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Were Customer Accounts Pilfered at Jon Corzine’s MF Global? (Updated)

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Truth be told, I hadn’t paid much attention to the implosion of MF Global, because so many hedge funds went under during the crisis that yet another levered trading firm death seems less than newsworthy unless it is big enough to constitute a possible systemic event. The collapse of MF Global didn’t seem all that unusual, save for the titilating angle that the firm was headed by former Goldman CEO and New Jersey state governor Jon Corzine (I’d treated the failure of hedge funds by other storied names, such as Jon Meriwether and Myron Scholes as comment-in-passing incidents).

But the picture changes considerably with the report that hundreds of millions of customer assets may be “missing”. If this is true, there are pretty much no savory explanations.
One possibility is the firm raided customer accounts to try to shore up its principal business. That’s a fraudulent use of customer assets, and one would think anyone associated with it (and that would include the managing partner) would be subject to fines and barred from the securities industry for at least a period of time. I’m not certain what level of abuse is considered to be criminal. Informed readers are encouraged to pipe up.

The Times does mention that the missing money may simply be really bad bookkeeping (or more likely, poor internal controls, particularly, sloppy validation of how employees marked trades in illiquid markets, allowing staff to game the system, either to boost their bonuses or to cover up losses they optimistically assumed they’d be able to reverse). But even so, that raises questions about the competence of the firm’s management, and whether past accounting “errors” led to profits being exaggerated.

From the New York Times:

The recognition that money was missing scuttled at the 11th hour an agreement to sell a major part of MF Global to a rival brokerage firm. MF Global had staked its survival on completing the deal. Instead, the New York-based firm filed for bankruptcy on Monday.

Regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse.

The discovery that money could not be located might simply reflect sloppy internal controls at MF Global. It is still unclear where the money went. At first, as much as $950 million was believed to be missing, but as the firm sorted through its bankruptcy, that figure fell to less than $700 million by late Monday, the people briefed on the matter said. Additional funds are expected to trickle in over the coming days.

But the investigation, which is in its earliest stages, may uncover something more intentional and troubling.

The trading strategy that blew up the firm appears to result from Corzine not adjusting his trading strategy to a smaller platform:

Mr. Corzine sought to bolster profits by increasing the number of bets the firm made using its own capital. It was a strategy born of his own experience at Goldman, where he rose through the ranks by building out the investment bank’s formidable United States government bond trading arm.

One of his hallmark traits, according to the 1999 book on Goldman, “Goldman Sachs: The Culture of Success,” by Lisa Endlich, was his willingness to tolerate losses if the theory behind the trades was well thought out.

He made a similar wager at MF Global in buying up big holdings of debt from Spain, Italy, Portugal, Belgium and Ireland at a discount. Once Europe had solved its fiscal problems, those bonds would be very profitable.

But when that bet came to light in a regulatory filing, it set off alarms on Wall Street. While the bonds themselves have lost little value and mature in less than a year, MF Global was seen as having taken on an enormous amount of risk with little room for error given its size.

First, readers of this blog are probably not all that sanguine that the Europe mess will be resolved in the way Corzine assumed. This seems an awful lot like betting that subprime would be “contained” as of May 2007.

Second, a basic rule of risk control is not to take excessive risks relative to your capital. As John Manyard Keynes is often cited as saying, “The market can remain irrational longer than you remain solvent.” The textbook case is LTCM, which took hugely levered bets that it was confident would eventually be proven right, but “eventually” turned out to take a little long. And a smaller firm has to be even more careful about its wagers for the very reason that brought MF Global down: counterparties will not cut you all that much slack, particularly if they don’t buy your investment thesis.

But if the customer monies really are gone, this will deservedly be a very ugly episode for Corzine. His investors and the authorities should rake him over the coals.

Update: I’ve corrected the post for my inaccurately describing MF Global as a “hedge fund”. The salient characteristic of a hedge fund is that it has raised third party funds pursuant to an investment agreement, which describes the fund’s investment strategy, among other things, and has typically steep performance based fees. Even though MF Global was using a highly levered trading strategy, it was a principal, using shareholder money, not funds in an asset management vehicle.

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67 comments

  1. howard

    “But if the customer monies really are gone, this will deservedly be a very ugly episode for Corzine. He should be raked over the coals.”

    …or arrested, tried and imprisoned for a few years.

    hey, a boy can dream. that stealing is punished by going to jail.

