and ‘I didn’t know’ and ‘I didn’t instruct’ and ‘I didn’t misuse’ and all these sort of legal maneuvers around this issue really is deplorable.”

Deplorable indeed! Especially when one considers that we supposedly got “financial” reform after the financial crisis of 2008 with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Goodman asked Prins to talk about the Dodd-Frank Act.

Prins replied that Dodd-Frank “doesn’t protect consumers, and it didn’t reform Wall Street. So, you can call it anything you want to call it, but the fact is that these banks, that were big before the subprime component of what is now a global crisis, are bigger than they were. They have more derivatives exposures than they did. They are taking more risks than they did. They are getting away with more than they did. And they are doing it with more reliance on federal subsidies than they did before what happened in 2008. So everything, by every standard, with respect to risk and coddling of Wall Street, is worse than it was before 2008, before that act. And there is no opposition in Washington, which is why—you know, talk about an Occupy movement. That’s about the only opposition that’s happening right now.”

Goodman spoke of how President Obama while adopting some of the language of the Occupy Wall Street movement “is also receiving more money from Wall Street than any president in history.”

Prins said that is the reason she thinks Obama won’t do anything that would hurt his relationship with the Wall Street community. “So, what he says—and I believe, truly, they discount what he says with respect to supporting the Occupy movement. And it’s nice that he’s saying it, but in terms of actually doing something, he has shown—he had the opportunity to really push through major reforms, and instead backed this very lukewarm act that does nothing. And I don’t see him doing anything different than that besides talking, unfortunately, between now and the election. He’s really acted more than he’s spoken. I mean, well, he’s done both, but his actions speak louder than his words, I should say.”

Goodman and Prins also talked about how thousands of the Occupy Wall Street movement protestors and demonstrators have been arrested while Wall Street executives seem to have been left untouched after the financial crisis that cost taxpayers trillions of dollars in bailout money.

Prins said that every now and then someone will be “thrown under a bus for some sort of minor trade that happened, but none of the executives that had the accountability, that made the millions of dollars, that had the power, that had the political connections, that had the meetings in Washington that enable them to do what they do, none of those people have been arrested.” She faulted the kind of questioning that Corzine received from members of Congress—and added that even when the testimony is sent to the Justice Department little is likely to happen because “there is a big punt going on at the Washington level.”

Earlier this year, Matt Taibbi wrote an article for Rolling Stone titled Why Isn’t Wall Street in Jail? In the article, he revealed how the feds have been doing more to protect than to prosecute the financial criminals who helped to bring down the world economy. Taibbi spoke to a former Senate investigator who laughed and explained the situation succinctly: “Everything’s fucked up, and nobody goes to jail.” The former investigator added, “That’s your whole story right there. Hell, you don’t even have to write the rest of it. Just write that.”



Corzine Grilled over MF Global Collapse After Witness Suggests Knowledge of Misused Funds (Democracy Now)

Why Isn’t Wall Street in Jail? : Financial crooks brought down the world’s economy — but the feds are doing more to protect them than to prosecute them (Rolling Stone)


The Silver Rush at MF Global: Investors are furious that they can’t get back the gold and silver they stashed with the failed brokerage (Barron’s)

Corzine: MF Staff Said Fund Transfer Legal (Bloomberg)

Tossed Bomb: Former MF Global CEO Jon Corzine Aware of Money Transfer, Says Senate Witness (ABC News)

TARP To Cost The U.S. Nearly Double The Initial Estimates: CBO (Huffington Post)

Bank of America & The Great Derivatives Transfer (Turley Blawg)

38 thoughts on “Business As Usual: What the Collapse of MF Global Reveals about Financial Reform in the USA”

  1. After a Delay, MF Global’s Missing Money Is Traced

    Investigators have determined what happened to nearly all of the customer money that disappeared from MF Global around the time of its bankruptcy last Oct. 31, but have not publicly disclosed their progress, fearing that doing so might cripple efforts to recover the cash and pursue potential wrongdoing, people briefed on the investigation said.

    While authorities have traced hundreds of millions of dollars to banks, MF Global’s trading partners and even the firm’s securities customers, investigators remain uncertain about whether they can retrieve the money.

    Some recipients were entitled to payouts from MF Global, which could make clawing back the money difficult. For instance, securities customers withdrawing their money as MF Global began to collapse were paid from accounts that belonged to futures clients, according to other people briefed on the matter.

    But the Commodity Futures Trading Commission, the regulator leading the investigation, will examine whether anyone accepted customer cash without verifying the source of the money, one of the people briefed on the matter said.

    This person and others who discussed the case did so on the condition of anonymity because the investigation is not public.

