MF Global Circus: A New Senate Hearing & CFTC Divulges Exclusive Emails Re Corzine/Gensler Meetings

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A new Senate hearing during "Money Smart Week"

The MF Global circus continues, as only yesterday, the Senate Banking Committee announced it will hold a hearing next Tuesday, April 24, 2012, in which a few old and a few new faces will grace Congressional Chambers.  We can only hope that some of the Committee members will pursue the panelists with the same zeal that certain members of the House Financial Services Oversight & Investigations Subcommittee did in their three hearings.  

According to a press release that arrived in our email box this morning, next week is Money Smart Week at the Chicago Fed.  The awkward phrasing sure sounds smart.  The National Futures Association, the CFTC and AARP will hold a seminar entitled "Avoiding Fraud is Your Best Money Strategy."  No kidding.  Tell that to Mr. Corzine and the MF Global customers.  The always pithy CFTC Chairman Gensler had a few choice words as well: "When making important financial decisions, even simple actions like asking a few smart questions can help set people on the right course."  Right...and where were your smart questions, Mr. Gensler, when you let the SEC steamroll the CFTC into accepting a bankruptcy and liquidation structure of MF Global and its broker unit such that the customers ended up on equal footing with creditors?  

Maybe the SEC's Director of the Division of Trading and Markets, Mr. Robert Cook, can shed some light at next week's Senate Banking Committee hearing on why he ordered a firm with 388 securities accounts and 38,000 futures accounts to be put into a SIPC liquidation, where there is no insurance fund for futures customers and where the liquidation Trustee has no clear right to assets in the parent company's Chapter 11 estate.

And, if Mr. Gensler truly believes that the "CFTC exists to protect Americans in financial markets and to ensure the integrity of the marketplace for investors," perhaps CFTC Commissioner Jill Sommers can enlighten the Senate and public as to why the CFTC delayed implementing reforms to Rule 1.25 governing investment of customer funds, conveniently around the time when Mr. Corzine and his fellow ex-Goldmanite general counsel, Laurie Ferber, were meeting with Chairman Gensler, CFTC Commissioners and other high level CFTC officials in July.  Only after MF Global's demise did it become imperative to finally implement the changes, now dubbed appropriately, the "MF Global Rule."

CFTC discloses new emails regarding top level meetings with Gensler, Corzine and Ferber

This gets to another event that transpired yesterday, wherein the CFTC finally responded to a five month old FOIA request regarding those very meetings on July 20, 2011. has exclusively obtained a smattering of emails from such figures as Ms. Ferber, Chairman Gensler and Amanda Radhakrishnan, Director of Clearing and Risk for the CFTC.  

In one email from Ms. Ferber to Ms. Radhakrishnan on the morning of the 20th, she pleads "I know you must be truly swamped, but I also know that we are having calls with some commissioners today...I continue to believe that you and your team are the most important to be speaking with on 1.25 and I know Jon [Corzine] would appreciate the opportunity to speak with you."

In another series of emails, we learn that Chairman Gensler initially turned down a request on July 11, 2011 from Mr. Ferber to meet with Corzine, [ex-Refco exec] Dennis Klejna and others on either the 20th or 21st, citing scheduling conflicts.  (See Francine McKenna's article for background on Klejna and JP Morgan's inside track to MF Global here).  Yet, Mr. Gensler would eventually make a point to chat by telephone with Corzine and others on a 1:00 pm call on July 20.  Such was the former Senator and Governor's clout, or the zeal and persistence of Ms. Ferber.

Certain details of these meetings were already public, having been posted on the CFTC's website. (We first wrote about them in detail on November 9, 2011.)  But we now know exactly who pushed for them (Ferber) and just how badly Corzine needed to wield his starpower in front of the regulators.  After all, MF Global was about to float a $325 million bond offering (now practically worthless) that would close just days later on August 2, 2011, and any threat to MF's revenue model would have likely derailed it.

Regulatory Capture Kept the Corzine Trade Alive

According to a Bloomberg piece by William Cohen, Corzine himself said that the repo transactions pursuant to 1.25 made with customer funds with other broker-dealers as counterparties should be permitted “because such transactions could be beneficial to” firms like MF Global.  Without the extra income from investing customer funds (and they need not have been necessarily invested directly in the sovereign bonds), the Corzine Trade would be toast.