    1. Yves Smith Post author

      If this is true, I agree, it ought to be criminal, but I don’t know what the threshold is between civil and criminal in this space. I don’t know the rules governing brokerage operations in any detail, and I try to be cautious about opining in areas I know less well.

      You would think raiding customer accounts would be a no-brainer, but I’d like someone who knows the precedents to chime up.

      1. required

        I am certainly not in the know, but I always thought fraud was fraud…unless you’re part of the US oligopoly, then its a cost of doing business (that is, only when you’re caught)

  2. Nicholas Weaver

    I don’t think this was a “Once Europe had solved its fiscal problems, those bonds would be very profitable.” bet, but rather a “Extend and Pretend will continue” bet…

    With Europe so desperate to avoid actual default events currently, including trying to make default a “voluntary” action, buying up short term debt makes sense.

    You buy it up with a short (<1 year, ideally <3 month) maturity, and your reply to any voluntary haircut proposals during the few months is "F-you": you're not a european bank. You could have made a fortune over the last year buying up 3-month-to-maturity Greek debt.

    However, levering up like an SOB to do so is not nearly so good an idea: Bets with own-money make sense, bets with heavy leverage are very dangerous. Bets with leverage money that toxic waste will not cause you to die from cancer within the next 3 months are even more dangerous.

    1. Yves Smith Post author

      Good point, and the difference may really lie in what his entry price on the trade was. If his position was deeply under water, he might need a real reversal for the trade to work out, vs. a period of relief, or per your point, belief that the authorities could keep this game going quite a while would produce a rally.

      1. Nicholas Weaver

        Its not even “hope for a rally”, its “collect the cash”: Thats why it has to be VERY short dated maturities: the trade exit strategy is not sell to someone else but redeem the bond at maturity, and to make a BIG BIG BIG problem for the EU if the euros don’t show up.

        But it would take several things for this to work:

        a) No nervous counterparties who lent you money to make this trade. Thus “own money” or a very large firm.

        I think “A” was the mistake for MF Global: its not large enough for TBTF, and it levered it enough that counterparties got very nervous.

        b) The ability to say “F-you” to any voluntary haircuts. Which eliminates most very large firms, leaving the Goldmans and the like out of this game.

        c) Very short dated bonds. This strategy is much riskier with 1 year bonds, both from a “mark to market” standpoint (with 3 month-to-maturity you can never get that far underwater) and from a “extend and pretend WILL fail” standpoint. We don’t know whether MF Global got it right here or not. But if duration was 9 months or more, they did.

        1. Yves Smith Post author

          OK, got it, in corporate land, this would be like buying distressed commercial paper (CP is usually held to maturity, very rarely traded).

          I always assume traders will exit a position once circumstances change enough in their favor, rather than hold to maturity. Gotta watch that.

        2. Nicholas Weaver

          To follow up to my own post, A was CLEARLY a mistake:

          http://www.reuters.com/article/2011/10/31/us-mfglobal-corzine-idUSTRE79U0TT20111031

          They were levered up 40-to-1 as an institution, with at least 15% in Euro debt, which makes a mark-to-market loss of bumpkiss put their position negative.

          A trade like I described only makes sense for non-leveraged institutions, because when highly leveraged, the mark-to-market losses one is going to take due to simple volatility are going to be horriffic.

          So, in the end, once again, excessive leverage -> excessive risk taking -> imploded firm.

          What I want to know is who is willing to LEND the billions to firms like MF Global?

          1. gs_runsthiscountry

            I was reading a Forbes article that was quoting 80:1 leverage? whoa?

            But, your last point is what I was wondering also: “What I want to know is who is willing to LEND the billions to firms like MF Global?”

            yes, who extends money or credit lines to a firm that is levered to the moon? Is, or wasn’t, the Fed the credit line of last resort, being they MF [was] a primary dealer?

            New territory for me, someone help me get my head around this…

            gs_

          2. Nicholas Weaver

            gs_runsthiscountry: The FT Alphaville blog explains it.

            Basically they’d buy the bond, then repo the bond. So someone was loaning money against the collateral (the newly bought bond).

            The lender is relying not just on MF Global, but the collateral (and probably overcollaterilized by 5% or so: to loan $100, they want a bond with a mark-to-market value of $105). So its “safe” from their standpoint, and they were probably charging only a couple percent.

