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Memo Show Corzine Ordered Raiding MF Global Customer Account of $200 Million

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We know America is a hopeless kleptocracy, but if Corzine does not go to jail, given the revelation that he approved the raiding of a customer account of $200 million, it means that no one in the officialdom is interested in keeping up the pretense that we have a functioning regulatory and judicial system.

The revelation per Bloomberg:

Jon S. Corzine, MF Global Holding Ltd. (MFGLQ)’s chief executive officer, gave “direct instructions” to transfer $200 million from a customer fund account to meet an overdraft in one of the brokerage’s JPMorgan Chase & Co. (JPM) accounts in London, according to an e-mail sent by a firm executive.

Edith O’Brien, a treasurer for the firm, said in an e-mail sent the afternoon of Oct. 28, three days before the company collapsed, that the transfer of the funds was “Per JC’s direct instructions,” according to a copy of a memo drafted by congressional investigators and obtained by Bloomberg News.

The transfer occurred on October 28, when the firm had an overdrawn London account with JP Morgan and JP Morgan was holding up business in the US as a result. It isn’t hard to imagine the firm would have failed that day as opposed to on the 31st, and with lower customer losses, had the pilfering of the account not taken place.

This was also the same transfer in which JP Morgan asked for written assurance that the funds were not coming from customer holdings. The assistant treasurer, Edith O’Brien (who was also the author of the e-mail saying that she had the approval of Corzine for the action) never provided the requested confirmation.

Note that this e-mail contradicts Congressional testimony by Corzine:

Corzine testified that he never intended a misuse of customer funds at MF Global, and that he doesn’t know where client funds went.

“I did not instruct anyone to lend customer funds to anyone,” Corzine told lawmakers in December.

It isn’t hard to anticipate that Corzine will deny the O’Brien e-mail, but with the CFO on holiday during the meltdown and O’Brien an assistant treasurer, it seems entirely credible that she’s seek senior level approval for an action like this. And we have this tidbit:

The memo’s account of the e-mail exchanges aligns with what Terrence Duffy, the executive chairman at CME Group Inc. (CME), told lawmakers during a December congressional hearing. 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.

Put it another way: if there isn’t some serious action after this revelation, between this and Obama’s Make America Safe for Bucket Shops Act, investors can no longer regard themselves as having adequate protection from broker chicanery.

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105 comments

  1. Peripheral Visionary

    Allow me to stake out an unpopular position, and say that the criminality of his actions should not be decided in the press or in the comments section of a blog, but by a jury of his peers.

    That said, yes, this appears to be behavior that should be put in front of a jury.

      1. Peripheral Visionary

        If you read the full story, the whole point of the letter was to reassure JPM that the funds were MF Global’s and not customer monies. JPM clearly had its suspicions, or their Chief Compliance Officer would not have been on the phone requesting a certification that the funds were not customer money. But the fact that they were following through may help to clear them of criminal liability.

        Tort liability is a whole different matter, and I have to think that the lawsuits will be coming sooner or later.

        1. Night Shift

          Clearly had their suspicions? Didn’t they know, but requested writing to provide indemnification? Plausible!

          1. bulfinch

            “Clearly had their suspicions? Didn’t they know, but requested writing to provide indemnification? Plausible!”

            Duh.

            “You’re 21, right?”

        2. lambert strether

          JP Morgan asked, but MF Global never answered:

          Barry Zubrow, JPMorgan’s chief risk officer, called Corzine to seek assurances that the funds belonged to MF Global and not customers. JPMorgan drafted a letter to be signed by O’Brien to ensure that MF Global was complying with rules requiring customers’ collateral to be segregated. The letter was not returned to JPMorgan, the memo said

        3. HonoH coolooc

          “According to Japanese maps officially published before 1895, the Diaoyu Islands were never drafted into Japan map” Ju Deyuan said.

          “And changes on lots of Japanese maps tell the real ownership of the Diaoyu Islands.”

          In 1945, the Japanese Government accepted the Potsdam Declaration, which stipulated that Japan must return all territories it seized from China. From then on, the Diaoyu Islands were deleted from Japanese maps.

          “Such changes actually mean Japan has returned the Diaoyu Islands to China” Ju Deyuan said.

          “However, in 1971, the Japanese Government announced that the Diaoyu Islands belong to Japan, which showed that Japan is in conflict with its commitment to the Potsdam Declaration.”