This was also a time when FINRA was about to push for a regulatory capital hike (eventually stalled by Corzine at the SEC, but not ultimately defeated), and a time when the SEC decided to sit on the annual audit of the broker unit for over three months instead of making it public right away as it customarily does.  This was the only document that would have been public at the time that disclosed the true risk of the Corzine trade to MF Global customers, wherein all of the risk was saddled in the broker unit and the bulk of the profits were sent overseas.  Who knows, maybe the bond investors would have been interested in that information too.

But we digress.  Back to those July 20 CFTC/MF Global meetings, what was the outcome?  According to the Federal Register, the CFTC filed on July 22, 2011 a notice effective July 20, 2011 regarding other rulemaking, and provided a footnote disclosing that "The amendments [to Rule 1.25 and 30.7] proposed in those Notices are not addressed herein and may be subject to future Commission rulemaking."  Apparently, Corzine and Ferber least for the time being.  

MF Global's long standing push against Rule 1.25 reform

But July, 2011 was not the first time that MF Global had pushed against Rule 1.25 reform.  Only months after it put on the Corzine Trade in September, 2010 (and lying about its existence to FINRA that same month), Ms. Ferber and a representative from Newedge penned a letter on December 2, 2010 to the CFTC.  As we quoted on November 9, 2011:

The ironic, if not prophetic, introduction:

As a general matter, we applaud the CFTC for seeking new ways to ensure the safety and liquidity of investments made by futures commission merchants under CFTC Rules 1.25 and 30.7. However, as we set forth below, we believe the specific amendments being proposed: (a) are unnecessary, considering that the current permissible investments under Rule 1.25 have not, to our knowledge, resulted in any FCM's inability to provide customers their segregated funds upon request or to continue as a solvent entity, (b) will, in many cases, create new investment risks and logistical difficulties for FCMs, and (c) may well change the pricing dynamics for customers and the industry at large. Recognizing the CFTC's concerns, however, we have set forth our own proposed amendments which we believe satisfy the CFTC's desire for the enhanced security of customer segregated funds without the risk of significantly increasing costs to customers.

On fixing something that is not broken (until it is):
B. The Investments Currently Permitted Under Rule 1.25 Have Not Put Customer
Funds at Risk.
We believe strongly that the CFTC's proposed amendments endeavor to "fix something that is not broken." Indeed, the evidence is clear that the investments permitted and safeguards required under Rule 1.25 have met the CFTC's stated "objectives of preserving principal and maintaining liquidity" of customer segregated funds. Sec Rule 1.25(b). Among other things, since the CFTC's 2004 expansion of permissible investments under RuIe 1.25, we are not aware of any FCM that has been unable to liquidate and provide to their customers upon request any segregated funds invested under Rule 1.25 (or under Regulation 30.7 either, for that matter).4
Further, since this expansion, no FCM to our knowledge has failed or otherwise been unable to meet any other of its financial obligations as a result of investments made under Rule 1.25.5 In short, we believe the current investment criteria set forth under Rule 1.25 have worked, including over the past two years of market instability and uncertainty - the ultimate stress test. Nevertheless, the Commission has proposed changes so sweeping that they may in fact increase systemic risk by imposing new burdens on otherwise effective, efficient and liquid settlement processes. Such a radical overhaul, in our view, is unnecessary considering the Rule's stellar track record. At most, the CFTC should be adjusting only slightly the products, counterparties and concentration percentages currently permitted. 6

Need for a fraud investigation and lawsuits against the execs

Mr. Corzine and Ms. Ferber, apparently operating under an end-justifies-the-means ethics, did not get their desired end, and now face a greatly undesired one.  They need to be held personally accountable, both criminally and civily, for their actions, should the facts warrant (which we believe they do).  The case, far from being cold, is just getting warmed up.  We hope the SIPC Trustee, James W. Giddens, keeps his word when he said last week he would go after MF Global personnel who broke the law by dipping into segregated funds.  We have also hopefully established enough intent to justify a fraud investigation by the DOJ, not that intent is a prerequisite to clawing back missing customer funds, which are statutorily required to be sacrosanct at all times.  

Using his former Congressional chambers as a stage, Mr. Corzine has theatrically attempted to set up a MF Global back office worker, one Edith O'Brien, to take the fall for it all.  While she may or may not have some culpability as firm Treasurer, she appears to hold the key to unraveling the mystery that has always been exposed in plain day.  If anyone deserves immunity, it is she.