    The findings shift the pressing question surrounding the collapse of MF Global from what happened to the money to how to recover it and who is at fault.

    Answers will not come easy. A significant impediment has been clashes among the parties trying to resolve the MF Global mess: three federal agencies and two bankruptcy trustees.

    At the center of the squabbling are e-mails sent by top executives at MF Global — communications that have been withheld from federal authorities, according to the people briefed on the matter. Investigators suspect the e-mails, sent just before the firm collapsed, contain clues about who transferred the money from protected customer accounts.

    The clashes stem from the conflicting interests of those involved. James W. Giddens, the trustee overseeing the liquidation of the brokerage unit, is charged with returning money to wronged customers. That mission is at odds with the interests of Louis J. Freeh, the trustee overseeing the liquidation of the firm, who is seeking to recover money for MF Global’s creditors.

  2. The Neverending MF Global Story: Regulators Block The Truth

    Instead of looking out for MF Global investors – and customers who are still waiting for their money – it looks like regulators and the bankruptcy trustees are busy suppressing information. Instead of full transparency, regulators and the trustees are holding onto crucial details that might tell us all who was asleep at the wheel when the broker/dealer and futures commission merchant (FCM) headed over the cliff.

    Bob English, an independent trader and contributing editor to the blog, Economic Policy Journal, published a post this morning that raises serious questions about the Securities and Exchange Commission’s program of regulation for broker/dealers and, in particular, the agency’s role in keeping the truth from the public about what went wrong at MF Global. We’re also being kept from the truth about other broker/dealers who may be putting risky trades on their books or whose controls over segregation of customer assets may be weak or non-existent.

  3. U.S. Inquiry of MF Global Gains Speed

    The investigation into MF Global is intensifying as federal authorities unearth new details and confront potential obstacles in their hunt for roughly $1.2 billion in customer money that disappeared from the brokerage firm.

    While prosecutors and regulators have jointly conducted dozens of depositions with former and current employees, a senior official in the Chicago office of MF Global recently declined to meet with the federal authorities, people briefed on the investigation said.

    That official, Edith O’Brien, a treasurer at MF Global, is considered a “person of interest” in the investigation, the people said. Federal authorities suspect that she transferred about $200 million to JPMorgan Chase in London on the eve of the bankruptcy of MF Global, money that turned out to be customer cash.

    Authorities had expected to interview Ms. O’Brien last month. She instead balked at meeting voluntarily, asking first to strike a deal with criminal authorities that would excuse her from prosecution, the people said. The criminal investigation is led by the Federal Bureau of Investigation and federal prosecutors in Chicago and Manhattan.

    The request by Ms. O’Brien is the first in this case, one person briefed on the investigation said. Still, such requests are common in federal investigations and it does not suggest that she violated Wall Street regulations. Ms. O’Brien has not been accused of any wrongdoing, and there is no indication that she intentionally transferred customer money to JPMorgan.

    Ms. O’Brien’s lawyer, Reid H. Weingarten, did not respond to requests for comment.

    The investigators are deposing employees as they search for the missing money. Some authorities are now examining whether MF Global used money from futures customers to pay securities customers who were closing accounts as the firm began to collapse, according to a person briefed on the matter.

  4. MF Global U.K. Clients Demand Results
    By Kit Chellel – Jan 10, 2012

    MF Global Holding Ltd.’s (MF) U.K. customers demanded their money back at a London creditors’ meeting as administrators KPMG LLP said they racked up 17.5 million pounds ($27 million) in fees since the broker’s collapse without returning anything to clients.

    Customers asked KPMG, which was appointed to wind up MF Global’s U.K. unit on Oct. 31, why the process was taking so long and what would happen to money that wasn’t in protected, or segregated, accounts.

    The quick return of money in customer accounts is a “matter of life and death” for some clients, said Dimitry Nedvetsky, who identified himself as an employee of MF Global. Others expressed surprise when KPMG said clients with unsegregated accounts, which weren’t held separately from the broker’s own money, would be treated as unsecured claims alongside other creditors.

    All client money, segregated or not, is “sacrosanct” and should be “paid in full,” Erico Tavares, of investment fund Sinclair Limited, told administrators. “The irony is that we picked the U.K. exactly for that investor protection, which has now proved illusory,” he said in an e-mailed statement after the meeting.

