With Hurricane Sandy dominating the news, quite a few business stories from early in the week got only cursory notice. In some ways, that’s not a bad thing.
The Wall Street Journal had a bizarre sequence of reports on Jon Corzine. On the 28th, it ran a damning story on MF Global’s controls, or more accurately, the lack thereof:
U.S. rules set tight controls on the accounting, oversight and movement of money that belongs to customers or firms themselves…
As regulators and lawmakers plow ahead with investigations that began when MF Global tumbled into bankruptcy a year ago this week, yawning gaps in the New York company’s procedures for moving and keeping track of money are getting new attention…
Internal documents reviewed by the Journal show that the problems were chronic and deeper than previously disclosed.
An April 2011 spreadsheet called “Outgoing Wire Approved Individuals” lists nearly three dozen back-office employees with authority to move money, sometimes with no limit on the size of the transfer as long as a higher-ranking official approved.
Two people working on the case said the number was unusually large for a brokerage firm of MF Global’s size.
The spreadsheet also shows that MF Global set no “dollar threshold” on how much employees could move from accounts used to invest the firm’s own money and certain customer funds. In contrast, only two employees were allowed to move more than $500,000 at a time out of an account used to pay commissions owed by MF Global. It isn’t clear if the same procedures were in place when MF Global collapsed.
This is the stunning part, emphasis ours:
Some people close to the investigation or who worked at MF Global said the firm failed to shore up internal systems that officials knew were weak. One explanation offered by these people is that MF Global had to prioritize what needed to be fixed first, since it had limited resources and was still overhauling systems in response to a 2008 rogue-trading loss.
This is an admission that top officers knew that key systems and controls were deficient. That in turn means that Jon Corzine’s Sarbanes Oxley certification, that internal controls were adequate, was false. Given the scale of the failure, this looks like a slam dunk Sarbox case, and as we’ve further argued in past posts, a successful civil prosecution can serve as the basis for a criminal case. Yet the Journal blandly and uncritically repeats the bromide that Corzine and his CFO Henri Steenkamp have testified before Congress that they “believed” controls were “sound” without highlighting the inconsistency with the new revelation. As former Sarbanes Oxley compliance officer Michael Crimmins noted by e-mail:
Corzine and Steenkamp are the “officials” who were legally responsible for knowing. Full stop.
Belief, in the face of known facts to the contrary, may work for a churchgoer, but it doesn’t work in court.
Worse, on the 29th, the Journal ran a nauseating story, clearly a PR plant, on Corzine’s career woes (“Corzine Searches for What’s Next“):
For Mr. Corzine, it hasn’t been so easy to move on…
And the 65-year-old Mr. Corzine is struggling to figure out what comes next for himself, according to friends and former coworkers…
The former Goldman Sachs Group Inc chairman and New Jersey governor has expressed worry about the chance he could lose his license to work in the securities industry despite repeatedly insisting that he did nothing wrong at MF Global…
Another person says Mr. Corzine has shown signs of restlessness and frustration about essentially being forced out of work by MF Global’s demise and aftermath. Yet he is optimistic about eventually making a comeback and has kicked around the idea of managing money after the MF Global mess is cleaned up….
This year, Mr. Corzine worked on a service project in Central America and relaxed in France, where he and his wife have a pied-à-terre. He also spent time running and golfing with friends on Long Island. He sold his Hoboken, N.J., penthouse for $2.8 million, or 14% less than its 2008 purchase price.
I am sure there are MF Global customers who toyed with the idea of getting Corzine a pair of cement overshoes. This tugging-at-the-heartstrings account is intended to make us feel sorry for a man who might have to retire wealthy at 65 rather than keep working for another 10 to 15 years as he had hoped. But with powerful enough connections to get favorable coverage in the Journal, no doubt he will be able to raise money. After all, John Meriwether blew up his fund after LTCM and still was able to talk investors out of their money. Sadly, just like bad pennies, bad traders just seem to keep turning up.