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.
Thought I would share this Yves.
It’s pretty brilliant work:
Supreme Court Covered In Giant Dollar Signs
Ultimately meaningless, but cute.
Clearly the administration has no intention in running sarbox case. I wonder whether a private individual can start one (say a customer or an investor in MFG – you’d not need to hold than a few shares)?
There must be a few young keen lawyers willing to make a name for themselves on something like this?
What Occupy should be doing (amongst other things) is to buy (a few) shares in just about any bank/investment manager, get a few lawyers working pro-bono for them and sue the hell out of the various perps as things come out. Losses being pushed on investor in RBMSes before banks/servicers? Sue the manager for breach of fiducary duties. Stuff like MFG? Sarbox them.
and many of my democratic friends thought he was a good governor of new jersey.
Phooey. Tribalism. I’m a registered Democrat and I (thought)think he’s a putz. Clueless and arrogant.
Yes, the tribe of overlords and the various tribes set at war with each other by this ruling class.
This is just one more example of 2 Americas, 1 rule of law and 1 no-rule of law, 1 set of rules for them and another for the rest of us.
Do y’all know about SARS? “Suspicious Activity Reports.” Part of the (choke) “Patriot” Act. If you deposit or withdraw around $3k from your bank too many times you may be suspected of trying to circumvent the $10k reporting requirement. If that and any other suspicions your bank has about you based on KYC (know your customer, an other part of this odious law that is the reason for the way your bank tellers have been casually quizing you about your life when you’re banking in a usually obviously more probing way than the chit-chat pre 2001) makes them suspect you of *gasp* perhaps not reporting a $10k+ movement of your own money, they are obligated to report you, and are required by the law not to tell you you’re being reported.
But folks in the finance industry can send billions will-nilly around the world, steal equal amounts from their customers, and…..maybe pay a trifling civil penalty.
We can dream about criminal indictments against these crooks but I think it should be clear by now that even our “Liberal” reps in Congress and the WH aren’t going to do anything to others in their tribe.
So while I enjoy this blog and others, and the intelligent comments of readers, I’m really looking forward to seeing a more pro-active response to this decades-long, ongoing war on the most of us by a criminal over class.
When do we stop talking and start clawing back what ours?
And yes, I’m just talking….for now.
There’s another reason why this is important. Congress, in its infinite wisdom, has exempted most companies from having the auditor independently assess the adequacy of internal controls. That leaves management’s assessment as the only mechanism to ensure compliance. If that is going to become a meaningful enforcement mechanism, regulators are going to have to start holding CEOs and CFOs responsible for false attestations. Such enforcement actions are long overdue. But better late than never, and why not start with the man who helped draft the Sarbanes-Oxley Act when he was in the U.S. Senate?
Heck, the auditors don’t even audit. They clearly work for management’s benefit and not the shareholders. How else could Ernst & Young sign off on Lehman’s repo 105?
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BTW, MF Global’s auditor was PwC (PricewaterhouseCoopers). Apparently they didn’t see any problems either.
Yes, and this is a pattern with PwC. Yet they are still very much in business and their “opinions” are still apparently viable enough to command large payments from crooked enterprises.
Small ray of light from the FDIC :)
The Feds’ complete lack of interest in pursuing criminal SarBox cases leads me to believe that they view the law as in some way defective or unworkable in terms of enforceability.
If that’s the case, the revolving door between Justice and elite law firms means that the lawyers defending Corzine and other top white collar prosecution targets know it too. That leaves you and me, the regular people, who are the only ones who haven’t been informed.
Or, more likely, they view laws as something for the little people, not the rich or connected. See also: no torture prosecutions, whistleblowers in jail, etc.
“Wealth leads into lofty realms where people are permitted to make up their own morality. In a certain sense, society lets them, because the vast majority of people often confuse wealth with other things, like intelligence and sound judgement, propriety and moral rectitude. Wealth doesn’t change the rules; it actually confers upon the bearer the power to make them.”
The author of this was writing about a Canadian white-collar criminal by the name of Albert Walker. He could as easily have been writing about Corzine et al.
Corzine didn’t drown in his subterranean burrow with the other rats? Damn.
I have never understood why Corzine is STILL walking around a free man. Yes I know corruption etc. But you’d think he represents a real acid test, one the justice system is still failing (sigh).