            As long as the repo loan costs less than the hold-to-maturity expected return, its good for MF global. Since the repo cost was probably 7%, just sit back, wait, and pick up a 3% gain on something that you levered 20-to-1…

            But the repo agreements have repricing terms in them: so if the mark-to-market value of the bond drops 5%, MF Global would have to post additional cash or collateral to maintain the loan. So with $6B in loans outstanding, a mark-to-market loss of 5% would require MF global to pony up an additional $300M+ to keep its creditors happy.

            In a firm with little leverage, the market gyrations in the “extend and pretend will continue” strategy are of little effect.

            But when levered 40-to-1, in a company with only $1.2B in total capital, there’s no way for it to find $300M to keep the wolves from the door, even when, if they could have held on for a year, they probably would have PROFITED close to $300M on this trade…

          3. psychohistorian

            You asked who would lend to an MF that is levered 40 to 1.

            Didn’t I just read somewhere very recently that some/many EU banks are at 40 to 1?

            I certainly hope we don’t stop being rational as the world’s credit markets take a pause….keep breathing and channel good energy to Yves in her coming OWS participation.

          4. Nicholas Weaver

            Grr, HTML formatting glitch….

            It should be “since the repo loan is less than 5%, but the italian bond would pay off more than 7%”…

          5. Yves Smith Post author

            The critical bit is not understanding the repo repricing clause. That’s amazing. Repo is a huge activity for Treasury dealers. How could Corzine’s firm not have seen this? It’s something that would have been flagged as a risk at Goldman and probably most big broker dealers. This is what happens if you don’t pay enough attention to ops and risk control.

  3. Flying Kiwi

    “I’m not certain what level of abuse is considered to be criminal.”

    In theory any level of abuse should be considered criminal even if it pays off.

    In practice, at least in the US it would seem, no level of abuse is considered to be criminal. Criminality only attaches to failure to make abuse pay.

  4. Mememememe

    MF Global was a primary dealer, not a hedge fund. They were trading shareholder’s money, not clients in the case of the Italian bonds, as far as I know.

    1. Yves Smith Post author

      The New York Times says very clearly “customer accounts” and “brokerage firm”. Please read their article. It had multiple units, which included a brokerage operation. This may well have been institutional brokerage (the old Refco had both retail and institutional accounts).

      1. Mememememe

        I did. They are a FINRA regulated brokerage firm, who also trade for their own account. I said they were not trading customer money in the case of the Italian bonds which blew them up. The missing money is from customers and from what I can tell, futures accounts. I believe that is CFTC regulated, but not sure. Still, they are not a hedge fund.

        1. Yves Smith Post author

          Fair point, I’m correcting the post. Their primary business is brokerage, not the primary dealer, it seems (the convention is to list the most important businesses first in SEC filings, and they list the brokerage ops first).

          1. aet

            Well, that makes sense, as MF did try to get Interactive Brokers to take them over and/or merge with their operations.

          2. Yves Smith Post author

            Gotta tell you, not all that long ago, there were only two firms in the US that would let you do what the law allowed in your IRA. You actually can short and use futures, but pretty much no IRA custodian will let you.

            I was working with a good trader, and I moved my money to an Illinois firm, Intrust. We somehow had to move funds to a futures broker to execute futures trades, and Intrust was dreadful about sending money and crediting it when it got it back. No joke, a big deal trader in Chicago was so mad at Intrust, he came in one day and smashed all their computers. And when he told his story to the judge, the judge only made him pay for the broken computers.

            I kept nagging them and they closed my account. Have you ever heard of a bank firing a customer for demanding decent service?

            Turns out to have been great luck. The Feds raided the bank six weeks later and shut it down for embezzlement. And FDIC insurance does NOT cover losses due to embezzlement.

            Oh, and the only other IRA custodian I could have used was Refco, and you know how that one turned out.

  5. Bttdz

    Sorry for my selfish and neivety – is my futures trading account sol? Or will sipc or mf let me liquidate and return all my capital?

    Thanks

    1. snowbird

      Sorry Bttdz, I think you are out of luck. I believe customer funds are now frozen, no outstanding checks honored or wire transfers allowed. Guessing that SIPC will not cover you because you are in futures account not stock brokerage account. Looks like MF Global looted the futures customer funds. You may get some small fraction back after long delay of bankruptcy court if you are lucky. Just my take on this. Maybe Obama will bail out the small customers, but doubtful. Good luck.

  6. MichaelC

    Yves,

    I posted these itmes in links before I saw your take on MF.