A video explains it all

Explaining the situation in simple terms with some great background is Mark Melin of Opalesque TV.  Feel free to forward to anyone who might not be up to speed on MF Global, as this first part in a series of three is an excellent primer.  Mark will also appear on RT's Capital Account with Lauren Lyster [correction: Friday] to discuss these latest developments.


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Pike Bishop's picture

Misdirection. Gensler didn't shelve the regulation because he talked with Corzine. The regulation was scheduled for review and determination. (BTW, its postponement doesn't match with the Corzine/Gensler chat.)

Due to a friend of a friend, Corzine was able to get (of all things) a Republican appointee to reconsider his vote. Gensler couldn't go to Committee because he thought he didn't have the votes. He hadn't/hasn't done shit that he was supposed to do. The 1.25 was a small concession to an appearance of doing something.

If he risked the vote, and it was turned down, he would be in the position of the issue going public, and have to answer questions.

At the SEC/CFTC things are supposed to be on hold, or die a silent death.

There is a mistake here that Corzine represented the only entity which wanted 1.25 to die.

We would all like him to hang for something and somebody may have been at it. If you enjoy the almost conspiratorial nature of the competitive financial investment industry, then try this.

The suggestion that FINRA is a self-regulating body of the investment industry is preposterous. It is a fully created and funded (through fees and accreditations) subsidiary of the same entities it is supposed to monitor.

Also note that FINRA is not the final word Auditor of Commodity Broker/dealer Houses. The CME bares the only self-regulating authority to demand every nit of data for auditing purposes.

(In addendum, note that the concept of "segregated funds" is moot. It took 2 CME auditors 8 days to not reconcile MFGI's "Segregated Funds Report". A report clearly in existence to monitor the breadth and extent of dipping into client accounts. It remains the smoking-gun-to-be-ignored that fraud and outright theft have occurred. While the crooks clearly stole the goods in question. it is maintained no crime has occurred because the specific identity of the "Fence(s)" to whom the ill-gotten goods were transfered isn't clearly available. This new point of law may be of interest to those who thieve cars and major electronic equipment.)

However, FINRA can be a pest, in that it can insist that everybody keep their facade and windowdressing in tidy order.

So the query is this.... given that it was FINRA's sudden concern for a Broker/Dealer submitted "audit" report 3 months prior, which sent the note to MFG and commenced the ubiquitous snowball down the MFGI hill...

Why does it seem like a crack-out-of-turn that Corzine/MFGI was so uniquely chosen by FINRA for admonishment of Sovereign Securities' risk? An action which certainly exacerbated MFGI's market risk-profile.

As much of a shithole as MFG was, one would think that the mountains of Greek and other outlier EU debt in existence would have garnered other notifications, to possessing or repo-ing entities. Particularly those much less well-self-endowed than MFGI.

Admittedly, the distinguishing characteristics of the entire MF Global event are the abundance of counter-intuitive series of events, and the fact that the rule-of-law has, once again, been relegated to the steaming heap of other discarded unnecessary antiquities.

In a feudal Banana Republic are bananas less expensive?

I hope so. Bananas are a great source of potassium and an excellent stool softener.

Lord knows the latter will be of great service when the next EU-in-Waiting-for-Disaster Sovereign Debt candidate presents itself to the world.

disabledvet's picture

We have other commodity exchanges here in the USA. Perhaps a better "self regulated" body is in order...say in Minneapolis or Kansas City then? I know if I were a "candidate from Boston" I would want to take a serious look at where...and food and energy it traded?

azzhatter's picture

Sadly the fraud only ends with a violent revolution of the people. They don't fear you now. A few million armed citizens in the streets might scare them but right now they are laughing at the rule of law and what fools the american people are

Widowmaker's picture

Rule of law.  HA! HA HA!