      2. pebird

        If I buy a stolen car, even if I did my best to determine that the seller owned the car, I still need to return it when the authorities determine that it was stolen.

        It then becomes my problem to get my funds back.

        Why this principle does not apply to banks is yet another astounding revelation of how the world has changed.

    1. Buck Hayek

      Perjury could be his biggest legal problem. The penalty for comingling funds is rather light.

      1. Peripheral Visionary

        Commingling of funds isn’t the end of the world; misappropriation of customer assets is. You’re on the right track, however, in that both of those are more difficult to prove than perjury, which is much easier to establish.

        1. Walter Wit Man

          Yep.

          And this memo shows there actually may be pretty good evidence for the other crimes.

          Just imagine if you made this decision as a small time lawyer or accountant, to cover a business debt with client funds . . . . and you lost it all. I imagine the response would be much different than it has for Mr. Corzine.

          I always figured there would be some complicated rationale for why there was commingling, but this appears like the facts are simple and they just decided to go for it. Unless I’m missing something.

        2. Richard Kline

          So Peripheral, it was never conceivable that the sweep-out of customer funds happened without _direct order_ from senior management. Just not. It’s revealing in its way that the treasurer O’Brien refused to sign a certification which was manifestly false.

          I’m not holding my breath for any indictment. That just isn’t on during Obama’s watch, whereinunder financial ‘innovation’ is necesary ‘to save the economy.’ The difference between the financial system in the US and in China? There, some of the higher-ups _do_ get thrown under the bus. Otherwise: none.

      2. Walter Wit Man

        Can Congress initiate its own investigation/prosecution outside of the Justice Department? Wonder if the Republicans are interested in a perjury prosecution?

          1. Walter Wit Man

            Better yet, let’s really get this party started: cage death match, Issa v. Corzine. There is no justice so at least give us some blood.

          2. Maximilien

            Walter Wit Man:

            A death cage match between two out-of-shape 60-year-old men? Not much of a spectacle for the truly bloodthirsty. The inevitable result of such a match between such men—twin heart attacks—wouldn’t cause any noteworthy bleeding, except perhaps from the post-coronary collapses.

          3. Walter Wit Man

            Did I say blood?

            I meant rich old dude sweat. It smells like butterscotch, coffee, and diamonds. And there will indeed be lots of huffing and puffing. Maybe some beard pulling.

            Actually, these two fat cats will be hoisting cocktail glasses together before we will see them duke it out.

    2. Glen

      His peers? Wall St CEOs and Governors?

      Ha, then there will be no crime, no foul, nothing to see here, everybody move along now…

      1. Peripheral Visionary

        Depends on if it’s New York or New Jersey. I can’t think of a New Jersey jury being very sympathetic . . .

    3. ex-PFC Chuck

      Will it even get to a jury? It’s far more likely that a slap on the writst, at best, will be negotiated before it ever gets that far.

        1. The Hube

          What’s wrong with just having the taxpayers bail out MF for a few billion, having MF enter into a settlement where they pay a couple hundred million while not admitting guilt, and then pay bonuses to the very smart people they couldn’t do this without?

    4. Maximilien

      @Peripheral Visionary

      Presumption of innocence is a legal term, confined to the courtroom. It is the legal right of the accused in a criminal proceeding. Outside of the courtroom, people in the press or the comments sections of blogs are free to assume or presume whatever they please. I for one will always presume Corzine is guilty until he is proven innocent.

    5. NY Justice

      The point here is that the fix was in and now appears to be removed. The NY and IL US Attorneys have been unwilling up to this point to actually conduct a full scale criminal investigation of Corzine, et al. While Corzine shouldn’t be tried in the press, if this pressure results in him being tried at all, then it is well worth the pressure being brought to bear by the media.

  2. jake chase

    Not to be a stickler for legal niceties, but this email is probably inadmissable hearsay evidence for Corzine’s personal involvement. Of course it is difficult to imagine a junior officer authorizing the looting of customer funds on her own impulse, but what sort of (German?) officer would do such a thing even on the boss’s say so? Here’s how it might have happened:

    Edith: Mr. C, JPM is demanding another $200 million and we haven’t got it.

    C: Well, ah, what’s your name, Edith? Take that $200 million of customer money and move it over to JPM. That ought to hold them for a day or two, right?