    The fact that customers money has gone missing is pretty awful. But if that’s the case, Corzine’s theft is just the tip of the iceberg.

    “But when that bet came to light in a regulatory filing, it set off alarms on Wall Street. While the bonds themselves have lost little value and mature in less than a year, MF Global was seen as having taken on an enormous amount of risk with little room for error given its size”

    Why should this be so alarming if it was limited to MF? The panic re MF looks llke the panic re LTCM. Namely, everyone copied LTCM. All the TBTF banks have the sanme trade on in their Held to Maturity books.

    Here’s my earlier post:

    It looks like there’s going to be a lot to digest re MF Global’s implosion.
    Three noteworthy pieces today:
    1. IMF Global Exposes Prop-Trading Risk That Volcker Wants to Curb
    http://www.businessweek.com/news/2011-10-31/mf-global-exposes-prop-trading-risk-that-volcker-wants-to-curb.html
    Bloomberg muddles it a bit here, even though it illustrates Volcker’s basic point with a nice plain vanilla (and thus a low VaR and other proposed metrics , under the radar exposure) example of the dangers of any prop trading at backstopped firms, the main danger being they are still run by complete idiots, even with the simple stuff.
    ‘Jon Corzine’s risk appetite just provided Paul Volcker with a demonstration of the dangers of Wall Street proprietary trading.’

    Hmm… Perhaps. But it looks like MF Global’s error wasn’t due to a fancy prop trade to increase its risk appetite, but a rookie miscalculation in a pretty plain vanilla (and widely replicated ) buy and hold trading strategy- term repo. Apparently, no one at MF ever heard of repricing events in term repo agreements.

    In this case their bet was bolstered by the regulatory/govt/TBTF arb opportunity PIMCO and Buffet routinely engage in, i.e that sovereigns are money good (for them).

    2. FT Alphaville’s on the case and ,as usual, looks in the right place. They highlight the endemic ‘liquidity trade’ that’s all the rage with Volcker rule and non Volcker rule institutions alike.

    MF Global and the repo-to-maturity trade
    http://ftalphaville.ft.com/blog/2011/10/31/717181/mf-global-and-the-repo-to-maturity-trade/
    The money quote for anyone still wondering if low risk trading (or even Hold to Maturity positions) should be allowable at gov’t backstopped institutions.:
    “if executed properly the trade should — at least on paper – have posed little or no risk.”

    By all appearances MF didn’t take an outsized sovereign risk exposure, They merely took a (n apparently) low risk hold to maturity position. It’s hard to imagine they are alone.

    3. NYT Dealbook coverage throws another wrench in and raises the specter that rehypothication at broker dealers, post Lehman is still a critical systemic issue.
    Regulators Investigating MF Global
    http://dealbook.nytimes.com/2011/10/31/regulators-investigating-mf-global/
    ‘regulators are examining whether MF Global diverted some customer money to support its own trades as the firm teetered on the brink of collapse.’
    It’s amazing how these ex Golmanites, (Corzine, Thain..) trying to out-GS their alma mater make the 99% ‘s case that these guys are pathetic and need to be put to sleep, before the inevitable blowback ruins us all.

    1. Yves Smith Post author

      Thanks for the links and commentary.

      As I read it, it might not even have been rehypothecation (for laypeople. pledging customer assets and borrowing funds against them). They might well have used free cash balances. We’ll find out soon enough.

      1. SidFinster

        I thought rehypothecation was the pledging of assets in customer *margin* accounts as collateral for a broker’s own activities?

      2. James Cole

        If it was just rehypothecation of margin securities, the regulators would not be as upset as they apparently are. They are talking about missing customer net equity, which should be set aside in special reserve accounts.

  7. Mememememe

    Wow, Yves. That’s a scary story. I only use mine for legitimate hedging purposes, but I haven’t factored embezzlement into my “risk model”.

  8. Doug Terpstra

    This has the potential to snowball once again as Ponzi leverage is exposed in related bets, and nobody knows who to trust. It is bound to have a chilling effet on confidence when investors can’t trust the dealers, regulators, or prosecutors—with devastating consequences when the entire market is nothing but a confidence game.

    Certainly the SEC and the Fed have some ‘splainin to do here, but the tiresome “too-much-regulation” claim, or ACORN made us do it just won’t cut it. OWS isn’t buying it anymore.

