As Congress gears up to approach previously “unmentionable topics,” the MF Global scandal has been most notable for the lack of serious questioning and investigation of those at the top of the firm.Here are questions that one might want to focus on:
Did Mr. Corzine make material mis-statements of fact to Congress on more than one occasion regarding more than one topic? In December testimony all eyes apparently were focused on Mr. Corzine’s assertion that he “simply didn’t know where the money went.” However, Mr. Corzine also made a little unreported note that the critical disclosure of the re-hypothetication of the sovereign debt trade took place on September 1, 2011. (Watch testimony here). This date is important because it occurred after a $300 million bond offering to investors.
Mr. Corzine’s sworn testimony directly contradicts the SEC, which claims that the risk disclosure in question ultimately occurred on May 31, 2011 – before the bond offering. In fact, it is documented that Mr. Corzine was heavily lobbying regulators, having 14 meetings with FINRA and an unknown number of meetings with the SEC. The topic of conversation was said to have been delay of the audited brokerage report. This is entirely a scandal on its own, which is explained in this document.
The important material fact is that Mr. Corzine appears to have made mis-statements to Congress and the public on several occasions, including published reports regarding the health of the firm as it was falling into bankruptcy. How many mis-statements of fact did Mr. Corzine make? Was he quoted in numerous published reports telling people the company was “fine” as it spiraled into bankruptcy?
It is a documented fact that as the firm was heading for bankruptcy, MF Global created a “break the glass” document several weeks before the bankruptcy and they hired a bankruptcy lawyer the week before their ultimate demise. One might conclude that this was conclusive proof of a consideration for the firm’s demise with the potential for a liquidity crisis. Given this, significant questions should be asked.
Why were key back office compliance employees given time off as the top executives had been planning for MF Global’s bankruptcy? How many back office employees were given vacation during the final week of the MF Global bankruptcy? The current publicly reported number is 3 employees missing, but were their more? How could top management allow top compliance and treasury executives to take time off during what was obviously going to be a difficult period of time?
Why has the back office been effectively precluded from telling its version of events if the “case is cold?” Why after the bankruptcy was the back office said to be operating in isolation, with rules restricting their communication, while top MF Global executives were allowed to freely operate the company and even transfer money during the first six weeks? Why were the top executives not initially questioned by investigators, as reported in the New York Times.
Congressional testimony documents that MF Global provided regulators falsified reports disclosing customer segregated account balances. Remember, it is customer segregated funds that are at the centre of the “vaporized” $1.6 billion in missing MF Global funds, so the fact that documents were falsified to the regulator is more than material. While falsification of documents of documents is clear fraud, it is also interesting to note the fact that the CFTC had requested MF Global provide disclosure relative to their customer segregation funds the final two days before the bankruptcy. It is documented that MF Global never provided this required disclosure to the regulator.
Who had knowledge of document falsification regarding customer segregated funds reports due to regulators? Why didn’t MF Global report customer segregated account balances to CFTC during the final days of their bankruptcy?
Custodian Relationship with JP Morgan Questioned
With $1.6 billion in “vaporized” funds, how is it possible such an event happens without CEO’s knowledge? This is particularly interesting given the relationship between Mr. Corzine and the custodian of those funds, JP Morgan. JP Morgan was the custodian of MF Global customer segregated funds and had specific legal responsibilities. Under CFTC Rule 1.20, there was a written agreement on file between the custodian (in this case JP Morgan) and the FCM (MF Global).
Based on public documents, one of the money transfers ($200 million) was reported to have come from an account where JP Morgan was the custodian / bank holding facility and was transferred to another JP Morgan account. Why did JP Morgan seek a comfort letter when they knew, based on their written account segregation agreement with MF Global, that the funds in question came from customer segregated accounts?
These are the apparent “unmentionable” topics that should be brought to light. These are logical questions based entirely on publically reported facts. Questions not being asked by investigators, judging by public reports of “case is cold” and “no one likely to face charges.”
Mr. Corzine and his co-horts are currently receiving a degree of privilege unprecedented in modern times.