Jon Corzine and the Missing Millions



On Monday, the brokerage owned by Jon Corzine went bankrupt, and an awful lot of its clients’ money – about $600 million – has proven difficult to account for, as the Associated Press reports:

MF Global, the securities firm led by Jon Corzine, admitted using clients’ money as its financial troubles mounted, a federal official says. The FBI is expected to investigate whether the firm’s actions violated criminal laws, according to two people familiar with the situation.

An MF Global executive told regulators early Monday that the company had diverted client money, according to an official familiar with a separate probe by regulators. It isn’t clear where the money ended up or what it might have been used for, the official said.

All three people spoke on condition of anonymity because they weren’t authorized to discuss the matter publicly.

Here’s what got Corzine in so much trouble, as explained by AP financial writer Daniel Wagner:

MF Global, Jon Corzine’s embattled securities firm, moved millions in missing client funds last week and tried to avoid detection, a regulator said Wednesday.

MF apparently made “substantial transfers” of customer money after an on-site audit last week, said the regulator, CME Group Inc.

CME is a private company that oversees firms such as MF Global on behalf of federal regulators. It also operates exchanges where MF Global traded investments.

The money was moved in a way that “may have been designed to avoid detection,” CME said in a statement.

CME’s statement suggests that MF Global executives rushed hundreds of millions out of client accounts as the company slid toward bankruptcy last week. The company acknowledged that the money was missing early Monday morning.

If they transferred funds that fast, it was brazen — an act of desperation to try to save themselves at all costs,” said Mark Williams, a former Federal Reserve examiner now a lecturer at Boston University.

(Emphasis mine.)  The L.A. Times adds that several other regulatory agencies have gotten involved:

Each morning this week has brought a new batch of revealing details about what brought down MF Global, the trading firm run by former U.S. senator and Goldman Sachs Chief Executive Jon Corzine.

Since the firm declared bankruptcy  Monday morning, we have learned the Commodity Futures Trading Commission and then the Federal Bureau of Investigation were investigating allegations of misused customer funds.

Today, it is the Securities and Exchange Commission that is reported to be opening a probe, according to the Wall Street Journal. The SEC is said to be looking at whether Corzine misled its investors as the company’s share price was in freefall.

The case has raised questions about why regulators did not notice MF Global problems sooner. After all, critics say, MF Global was done in by the type of highly leveraged bets that regulators should have been very familiar with from the demise of Lehman Brothers and Bear Stearns in 2008.

Reuters reports today that Wall Street’s industry funded regulator, the Financial Industry Regulatory Authority, started asking questions back in June, but that it was not enough to get MF Global to scale down its bets on the sovereign debt of struggling European nations. 

At a conference in San Francisco on Wednesday, the chief investment strategist at Schwabs, Liz Ann Sonders, said, “It may show that we don’t have adults manning the regulatory store.”

Really?  How can that be?  We’ve got regulations all over the place.  Thousands of pages of regulations have been added over the past few years.  The increase in bureaucratic hiring made Washington D.C. the richest city in America last month, displacing Silicon Valley.  How come they weren’t hiring adults?

Say, you don’t suppose all this “childish” regulatory behavior had anything to do with Corzine’s extensive political connections, do you?  He was a senator, and the former governor of New Jersey, after all.  In fact, when he was in the Senate, he was a loud proponent of the Sarbanes-Oxley Act, a massive granite block of regulations dropped on the accounting profession after the Enron scandal. 

Perhaps more importantly in solyndrated America, he was a very big Obama contributor.  How big?  MSNBC has some details:

Jon Corzine, now the center of an FBI investigation into the handling of hundreds of millions of dollars invested in his securities firm, was one of the leading Wall Street fundraisers for President Obama’s campaign and suggested to investors that he might take a top administration post if the president were re-elected.

His new legal troubles, sparked by the bankruptcy filing of his investment firm, MF Global, could complicate the president’s efforts to raise money from the financial community given Corzine’s central role in those efforts.

A recent list of top “bundlers” or elite fundraisers released by Obama’s campaign listed Corzine in the highest category — reporting that he had raised more than $500,000 for the campaign. A substantial chunk of those funds were collected at a $35,800 per ticket fundraiser that Corzine hosted at his wife’s spacious Fifth Avenue apartment last April — an event that was touted at the time as part of a concerted effort by the president’s campaign team to reach out to well-heeled Wall Street donors who had been alienated by some of his policies and previous public comments.  

Corzine was not shy about boasting of his political connections.  In fact, he explicitly promised investors they’d enjoy an extra special payoff if Obama got re-elected, and Corzine became part of his second Administration:

The notes promised to pay an extra 1% in interest rates in the event of “the departure of Mr. Corzine as our full time chief executive officer due to his appointment to a federal position by the President of the United States and his confirmation…by the United States Senate prior to July 1, 2013.”

Some veteran Wall Street analysts said they couldn’t recall ever seeing such a contingency written into securities notes. “It was bizarre,” said Christopher Whalen, a Wall Street analyst.

An increasingly nervous Obama Administration is trying to distance itself from Corzine, and has promised to return his vast donations if indictments are handed down.  Well, some of them.  Okay, one percent of them. 

As Reuters reports, “An Obama campaign official, speaking on condition of anonymity, said the donations received from Corzine as an individual would be returned if civil or criminal charges are brought against him.”  That would be the $5,000 Corzine donated personally, not the vast hoard of cash he hauled in from his Wall Street friends at $35,800-per-ticket fundraisers, or delivered in $500,000 “bundles.”

But remember, Occupy Wall Street, Barack Obama is just like you!  He’s the guy that has done so much to rid the corrupt banking and investment industries of people like Jon Corzine!