His public statements on the collapse and missing client money have not amounted to much more than gibberish. No matter how cynical you get it’s never enough…
Yeah, It was a real eye-opener for me. I could write an essay on how it reveals the true face on modern Western capitalism etc etc. Totally f@cking corrupt.
The truly remarkable thing is how it has had no effect AT ALL on the presidential election. All those speeches Obama and Biden made, praising Corzine, while all those loopy Breibart type of guys were trying to find a “get whitey’ recording, and looking for ANYTHING to build the “corrupt president” narrative.
They’ve laid off Corzine. His name has not touched their lips. Even his fundraising was out of bounds. Unbefu*ckingleivable.
Yes, the Republicans scream about all sorts of non-issues and don’t raise a peep about this very real issue. It really does show you that “the fix is in” no matter who is supposedly in charge.
It was very eye-opening for me, also.
See this 30-second political ad… The #1 Reason That Jon Corzine Is Not In Prison http://dailybail.com/home/the-1-reason-that-jon-corzine-is-not-in-prison.html
Cool ad, Obama at his passionate best. He really CARES you know.
How come you don’t see that 30 second advert everywhere?
Obviously, there are 2 reasons why Corzine’s not in jail. One’s democrat, and the other’s republican.
That’s one way to look at it. I see 2 reasons as well… money and power… or better yet, 3 reasons… money, power, and tribal protection (aka friends in high places, or cronies).
“Corzine is struggling to figure out what comes next for himself… He also spent time running and golfing with friends”
Corzine, since you can’t see any mess at MFGlobal (where I had an account), how about picking up a shovel (instead of a golf club) and get your MF ass to Jersey shores for a more obvious after Sandy clean up.
sk, don’t give Corzine’s PR handler ideas.
Corzine was, of course, a top Obama bundler, a fact that goes curiously unremarked, even by the supposed arch-enemies of Democrats, Republicans.
The whole sad story goes to prove a thesis I’ve long argued: We shouldn’t be banning felons from voter rolls, but golfers. Of course, the two categories do overlap… Or should.
Sorry, but at his level, money trumps political affilitation. Birds in gaming the system flock together.
Yeah, the former head of Goldman is Officially Untouchable.
A rare piece of genuine bi-partisanship amongst America’s political elite.
The band “Yes” had lyrics which may explain some of what we are seeing now.
“I’ve seen all good people turn their heads each day so satisfied I’m on my way.”
Not enough “good people” are really looking at what is happening all around us with alarm.
Call me when Corzine is in handcuffs.
That would be you out of touch for life, dude.
Yup, arresting this white collar crminal is more likely http://www.toonpool.com/user/1688/files/white-collar_criminal_1541845.jpg
But, But… Corzine started a small business and created jobs, was a Governer, and is a maker not a taker. All the qualifications needed for President.
Ryan / Corzine in 2020
Obama/corzine in 2016.
Yves, don’t forget this in your assessment:
James L. Koutoulas, Esq.
President, Commodity Customer Coalition
CEO, Typhon Capital Management:
. . .
Corzine was well aware of the risk involved with his European Sovereign Debt trades, and fired the risk manager who brought the risk to the board’s attention.
/Corzine encouraged his yes man CFO Henri Steenkamp to risk deficits in customer segregated funds against the advice of his more experienced CFO, Christine Serwinski.
/MF Global falsified a segregated funds report to show $200M in firm excess while internal calculations, external JP Morgan calculations, and common sense showed massive shortfalls.
/That 200M coincidentally is the exact amount (less 170k and change) transferred from customer accounts to MF Global’s house account, with exactly 87.5% of it being transferred to JPM almost immediately following the initial transfer.
/None of the transfers of customer money to JPM or BONY were approved by CME Group which, as MF Global’s DSRO, required MF Global to have all equity
withdrawals pre-approved by them in writing.
/JP Morgan risk officers notified Corzine personally of their concern that customer money may have been used as part of the initial transfer.
/MF Global intentionally changed its business practices to favor its own liquidity needs over its customers by redirecting wire redemption requests to checks. This incidentally, would have zero effect on its liquidity position if it was not knowingly misusing customer funds, as unlike banks which may fractionally reserve lend, brokers must have a ratio of customer funds or permitted collateral greater than 1:1, as per CFTC Commissioner Jill Sommers, “EVERY SECOND OF EVERY DAY.”//