    Edith: Gee, Mr. C, I don’t think that would be legal.

    C: Legal, shmeegal, Edee, just move the &*%*$ money. Besides, my lawyers tell me it is legal in London and for all you or I know that money was in London within the past 24 hours.

    Edith: Well, OK, you’re the boss, but they will want to know you have okayed this.

    C: Tell them anything they want to know but don’t bother me with this stuff again.

    1. fledermaus

      It’s admissable for impeachment purposes. For instance if he tried to testify that he didn’t know what happened to all the money

      1. Yves Smith Post author

        Agreed. If he told her directly, it’s 100% admissible. The CFO was on vacation and she seems to be the one dealing directly with JPM. The memo looks to be CYA. As a more or less contemporaneous record, it would bolster any testimony.

        1. jake chase

          She can’t testify that he told her to do it. The email saying that he told her to do it is just bootstrapping. Why do you think these guys never put anything in writing?

          I would be careful of legal advice from Wikipedia, but perhaps that’s just me.

          1. Anonymous Jones

            This has to be some kind of elaborate joke, right? You literally just said, “She can’t testify that he told her to do it”?

            Of course she can personally take the stand and testify about a direct command from someone. The utterance of a command is a direct legal fact. It has absolutely nothing to do with hearsay. It’s not even close.

            [If you really need a lesson...if JC said the day after, "Wasn't it funny when I told you to steal all that money yesterday?" that would be hearsay for her to testify about that question. If someone else took the stand and wanted to say "She told me that JC told her to steal all the money," that would also need a hearsay exception. A direct command is not hearsay.]

            It’s one thing to be ignorant about the hearsay rule. I’d bet at least 90% of the population in the world hasn’t even thought about it for a more than a few minutes, but to *persist* in exposing your own ignorance over and over again in this unbelievably stupid fashion is almost beyond words. It’s really something else.

            I mean, yeah, people should always have some skepticism about Wikipedia, but I’ll tell you something jake chase, there’s something jake chase should be even more skeptical about than Wikipedia, and that’s jake chase’s own mangled memories and faulty thought processes. Sorry, but it’s true…

    2. Law talking guy

      Any prosecutor that can’t find a non hearsay use for that email has no business as a federal prosecutor. Prosecution floats on verbal acts, present sense impressions, and a hundred other uses for this type of email.

    3. bob

      The money was ALL under the supervision of JPM. They didn’t move it from MF to JPM, it was there all along. They just changed accounts.

      JPM was the “seggreated account” bank. They would hold the customer money, and do with it as directed by MF.

      This story just seems to reduce the liability of JPM by $200 million.

      To be clear, that $200 million is still somewhere, probably at JPM london. Because corzine admitted to “stealing” it, JPM can now do with it as they please.

      1. James Cole

        No, JPM’s request for assurances suggests they had reason to believe the fund transfer was improper, and the failure of MFG to provide those assurances should have been a red flag, so JPM has some exposure here for sure.

  3. D

    If I have my history right, Corzine had previously acknowledged approving a transfer of funds. But said he had not intended to transfer customer funds, just generic “funds.”

    This article doesn’t make clear what Corzine knew (or believed) about the source of the money being transferred. Just that he approved a transfer. It will be interesting to see what more detail emerges.

    1. Jim3981

      And that sir, is exactly the “slide of hand” one has to watch out for when dealing with these media outlets. Media outlets which keep us in some alternate reality with spin, deception, and propaganda.

  4. Conscience of a Conservative

    “I did not instruct anyone to lend customer funds to anyone,” –Jon Corzine

    “It’s not a lie if you believe it” –Geoge Castanza
    ——————

    And eripheral Visionary is correct. There are way too many leaks and trials by press instead of trial by jury

    1. Up the Ante

      “And eripheral Visionary is correct. There are way too many leaks and trials by press instead of trial by jury ”

      Peripheral is wrong, Edith had refused to talk with investigators, this material has been known how many weeks now?, and it has taken this long to subpoena her ?

      This is the cross-Atlantic shuffle. As bob said, JPM knew what was done with the money as it was under their supervision.

  5. Conscience of a Conservative

    Here’s where it gets hard to believe.
    We’re hearing for weeks that the trail has gone cold, that the customer funds vaporized and now suddenly this memo shows up. Are we to believe this memo was sitting in a garbage can somewhere or it was held all along. This really feels like a circus.