    Maybe Jon Corzine will be showering with Bernie Madoff soon. Not a pleasant picture.

  9. Dave Adelson

    the open from the Washington Post article on MF Global says, “MF Global Holdings Ltd., the futures broker run by Jon Corzine, was suspended from conducting new business with the New York Federal Reserve today after posting a record loss.”

    this is interesting…the prohibition against new business suggests that there was some old business with the Fed, most probably the purchase by the Fed of securities held by MF Global. seems like it probably wasn’t treasuriers…maybe private-label mortgage securities or other types of dodgy CDO paper? is there any way to tell? i ask because it seems to me that the Fed is way out over its tips if it’s helping with liquidity of non-bank firms levered 40 to 1. sorry if the question is too ignorant for this site…

    1. Dave Adelson

      never mind…it could just refer to its business as a primary dealer…still, i wonder if it is possible to know what besides treasuries the Fed might have been exchanging with MF

  10. Sock Puppet

    Well, with the last NJ gubernatorial election being between this guy and Chris Christie, I feel even better about my decision to leave the state.

  11. lee

    And naturally S&P had an investment grade rating on MF Global, which S&P didn’t change until AFTER the bankruptcy filing. Moody’s and Fitch didn’t downgrade until October 27th, which apparently apparently played a part the panic:

    http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/10/31/bloomberg_articlesLTYGF70YHQ0X.DTL

    I’ve come to believe the ratings agencies — like the major banks, like the auditing firms — cannot be allowed to fail. They are too systemically important which effectively means they can no longer rate. And I would not be surprised if they were under intense pressure, if not orders (from whom?), to hold back on ratings cuts for fear of setting off panics.

    And on and on it goes…

  12. jgordon

    Goldman Sachs strategy at work . Corzine learned well , JUST use CLIENTS MONEY AND GIVE YOURSELF A 12 MILLION BONUS,

    HA HA HA HA HA HA HA HA HA KEEP INVESTING MONEY IS NOT THE ONLY THINGYOU CAN LOSE. WHAT IF YOU LOSE YOUR MIND AND FAMILY OVER SOMETHING LIKE THIS . WILL A CROOKED INSTITUTION PAY YOU BACK ?
    HA HA HA KEEP INVESTING.

  13. Conscience of a Conservative

    If they truly did “divert” customer funds it proves once again that all too often these “honorably” men, are willing to be crooks under the right circumstances. It must come from the culture of Wall Street where each day one bends the rules one by one until at the end there’s nothing one won’t do. It doesn’t describe everyone but it does more than a few.

  14. Jim Haygood

    ‘You asked who would lend to an MF that is levered 40 to 1.
    Didn’t I just read somewhere very recently that some/many EU banks are at 40 to 1?’
    — psychohistorian

    Psych is onto something here. MF Global’s ‘repo repricing’ debacle is a proxy for what many European TBTF banks have been doing.

    But the difference, one supposes, is that the ECB is the counterparty of the European banks. As their repos reprice (e.g., Italian bonds are at 6.17% yield today, pushing their prices even lower), the ECB simply adds the shortfall to the banks’ credit line, rather than demanding cash margin.

    Economically, Europe’s banks with large holdings of PIIGS bonds are in the same condition as MF Global. Unlike MF, they have a kindly lender which will advance as much liquidity as required to stave off a cash shortage … and regulators who allow some losses to be concealed by not marking to market.

    It’s a rum business, banking is. But does concealing losses on a continental scale really mean that nothing bad can happen? Reckoning day, comrades — coming to a theater near you in 2012!

  15. James Cole

    So the real question is what the unwind of this and similar portfolios does to short-term euro paper prices. This can’t be the only portfolio of its kind to be unwound, unless, of course, this was a targeted attack on Corzine’s firm specifically. I guess we will find out in the coming days–but euro CDS spreads are blowing out again.

  16. Ector de Maris

    Is there any chance that this is a case of customer accounts being raided to satisfy counterparty collateral demands? Forgive me if this question is way off the mark.

      1. Ector de Maris

        I just saw that on ZH right after I posted. The missing cusomter funds at MF had me thinking of BofA’s moving its derivatives to its commercial bank sub and the bankruptcy implications given the senior position derivative counterparties enjoy. As an ignorant pleb, I don’t know how analogous MF and BofA situations are.

  17. Conscience of a conservative

    Moody’s downgraded their debt on Oct 28th to Ba2 from Baa3.
    What goood are these ratings? They are always late to downgrade and consistently polyanish.