    The issue of unsegregated customer funds sparked contention at the first meeting between KPMG and the broker’s U.K. clients and creditors yesterday, unlike in the U.S., where attention is focused on locating some $1.2 billion missing from customer accounts. Bankruptcy trustees for New York-based MF Global Holdings Ltd. have scheduled a creditors meeting for Jan. 26.
    No Special Protection

    While segregated funds are held separately and not supposed to be used by financial firms, unsegregated accounts have no special protection under U.K. law and no priority over other unsecured creditor claims, KPMG partner Richard Heis said at the meeting. He wouldn’t confirm exactly how much was in the unsegregated accounts but said it was more than 1 billion pounds ($1.5 billion).

    MF Global’s clients had to specifically ask for their accounts to be protected as segregated funds, said Sean Donovan- Smith, an attorney at London firm Speechly Bircham LLP. Some thought they had protection but didn’t, or didn’t know they had to make a special request.

    “We know from experience that clients of MF Global may not have fully read the terms and conditions of business carefully,” he said.

  5. Montana MF Global customers lead lawsuit against Corzine

    Three northcentral Montana farmers are the lead plaintiffs in a class action lawsuit filed Monday against former New Jersey governor and U.S. senator Jon Corzine, alleging that he and other top executives at the bankrupt MF Global raided their accounts — which were supposed to be segregated and untouchable — to cover losses the company had from failed European investments, smashing confidence in the commodities market and putting the entire system at risk.

    The lawsuit, filed in U.S. District Court in Missoula, says Corzine and others increased MF Global’s appetite for risk in its investments because Corzine was “obsessed with making MF Global a ‘major player’ on Wall Street.”

    When high-risk investments in Eurozone debt failed, accounts that were supposed to be protected by institutional and regulatory barriers were raided to cover the losses, the plaintiffs allege. They say those executives, MF Global’s bank and auditor, and the system’s gatekeepers need to be held accountable.

    “Jon Corzine and his underbosses, the Goldman Sachs mafia, that seem like they can do whatever they want with our money,” said Marty Klinker, a plaintiff who farmers near Fairfield. “If they win they go buy chalets in France. If they lose, they bet the farm and it’s my farm they are betting. There is too much collusion.”

    Klinker and other MF Global customers established accounts with the brokerage to use in commodity trades, a common risk-management tool in agricultural operations such as ranches and farms.

    “The funds were supposed to be segregated accounts. I never lost any sleep over it, until now,” said Tim Johnson, who farms near Dutton, another plaintiff.

  6. The Unraveling of MF Global
    With $1.2 Billion Still Missing, Corzine’s Desperate Strategy Comes Into Focus

    In September, MF Global Holdings Ltd.’s management sent a memo to the securities firm’s 2,800 employees: Start printing on both sides of paper.

    The unusual request was a sign that executives at the New York company then led by Jon S. Corzine, a former New Jersey governor and Goldman Sachs Group Inc. chairman, saw tougher times ahead. They were right.

    Less than two months later, MF Global collapsed into bankruptcy, undone by a huge bet by Mr. Corzine on European sovereign bonds that was part of his ambition to transform a sleepy commodities broker into a Goldman-like investment-banking powerhouse.

    MF Global filed for Chapter 11 bankruptcy protection on Oct. 31. An estimated $1.2 billion in customer funds remain missing, according to the bankruptcy trustee of MF Global’s brokerage unit, and there are few solid clues about where the money went. The shortfall has snarled the finances of thousands of traders, farmers and other commodities customers at MF Global.

    Mr. Corzine, who turns 65 years old on Jan. 1, has testified before Congress that he never intended for anyone at MF Global to misuse customer funds. He and other MF Global executives face intensifying probes from regulators and law-enforcement officials into the firm’s demise.

    For employees who worked at MF Global after Mr. Corzine’s tenure began in March 2010, the past two months have been filled with anger, sadness, confusion and reflection about how a Wall Street firm that seemed to have so much promise could unwind so quickly.

    Some say they saw red flags that worried them as Mr. Corzine ramped up risk-taking and tried to return MF Global to profitability. This article is based on interviews with traders, executives and other employees, many of whom declined to be identified because they are looking for new jobs and are leery about being dragged into the investigations.

    As more details emerge about MF Global’s ruin, the reasons for Mr. Corzine’s decision to bet $6.3 billion on bonds from shaky European countries are becoming clearer.

    Some of those who saw Mr Corzine in action at the time reject the oft-repeated narrative that the bet was simply a reckless gamble by an overconfident trader. Instead, they say the unusual trade was driven as much by desperation as self-assurance.

    One big reason for the bet: It instantly boosted revenue at a time when Mr. Corzine wanted to appease anxious credit-rating firms and shareholders, said two executives familiar with his thinking. Mr. Corzine declined to comment for this article.

    As soon as Mr. Corzine arrived in March 2010, Moody’s Investors Service, Standard & Poor’s and Fitch Ratings told Mr. Corzine he needed to rev up profits fast or face downgrades on the securities firm’s debt.