    1. Conscience of a Conservative

      These congressional “investigations” tend to take on a political over-tone. Democrats want to impeach Bush, Republicans Clinton. Then Republicans want to go after Rangel, Democrats some other republican. It begs the question if congress is able to conduct these types of inquiries.

    2. Maximilien

      @mitchw

      There’s a rule amongst the very rich in high circles: “Talk about my sexual orientation, talk about my marital infidelities, talk even about my extensive porno collection, but don’t EVER talk about how I made all my money and I won’t talk about how you made all yours.”

      Romney (very rich) won’t start dishing the dirt on Corzine (also very rich) for fear Corzine will start dishing the dirt on HIM. Sorry mitch, I don’t think you’re going to see a smoldering Corzine draped around Obama’s neck.

  6. Gerard Pierce

    “Put it another way: if there isn’t some serious action after this revelation, between this and Obama’s Make America Safe for Bucket Shops Act, investors can no longer regard themselves as having adequate protection from broker chicanery.”

    This was the logic behind my earlier comment regarding our “detailed securities regulations” – when I said:
    “This did not make the whole process more honest. It simply made sure that only well-funded existing companies were allowed to steal from the public.”

    I suppose this really might have been an ignorant comment, but reality seems to agree.

    1. EH

      “This did not make the whole process more honest. It simply made sure that only well-funded existing companies were allowed to steal from the public.”

      This raises the question of former-thieves who had been excluded after some point. I wonder who they are.

  7. falun bong

    I cannot believe we are getting hung up on legal niceties. Customer money, in segregated accounts, was taken. If it’s not clear that is wrong, then there is no basis for our financial system.

    1. Richard Kline

      So falun, sorry to disabuse your impression of how things work in this country, but it’s not a crime if you’re running a ten-figure show, it’s a ‘business circumstance.’ Right/wrong do not appear on the dial of any mechanism at that velocity of money.

  8. ToivoS

    This issue should be tried in the press, become a political issue that Republicans use to brand Democrats or any other tactic that is necessary to bring down some indictments.

    At that point I will sit back and join the self-righteous twits that claim “this must not be tried in the press”. If not in the press or before Republicans today, then before a court of law never.

    1. lambert strether

      That the Rs haven’t already gone after Obama on this shows how complicit the two legacy parties really are. Corzine was a top Obama bundler, for pity’s sake! (It’s just like Issa going after the Solyndra fiasco instead of, say, Goldman Sachs running the executive branch. Just not serious.)

      1. bob

        Issa.

        Why look into a case where it’s easy? Like an arson at a factory where all of the computers and die materials were moved out the night before? Did I mention the insurance on the factory was recently increased?

        He’d rather investigate something with no merit. A real case has a possible real conclusion. We can’t have that in an election year.

    2. Glen

      I think we tend to magnify the “public interest” in the issues we discuss here. I strongly suspect this will get very little play in the MSM news. Even the late Friday news dump is a sign that they want to have this go away over the weekend.

      I’m not trying to downplay the significance. The whole MF Global implosion should be a flashing red light that the markets and the CMT have crossed over into giant bucket shops which will eventually send global investment away from America along with another more serious implosion. Our lack of real action in 2008 is returning to haunt us.

    3. Jim A

      When people are this rich, well connected, powerful, and covered by lawyers, they’ll never appear in front of a judge UNTIL after they’ve been found guilty in the “court of public opinion.”

  9. NYT

    The fact that this story came out late on a Friday evening indicates Corzine still has plenty of friends on Capitol Hill.

    1. jjohannson

      Corzine had durned well better have some support on the Hill. He paid out the nose for it.

      From Open Secrets –

      “Brokerage firm MF Global filed for bankruptcy earlier this week, in what will likely be one of the ten largest bankruptcies ever, the Wall Street Journal reported. But before its collapse, MF Global’s employees gave generously to politicians at the federal level — and almost all of that campaign cash benefited Democrats once former New Jersey Gov. Jon Corzine became chief executive of the company.

      “According to research by the Center for Responsive Politics, MF Global employees have contributed $408,000 to federal candidates and political parties since 2007. That sum includes $38,000 in donations to President Barack Obama, who is the largest recipient of MF Global employee contributions.