  18. bob

    I don’t have the time to read all the comments–I am a small IB clearing through MFGlobal—I cannot place a trade—as I type I cannot even liquidate a current position (maybe later today) and I cannot get cliets funds back to them. In 30 years, I have seen several FCMs go broke, but clients SEGREGATED funds has never been a problem. I am surprised this isn’t a bigger story, as it is a direct attack on whatever is left of integrity in the market place.

    People should go to jail for this…

  19. Moopheus

    “At first, as much as $950 million was believed to be missing, but as the firm sorted through its bankruptcy, that figure fell to less than $700 million by late Monday, the people briefed on the matter said. Additional funds are expected to trickle in over the coming days.”

    I have to say, I am always somewhat puzzled when I read things like this. I mean, I can’t really throw stones here, I am myself very bad at paperwork (I try to keep my financial life as simple as possible). And I’ve never worked in a financial firm. But it seems to me that the whole existence of a financial firm revolves around keeping track of money, and keeping track of the stuff you are buying and selling with that money. It’s what you do all day. I mean, if an investment firm can have computers that can make high volumes of stock trades in a few seconds, surely they can muster the processing power to tell them where all the accounts are.

  20. Jeff N

    This reminds me of newbies to Vegas who figure that they can play blackjack and always win IF they double their bet after each loss, then return to their original bet amount after that next win.
    Unfortunately, a long string of losses is less rare than they think.

    1. tompain

      Table limits exist exactly for that reason. Long strings of losses are not as rare as you think, but they are still too rare for the casinos’ liking, especially if someone with a big bankroll walks in. The table limit shortens the string that is required for the casino to defeat that strategy, and makes the size of your bankroll moot.

  21. rr

    What if MF was punked with fake Greek or Italian short term paper from a third party? They bought at a steep discount, held to maturity, and then were turned down when the CUSIPS were presented to the Greek and Italian treasuries. Maybe they were the designated bagholder like Refco and more recently Penson seem to have been, but I doubt that.

  22. Marina

    This is not just another ordinary securities firm blow-up – they were primary dealers and did not gain that status until Corzine took over. Is this not the poster child for things corrupt in US government/economic system – ala the revolving door?

    As a primary dealer one would expect that the Federal Reserve and US Treasury should have regulatory oversight of the financial institution. Where were they? (rhetorical question). These guys were leveraged 40:1. That is rather noticeable.

    Also in keeping with poster child – compensation at MF was 64% of revenues while the already egregious industry average is 40%.Plus Corzine’s golden parachute would have rewarded him for offloading this bag of fleas on a buyer.

    So, we have – revolving door, NO regulatory oversight, perverse compensation incentives, excessive leverage – should we be surprised if FRAUD was also involved?

    Co-mingling of client funds with MF’s wouldn’t surprise us, given the horrors of Corzine’s management.

    1. bob

      This says it all—

      Co-mingling of client funds with MF’s wouldn’t surprise us, given the horrors of Corzine’s management.

      bob

    2. Cynthia

      Jon Corzine not only bankrupted his company by betting that the Greeks would get a full, 100-cents-on-the-dollar bailout, but he also appears to have stolen hundreds of millions of dollars from client accounts in order to cover his losses until this bailout came through:

      http://dealbook.nytimes.com/2011/10/31/regulators-investigating-mf-global/?hp

      But despite being totally incompetent, he’ll still probably get to keep his $12.1 million golden parachute, and despite being utterly complicit, he’ll still probably avoid being thrown into jail, all because he’s an all-star alumni from Goldman Sachs whom Obama personally regards as his Wall Street guy. In fact, he’ll probably walk away from this even richer than before, without so much as a single charge being brought against him!

      This is what happens when you live in a country that is run by a bunch of crooks and thieves. They make the Zeta drug cartel look like the Boy Scouts.

  23. Tim

    Interestingly enough MF Global’s Canadian unit has not yet filled for bankruptcy or been pushed in by IIROC or CIPF. Going back neither Lehman Canada or Refco Canada failed either even though like MF almost all of their operating units in other countries failed. I believe the CIPF has not taken over a brokerage form since 2002 although their record is not as good as the CIDC which has gone since the early nineties without a depository failure.

