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Why Is No One From MF Global in Jail?

June 4, 2012, 9:46 am

Whether crimes were involved in the failures of Enron, Lehman, & Bear Stearns is still being debated.  All three essentially died in the same way (borrowing short and investing long, with a liquidity crisis emerging when questions about the quality of their long-term investments caused them not to be able to roll over their short term debt).  Just making bad business decisions isn't illegal (or shouldn't be), but there are questions at all three whether management lied to (essentially defrauded) investors by hiding emerging problems and risks.

All that being said, MF Global strikes me as an order of magnitude worse.  They had roughly the same problem - they were unable to make what can be thought of as margin calls on leveraged investments that were going bad.  However, before they went bankrupt, it is pretty clear that they stole over a billion dollars of their customers' money.  Now, in criticizing Wall Street, people are pretty sloppy in over-using the word "stole."  But in this case it applies.  Everyone agrees that customer brokerage accounts are sacrosanct.  No matter what other fraud was or was not committed in these other cases, nothing remotely similar occurred in these other bankruptcies.

A few folks are talking civil actions against MF Global, but why isn't anyone up for criminal charges?  Someone, probably Corzine, committed a crime far worse than anything Jeff Skilling or Ken Lay were even accused of, much less convicted.   This happens time and again in the financial system.  People whine that we don't have enough regulations, but the most fundamental laws we have in place already are not enforced.

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Category: Banking and Finance
  • Jim Clay

    +1000.

    I hope that it is because they are taking the time to make their case airtight, but the cynical side of me think that they will never be tried unless Romney wins, and perhaps not even then.

  • Bram

    If Corzine wasn't a big-time Democrat insider, he would be rotting in a cell right now.

    Instead of simply enforcing current laws and locking him up, we'll get more laws and more regulations - which the politically connected can feel free to ignore.

  • BFD

    There is an ongoing criminal investigation which is wading through piles of paper, emails, etc. Proving that they knowingly moved money from customer to MF Global's accounts is easier said than done.

    One reason MF Global went down is outgrowing their infrastructure as the back office couldn't keep up with the front office. In essence, the criminal investigations are putting a badly run company back together.

  • tomw

    BFD:Proving that they knowingly moved money from customer to MF Global’s accounts is easier said than done.

    I don't buy it. You can't do this with as much as is 'missing' without it being willfully done. In addition, they were right there, ready with the depositor {client?} agreements stating their power to dip into customer 'cash' account at their whim.
    There should be a record of each transfer 'out' of a customer account, otherwise the transfer did not occur. To claim they are 'lost in the backroom because they are so slow...' is, pardon me, crap.
    tom

  • me

    There is something deeply troubling about a legal framework that ensures that people who download files from the internet pay hefty fines or go to prison for a long time, but at the same time allows trillions of dollars to be heaved on taxpayers shoulders without any penalty to those responsible (ie if your business needs to get bailed out and that means every taxpayer incurs a loss of N dollars, should this not be penalized at the same level as theft?)

  • el coronado

    Samo Samo. "Written laws are like spider's webs; they will catch, it is true, the weak and the poor, but would be torn in pieces by the rich and powerful." - Anacharsis, roughly 2500 years ago. Of course, that wasn't supposed to happen here. Wonder what went wrong?

  • Mesa Econoguy

    I have been asking the very same question, and the best answer I can come up with is they are still building a case.

    Corzine had to have authorized the transfer of funds, given the supervisory structure & oversight of the firm (and also from what we know of regulator conversations with MFG personnel).

    The secretary/assistant seems to be the key to this case, and last I heard they were negotiating immunity for her.

    If they do not charge him soon, I may start petitioning industry groups to request formal charges from the Manhattan DA.

  • Dave Cribbin

    Thet don't have to prove that they moved money from customer accounts to MF Global accounts, just that they moved it from customer accounts that is theft. Very easy to prove that!

  • BFD

    Dave Cribbin: Very easy to prove that!

    If it is that easy, why not quit your day job and go shape up the prosecution?

  • John David Galt

    In Enron's case at least, there's no debate left. Search for "The Smartest Guys in the Room" on YouTube.

  • Mark

    Former Democratic Party Senator and NJ Gov, big campaign fund raiser for Obama. If he were a Republican this would be daily front page news.

  • http://aguanomics.com David Zetland

    Politicians don't eat their own, for fear of who's next...

  • marco73

    How can the prosecutors go after someone who may have stolen $1 billion, when there are people running around the streets with soda cups larger than 16 ounces? Money never killed anyone, but that soda may make someone obese! Remember, it's for the children!

  • ParatrooperJJ

    That's easy - He's a major Democrat bundler.

  • elambend

    My feeling is that Corzine is toast either way. It was a really egregious abuse of his position. At some point someone is going to sue JP Morgan (who got the money) and they will find a way to roll on him.

    That being said, NOTHING will happen until after November.

  • Daedalus Mugged

    The issue is more deciding which crime has been committed.

    There is no way for MF Global to legally gamble away customer segregated money (except for 'legally' in the sense of political power players can trample the law with impunity due to lack of willingness of the political apparatus to punish the violations of their own, from cops giving 'professional courtesy' to off duty cops speeding up to Corzine stealing billions).

    The situation is quite simple. The money left the segregated accounts. Either the controls in place to prevent that happening inadvertantly were inadequate (crime under Sarbanes Oxley and securities law) or the controls were adequate but were criminally subverted. There is no legal way for the money to 'vaporize' to use Corzine's talking point.

    The whole 'can't prove intent' and 'I don't know how that happened' position is both the argument to protect Corzine from the subversion of controls argument, but it sumultaneously indicts him under the adequacy of controls criminal liability.

    We know someone there is a criminal. Unless someone else deliberately and criminally subverted the controls to protect Corzine's bets (highly unlikely), Corzine is the criminal. We just need to decide which crime he committed.

  • Rob

    I bet Charles Keating is asking the same question.

  • Dave J

    You have to do something really bad that involved very large amounts of money such as the Martha Stewart caper. I'm surprised she is even out. Besides Corzine has the retirement account numbers for Holder and others in safe keeping. Holder has to write the Mark Rich style pardon before they figure out what to charge him with....just for continuity and ease of filing later.