      “During the 2008 election cycle (the last full cycle before Corzine joined the company), Democrats received 68 percent of MF Global employees’ total contributions. But after Corzine joined in 2010, employee contributions shifted even further to the left: A full 97 percent of MF Global-related campaign contributions benefited Democrats during the 2010 cycle. Democrats had maintained that advantage this year, as well, collecting about 94 percent of MF Global employee donations through June.”

      http://www.opensecrets.org/news/2011/11/brokerage-firm-mf-global-filed.html

  10. linda

    dealbook has this:

    But it appears to be no smoking gun.
    While the memo makes clear that Mr. Corzine was involved in patching the overdraft at JPMorgan, it does not indicate that he requested the funds be specifically drawn from customer accounts. He asked only that the overdraft be fixed. And in a footnote, the memo noted that futures brokerages like MF Global frequently deposit firm money into customer accounts and are allowed to withdraw it at will.

    1. lambert strether

      The link:

      The congressional memo cites an e-mail from the Chicago employee, Edith O’Brien, who authorized the transfer saying it was “Per JC’s direct instructions,” referring to Mr. Corzine.

      At first, the revelation fueled speculation that Mr. Corzine instructed the transfer of customer funds, despite his assertions to the contrary. But it appears to be no smoking gun.

      But from Bloomberg at the original:

      Jon S. Corzine, MF Global Holding Ltd. (MFGLQ)’s chief executive officer, gave “direct instructions” to transfer $200 million from a customer fund account to meet an overdraft in one of the brokerage’s JPMorgan Chase & Co. (JPM) accounts in London, according to an e-mail sent by a firm executive.

      Watch the Bloomberg TV video, where the phrase “smoking gun” is used several times … Adding, while the announc holds up a printout, and also repeats “customer accounts” several times. So, DealBook can slam that as “speculation,” but whatever it is, it’s not that. [Although sheesh, I miss the RT glass table, along with the smarts...]

      1. Conscience of a Conservative

        playing devil’s advocate here. It’s been argued that JP Morgan simply kept the monies from both firm and customer trades in the last days. It’s been argued this is the result of bankruptcy safe harbor laws of 2004.

    2. Yves Smith Post author

      I’m sorry, I don’t buy this one iota.

      $1.6 billion in customers funds were stolen.

      Under Sarbanes Oxley, the CEO and the CFO certify the adequacy of internal control, which above all are financial controls.

      Sarbox was intended to stop this nonsense, “I’m the CEO and I know nothing.”

      For this much is customer money to be stolen, either the controls were wretched, which means the Sarbox cert was false (and you can file criminal charges) and the lower level people were operating without proper approvals (meaning controls were defective) or the higher ups knew.

      Just because no one has the balls to go after Corzine does not mean there is not an easy path to prosecution.

      1. Conscience of a Conservative

        Well Bill Rochelle has opined differently. And while I would not be surprised to learn at some point that Corzine is guilty there is a strong counter-argument that what’s meant by controls and procedures simply are not designed to work in the final week of a bankruptcy where the likes of a JP Morgan can eviscerate a firm like MF Global. Under this scenario sell orders on behalf of clients and the firm were executed and the monies not remitted. Rochelle opines this was all made possible by the safe harbor provisions of the bankruptyc act signed into law int 2004.

        I really hope they can find evidence of malfeasance at Corzine, he clearly acted irresponsibly, firing a CRO who wouldn’t play ball, levering up via rehypothecation and exposing clients to risk, not upgrading the risk and compliance systems and doubling down on reckless bets. But he did disclose his scheme in any released financials I’ve seen on MF Global.

        1. Conscience of a Conservative

          This isn’t to suggest there’s no basis for saying he violated SOX. They should make the best case and proceed. Not doing so gives the appearance that he(Corzine) is being protected.

      2. jake chase

        It would not surprise me if we learn quite suddenly that the customer money was run through London, where there do not seem to be any rules about protection of money in customer margin accounts. Why do you think the City of London still exists? It’s the Mecca of financial slight of hand.

        1. Ms G

          Thanks for posting one of the most salient (indisputable) facts. Corzine wrote the legislation that should indubitably apply here – to him. That would have been a good start — about 5 months ago. While an army of “high level” auditors, accountants, prosecutors and regulators scurried around labouring like termites and coming up with a mouse. This is about as orchestrated a “failed investigation” as one can expect from the Covington Club running Justice and the CFTC.