  24. Al

    I have (had) a futures account with MF that I have traded on a very limited basis over the past few years and was fortunate enough to build it up to $50K. I have no open positions and now my “cash” in the account was stolen to invest in risky ventures without my knowledge or permission? That’s theft in my books – pure and simple. Now I run the possibility of losing a fifth of my entire net worth over the greeds and evils of others.
    I’ve lost faith in our financial systems,as well as our political leadership…….will there ever be justice for the masses?

  25. Marina

    SUPPOSEDLY the SIPC will insure some of MF’s client accounts. I hope so.

    ED & F Man was a firm which was around for about 200 years, then, 18 months ago, Jon Corzine became CEO. Today – POOF!
    He has beaten the hell out of “Rogue Trader” Nick Leeson and his take down of Barings.

    No doubt “Rogue Manager” Corzine will be treated in the modern American style to run another “securities” firm, or better yet, be bankrolled by other fools to launch his very own hedge fund. No jail time for an American master of the Universe.

    Yes, in 21st Century America we promote corruption and fraud and the most vile products always float to the top, just like the human excreta which seems to be their sole composition.

    I doubt that these jerks were pilfering client collateral until their PIIGS debt exposure came good. More likely, they were putting a bit of lipstick on their pig to dump the Company on a buyer and cash in the golden parachute.

    Oh, America! Our number one export is waste paper…

    1. snowbird

      No, the SIPC does not “insure” the standard futures accounts or cash held therein. A good portion of that money has been looted and will not be reiembursed unless the Govt changes the rules and decides to do a small investor bail-out (little chance IMHO). However, the SIPC will help fairly disperse the depleated residual “customer segregated” funds, if any, amoung the remaining customers.

  26. Roger Van Zant

    In my experience, there is usually also a maturity mismatch in such trades, because the repo market won’t take this type of paper for more than a few days at a time. It’s another way to profit from this trade if you have the guts. So this firm may have gone down on a change of heart from their counterparties, if — like many — said counterparties just decided to cut their own PIIGS reverse-repo exposure.

  27. Conscience of a Conservative

    Pilfer is the wrong term. People either panicked or thought they were boldly acting and wrongly seized customer funds with the express purpose of saving MF GLOBAL.

    1. Lidia

      Ah, so “ROB” is what you mean… as in “that guy robbed the old lady’s life preserver to save himself”. He didn’t causally pilfer it…

  28. Keating Willcox

    No one gets the truth here. Corzine stole the money and will never do a day in prison. Here is why.

    Last summer, Obama appointed Corzine to be his major fund raising guy for Wall Street since so many other sources have been stingy this year. Corzine gets the big bets going, and in an appearance of desperation, goes through nearly a billion dollars of customers money. gone. somewhere in the ether. Well, if anyone wants to follow the money, perhaps some of it spilled over to the Obama 2012 super Pac or whatever, an offshore fund that can make an infinite number of small anon donations because Obama 2012 does not check for international sourcing on donations….is it merely a coincidence that Corzine, fund raising guy for Obama is right there when $700 mill goes to the black hole?

  29. Cynthia

    There once was a prick named Corzine

    His firm looked sick but he said it was fine

    Then he finally went broke

    Client funds went up in smoke

    With any luck he’ll be doing some time

    H/T: Red Pill at Zero Hedge

  30. Lidia

    Yves, everything wrong with the system and its capacity to brainwash even the best and brightest is to be found in your sentence:

    That’s a fraudulent use of customer assets, and one would think anyone associated with it (and that would include the managing partner) would be subject to fines and barred from the securities industry for at least a period of time.

    Stealing from customer accounts only warrants a mere “time out”? I’m not implying that you necessarily think this, but you appeal piteously to “one” who “might” think this, acknowledging in the process that even this level of stringency now risks being a minority opinion.

  31. tompain

    I think it is fair to call MF a hedge fund. No, that wasn’t it’s legal structure, but that’s still the essence of what Corzine turned it into. He took shareholders money and managed it as though it were in his own hedge fund. A major difference between Corzine and a typical hedge fund manager, however, is that most sophisticated hedge fund investors demand that the HF manager have the bulk of his own assets in the fund. That is their only protection against the manager taking wild bets with other people’s money. Corzine had very little of his own wealth tied up in MF – nor did he get paid a handsome performance fee – so it was only a matter of time before he decided to bet his shareholders’ ranch.

    1. tompain

      And yeah, Lehman was just a big hedge fund, and so was Bear Stearns, and so was Merrill. And so is Goldman. Just wait.

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