    The European bet was “a way to answer the…demands while buying time to transform the business,” one MF Global executive recalls Mr. Corzine telling him.

    In the end, he ran out of time.

  7. MF Global chief missing $1.2B is financial adviser to EPA

    During two days of recent congressional hearings into how as much as $1.2 billion disappeared from MF Global customer accounts, the chief operating officer of the imploding investment firm responded again and again that he did not know.

    Yet as the House and Senate interrogated Bradley I. Abelow and other top executives at MF Global Holdings Ltd., lawmakers did not mention Mr. Abelow’s role as a financial adviser for the Environmental Protection Agency, which as of Tuesday listed him as the chairman of its financial advisory board.

    Even as he finds himself the public face of a bankruptcy and admitted to lawmakers that he had no idea how client funds disappeared, Congress and the administration have voiced no public concern about Mr. Abelow’s role advising the $8.6 billion government agency on its finances.

  8. The Book of Jobs

    by Joseph E. Stiglitz Illustration by Stephen Doyle

    “Forget monetary policy. Re-examining the cause of the Great Depression—the revolution in agriculture that threw millions out of work—the author argues that the U.S. is now facing and must manage a similar shift in the “real” economy, from industry to service, or risk a tragic replay of 80 years ago.”

  9. Swarthmore mom,

    Thanks for the link to that article. Here’s a link to and an excerpt from an article that I think you’ll finding interesting:

    A Christmas Message From America’s Rich
    By Matt Taibbi

    It seems America’s bankers are tired of all the abuse. They’ve decided to speak out.

    True, they’re doing it from behind the ropeline, in front of friendly crowds at industry conferences and country clubs, meaning they don’t have to look the rest of America in the eye when they call us all imbeciles and complain that they shouldn’t have to apologize for being so successful.

    But while they haven’t yet deigned to talk to protesting America face to face, they are willing to scribble out some complaints on notes and send them downstairs on silver trays. Courtesy of a remarkable story by Max Abelson at Bloomberg, we now get to hear some of those choice comments.

    Home Depot co-founder Bernard Marcus, for instance, is not worried about OWS:

    “Who gives a crap about some imbecile?” Marcus said. “Are you kidding me?”

    Former New York gurbernatorial candidate Tom Golisano, the billionaire owner of the billing firm Paychex, offered his wisdom while his half-his-age tennis champion girlfriend hung on his arm:

    “If I hear a politician use the term ‘paying your fair share’ one more time, I’m going to vomit,” said Golisano, who turned 70 last month, celebrating the birthday with girlfriend Monica Seles, the former tennis star who won nine Grand Slam singles titles.

    Then there’s Leon Cooperman, the former chief of Goldman Sachs’s money-management unit, who said he was urged to speak out by his fellow golfers. His message was a version of Wall Street’s increasingly popular If-you-people-want-a-job, then-you’ll-shut-the-fuck-up rhetorical line:

    Cooperman, 68, said in an interview that he can’t walk through the dining room of St. Andrews Country Club in Boca Raton, Florida, without being thanked for speaking up. At least four people expressed their gratitude on Dec. 5 while he was eating an egg-white omelet, he said.

    “You’ll get more out of me,” the billionaire said, “if you treat me with respect.”

  10. MF Global and the great Wall St re-hypothecation scandal
    12/7/2011COMMENTS (16)
    Thomson Reuters
    By Christopher Elias (UK)

    Business Law Research Note: This version of the article has been modified from the original to make it clear that re-pledged collateral may come from straight repos and not just re-hypothecation. Some of the financial figures from banks’ disclosures have been adjusted accordingly.

    (Business Law Currents) A legal loophole in international brokerage regulations means that few, if any, clients of MF Global are likely to get their money back. Although details of the drama are still unfolding, it appears that MF Global and some of its Wall Street counterparts have been actively and aggressively circumventing U.S. securities rules at the expense (quite literally) of their clients.

    MF Global’s bankruptcy revelations concerning missing client money suggest that funds were not inadvertently misplaced or gobbled up in MF’s dying hours, but were instead appropriated as part of a mass Wall St manipulation of brokerage rules that allowed for the wholesale acquisition and sale of client funds through re-hypothecation. A loophole appears to have allowed MF Global, and many others, to use its own clients’ funds to finance an enormous $6.2 billion Eurozone repo bet.

    If anyone thought that you couldn’t have your cake and eat it too in the world of finance, MF Global shows how you can have your cake, eat it, eat someone else’s cake and then let your clients pick up the bill. Hard cheese for many as their dough goes missing.

Comments are closed.