          1. Up the Ante

            ” … adding (to the army of termites), CME and Freeh’s team of “investigators.” ”

            And there you have it. MF appears to be a shining example of O’s transparent frauds. A more thorough, open trumping of legislation is hard to imagine.

            W’s frauds are of course more sinister so are somewhat more concealed.
            And W’s are larger, part of being a pseudo-Texan.

            The rest of the world may not voice their opinions of it all to an American’s face, try to imagine the opinions they share amongst themselves. [!]

  11. NickD

    Did Corzine testify under oath?

    Rob a liquor store of $20, go to prison.
    Steal $200 million, get a press conference to deny it.

  12. Hugh

    There are two possibilities. One, Corzine will argue that he did not give the instructions or that his underlings misconstrued them. Two, Corzine will suddenly retire to a country with a nice climate and no extradition treaty with the United States.

    1. Yves Smith Post author

      Per above, this is a sideshow. The odds are high that they can get him on Sarbox if anyone tried making the case. All the news stories said how miserable the accounting was.

    2. Doug Terpstra

      A few others:

      Edith will retire first and then suffer rapid onset Reaganitis under questioning

      She will suffer a fatal accident

      She will reveal that “JC” referred to the original, highest authority

      1. Peter Pan

        Edith was internally conflicted as to the action she should undertake. So she prayed to God asking how to resolve this conflict.

        While in prayer Edith is blessed to hear the sound of the Coda to Lark’s Tongues in Aspic, Part I, and soon did two angels appear before her saying, “For the Lord has heard your prayer and your Savoir is here with a message.”

        Suddenly Jesus Christ appears before Edith saying to her, “Render unto JP Morgan the things which are JP Morgan’s, and unto Goldman Sachs the things that are Goldman Sach’s.”

        Edith did all that was Holy and so will dwell in our Father’s heavenly house forever.

        Amen.

        1. Up the Ante

          And that visiting Marines contingent that did the prayer session in JP’s offices a year or two ago ? They were singing chorus to the bankers that won’t lend to each other.

  13. Dividist

    “I certainly would never intend to direct or have segregated funds moved.” – Jon Corzine

    Operative word “intend” . He is just a poor misunderstood CEO who simply demanded that an employee solve a problem and had no idea that this company treasurer would misinterpret his instruction to transfer segregated customer funds. Why would he think that? Just because there was no other money anywhere in the bankrupt firm to cover the shortfall? How would he know that? He was simply misunderstood. All he said was “Just fix it.”

    It is not unlike the innocent off-the-cuff remark made by King Henry II “Will no one rid me of this meddlesome priest?” acted on by nearby knights in his employ, and the next thing he knew, through no fault of his own, the Archbishop of Canterbury is lying in a pool of blood.

    These things happens.

    Let’s call it the Beckett Defense.

    http://www.dividist.com/search/label/Jon%20Corzine

  14. psychohistorian

    When you lose equitable rule of law by government you risk attempts at rule of law at the end of guns.

    All because none dare stand up to the global inherited rich directing this kabuki of a world.

  15. hyperpolarizer

    I shed no tears for Corzine; but for better or worse, the fact that he’s a Democrat should make it easier to bust him.

    This case needs to be prosecuted to preserve any lingering shred of trust in our legal-financial system.

    As I have noted on other occasions “Bring me your poor, your hungry, your huddled masses… etc” has been replaced with “Welcome to the United States of Bankistan.”

  16. Sleeper

    Please Folks:

    This is the two tier justice system at work -

    Corzine is connected.

    He has many “friends” in Congress, he has made more than a few contributions (although his contribution to Mr. Obama was returned), the meme that he has done nothing illegal is being ginned up in the press.

    There will be no charges – not for lying to Congress, not for SarOX violations, not for fraud, not for mail and wire fraud. Don’t expect any comment from any politician D or R.

    And don’t get any ideas about doing this yourselves, little people.

    Remember the baseball player who got hauled up and charged with lying to Congress ?

  17. bob

    The 87%(and below) buy out offers for “clients” now make sense.

    200 million is 12.5% of the 1.6 billion.

  18. bob

    How does this not absolve JPM of liabilty for the loss that $200 million? They probably still have it.

  19. river

    Are we sure the “JC” in the e-mail is Jon Corzine? I mean, JC could be anybody at MF Global! Maybe even Jesus Christ! The american prosecutors are reaching on this one, methinks.

