The NY Times Dealbook reported that “A criminal investigation into the collapse of the brokerage firm MF Global and the disappearance of about $1 billion in customer money is now heading into its final stage without charges expected against any top executives.” There has been a lot of angst over Wall Street managers not being prosecuted for losses a few years back, but that is understandable for one reason: being stupid isn’t illegal. Most of those guys didn’t violate any laws technically, and caused destruction by being cavalier and myopic. The MF Global collapse of 2011, though, was no such lapse. This was a case of brazen fraud and theft, and it’s apparently going to go without punishment.
To recap what happened here:
- MF Global loses a ton of money on margin on reckless gambles on sovereign debt.
- MF Global does not have the money to pay for their losses.
- MF Global is in danger of going bankrupt due to their debts.
- MF Global steals money from customer funds to cover their own internal losses and avoid bankruptcy.
- MF Global continues with the losses and continues to steal money to cover them.
- MF Global goes bankrupt. Auditors start reviewing the firm’s assets and discover that the investor funds have just kind of disappeared.
So, the company stole hundreds of millions of dollars from investors (primarily US farmers). At this point, we’re led to believe that nobody at MF Global can be held criminally liable, because the prosecutors don’t know who exactly was transferring the funds on whose orders. Memos indicate that it was the CEO, Jon Corzine, but the memos aren’t directly from him, so he has plausible deniability…. or does he?
Let’s try to picture this from the perspective of Corzine if he hadn’t ordered the initial theft and if he didn’t know:
- CFO: “Boss, our gambles resulted in huge losses. We owe so much money there is no conceivable way that we’ll be able to cover it.”
- CFO (the next day): “Hey boss, remember all that money we owed? Don’t worry about it, taken care of.”
- CEO: “Wow, how’d you do that?”
- CFO: “Don’t know.”
- CEO: “Oh, OK.”
Jon Corzine is allegedly a very smart and detail-oriented guy. Do you believe for a second that he just said “oh hey, that’s cool” and went back to playing Minesweeper? The man is the CEO of an investment firm, and we expect to believe he had no knowledge of the investment funds? Common sense passes reasonable doubt, and one would think that a prosecution would be nice. Maybe you get the conviction, maybe you don’t. What is unacceptable is the Justice Department saying “well, someone stole a billion dollars, but no one is really responsible.”
Here’s the rub: Jon Corzine is a man who was formerly referred to by the POTUS as one of his “best partners” and to whom the Vice President turned to for advice. He’s a former democratic governor of New Jersey, and was instrumental in the election of Barrack Obama. In fact, he is still an active partner of the Obama campaign… he is listed by the Obama campaign as being one of the most prolific donation bundlers, with over $500,000 in contributions to his name (this is the highest category listed, so how much over $500k is unknown).
Also, MF Global’s legal counsel is Covington and Burling. Small world. The man who heads the justice department in charge of prosecuting them, Eric Holder, was a senior partner at C&B until becoming Attorney General. In fact, Holder’s personal attorney (Edith O’Brien) has been retained to represent MF Global’s Treasurer (who appears to be off the hook also now). These are certainly less concrete connections that the political activities, but it’s a little too close for comfort.
So, to recap, it would appear that this man:
- was complicit in the theft of over a billion dollars.
- is politically connected and a former democratic governor.
- is a major source of donations for the President.
- will not face any sort of prosecution or a trial.
But hey, the guy lost his job (after making tremendous amounts of money and overseeing the theft of over a billion dollars from investors), so that’s a stiff punishment. Apparently he’s planning on starting a new hedge fund, but I bet that fewer people will trust him than before. Justice!