    1. LucyLulu

      Ya mean, the JC who works in the mail room was the one who authorized the $200M transfer?

    2. Walter Wit Man

      The mere fact that this large transfer was authorized by someone else entering in another person’s initials shows how shady this is.

      The recipient of the money wanted to know if it was an improper transfer and was never given adequate assurance.

      An officer was going to sign a document saying it was okay to transfer the $ but didn’t, and then we have just initials authorizing the transfer?

  20. scraping_by

    “investors can no longer regard themselves as having adequate protection from broker chicanery.”

    Broker chicanery has always been part of the game. As in, insiders rule and outsiders drool. The pros make money off retail. The crowd is always wrong.

    One of the first finance books I read stated clearly, “A stockbroker is not your friend.” At this point, we can see a stockbroker is not a fellow citizen. He’s a felon with a few degrees of separation to his next score.

    That said, giving over money to people who have no obligation to give it back, ever, under any circumstances, doesn’t seem a sustainable model. Everyone with a 401(k) should think this one through. As in, I’m not the exception.

  21. LucyLulu

    Personally, I’m convinced that JPM is using the customer account monies to fast-track Iran’s nuclear weapon program for a first strike against Israel.

  22. Conscience of a Conservative

    Today the NY Times runs their version of the story that the memo is not a smoking gun. The committe investigating MF Global has had this memo for some time. We’re clearly being made to have our heads spint in some trial via the media in advance of the real trial. Memos are selectively leaked or released or information from annonymous sources makes it to the paper. Me thinks a friend or representative of Corzine contacted the Times and got them to make their version of the story a little more sympathetic. At the end of the day, we still don’t know who is responsible and customers have less r reason than ever to trust the finanical system.

    Maybe Corzine is guilty, Maybe JP Morgan is guilty. We still don’t know and someone is prepping the public to accept the absurd tale that money just vaporized.

  23. David Fiderer

    Apparently, no one except the NY Times read the footnote in the House staffers’ memo, which nullifies the narrative. Footnote 2 on page 3 says:

    “Futures commission merchants and broker-dealers are permitted to, and in the ordinary course of business do, deposit funds in excess of segregation requirements in segregated accounts. These excess funds belong to the firm, and may be transferred out of the segregated accounts.”

    So, once again, we are reminded that customer accounts are not as segregated as we thought they were. But the so called smoking gun that supposedly incriminated Corzine has yet to be produced. The memo does not show clear evidence that Corzine intended to transfer funds that did not belong to MF Global.

    1. Yves Smith Post author

      Please reread. The section you point to does not support your argument.

      The broker can deposit funds, as in its own funds, in customer accounts, and can take ITS OWN MONEY back.

      The comingling is irrelevant to the real issue. This was customer money that was stolen and it was known to be customer money at the time.

  24. S Haust

    My only question is “Why now?”

    I can’t believe they haven’t had this right along. So are

    they now starting to throw weaker passengers out of the boat?

  25. Gil Gamesh

    Wow. It’s clearer than ever that, given the all encompassing crime wave, the only prudent investing must be based on illegal insider information. Caveat improbus emptor!

  26. Paul P

    JP Morgan doesn’t get the confirmation from O’Brien. JPM doesn’t call O’Brien? Doesn’t wait for the email or the fax? When that happens, shouldn’t they have been more suspicious?

    JPM might have criminal liability here.

    1. Ms G

      “When that happens, shouldn’t they have been more suspicious?”

      Exactly. And more to the point, if they were seeking assurances as a condition of accepting the funds, why did they accept the funds without assurances?

  27. kris

    Whoever tries to find incorrect notes on Ms. Smith piece, should understand that her point is the following:
    - There is a mountain of evidence that if Dept of Justice goes after him they would send him to jail based on many different laws.

    Now my 2 cents:
    There are three and only three options:
    - He thought he was untouchable – above the law
    - Somebody else guaranteed to him in writing that he was untouchable – above the law
    - He’s sure that if he falls, a myriad of influential people will fall, hence he is untouchable – above the law.

    Has anybody kept a list of hundreds of people from Wall Street convicted of fraud and theft so far since 2008?

  28. BDog

    I thought it was very odd that Corzine didn’t take the 5th, was actually shocked, and sure enough it is going to come back to bite him. His lawyers are terrible, though I’m sure he lied to them.

    Anyway, JC better go to jail for this.

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