MR. GLASS's picture

The MF Global Collapse will be looked back as the proverbial canary in the coal mine. It is the moment when the rule of law in this country completely unhinged. Lawyers and the cronies have been writing special loop holes for too long. Graduate schools are cranking out unemployed lawyers that need to answer messages on a board to find work. The legal profession is in disarray. See These very students sue their alma mada and get the lawsuit dismissed. Why? Because the whole system is a fraud. See . Special interests rule the day and the rule of law is dead. The student loan bubble is the next bubble to pop. The mortgage bubble blown by Fannie and Freeddie will be dwarfed by the upcoming Student Loan bubble when it pops. At over 1 Trillion dollars and growing, student loans crank out indentured servants. MF Global shows that everything that isnt nailed down can be stolen. Get your gold, gunds, and farmland prepare for tthe worst. Our beautiful republic is over. When political process cannot effectuate change, revolution becomes inevitable.

EB's picture

Canary in the coal mine indeed.  What happends when an iShares counterparty goes belly up and trillions in swaps and rehypothecated collateral are "vaporized."  Same biz plan at the core.  Except ETF buyers are not customers and have even less protections than the farmers that Corzine swindled.  Or scenario 2 thru n.  

Gringo Viejo's picture

"And when the cops, when they assigned a whole army to stop Jimmy, what'd he do? He made 'em partners."

Henry Hill, "Goodfellas".

flattrader's picture

I love that movie...only second to "The Godfather."

"Leave the gun.  Take the cannoli."

Words to live by.

Whalley World's picture

All this MFG crap reminds me of the Cannoli in the coal mine.

Lost Wages's picture

Capital Punishment for Financial Terrorists.

Swarmee's picture

I see what you did there. +1 for you, sir.

Clowns on Acid's picture

Gensler cannot go to jail...Obama said that he needs him to hire hundreds of "cops" on the CFTC to crush the oil contract speculators.

Corzine cannot go to jail because he knows where Obama's real b/c is located.

We have MORE important things to think about..... like redistribution of the fiat currency...



Even a blind pig can find an acorn. Time to clean up the gene pool. Give the money changers choice they can believe in. Walk into an airport runway snow blower running at full tilt, or move into general population in a labor camp in Siberia. Your new room mate is Olaf, and he likes little boys of any age. Or, step up to that stake on top of that pile of fiat currency and stock certificates with a match and some gasoline for live TV six o'clock news highlights.

fresno dan's picture

Irrefutable videotape and forensic evidence reveals Corzine is Hitler. 

Investigators have learned that Hitler actually escaped after WWII, came to America, where Hitler's political skills enabled him to become a govenor and senator from NJ (well...of course) and his natural evilness drew him to Goldman Sachs (which is kinda ironic....)

Federal prosecutors say that being Hitler actually breaks no Federal laws.  And that they (i.e., federal prosecutors) haven't read any of those complicated financial everything is OK.

iDealMeat's picture

Where the fuck are you Ron Paul ?????  Why aren't you addressing any of this??  It's direcly linked to the Federal Reserve..


What  The Fuck...



CH1's picture

RP has been trying for a long time. This is not his fault.

iDealMeat's picture

Not his fault that he's the Chairman of the U.S. House Financial Services Subcommittee on Domestic Monetary Policy and Technology ?? 


Again..  WTF   -  Do your Job Ron..  Call Corizne before your Committee..


Money 4 Nothing's picture

Ssshh... Not so loud, don't tell anyone he doesn't work for the American people either, it's not his job.

CH1's picture

So, you want to toss RP under the bus now?


Money 4 Nothing's picture

Throw them all under the bus, none of them work for the citizens of the United States and are not beholden to civil Constitutional law, that should be very apparent by now.

They work for the Corperate States of America. Do you know your Constitutional history?

Let the arrows fly, but it's the truth.


Even if Ron Paul tries to do the right thing by the American citizens, he has too many forces against him which neutralize any real effort. 

sgt_doom's picture

Obama and the Naked Swap

I agree with everything President Obama says about oil speculation --- but I disagree and despise his actions in support of massive speculation.

President Obama reappointed the author of much of the Gramm-Leach-Bliley Act, Neal Wolin, and two major supporters of the Commodity Futures Modernization Act, Gary Gensler to the CFTC and Larry Summers, who is no longer with his administration.

President Obama’s Treasury Secretary Geithner, and his treasury department, strongly supported keeping naked swaps --- the most valuable tool in large-scale commodities speculation.

To date, all actions of the Obama administration have allowed and encouraged the very speculation he denounces!

Much of the entire speculation spectrum:  (1) unlimited number of credit default swaps allowed against bonds, etc. (naked swaps); (2) unlimited number of commodity futures contracts allowed against specific commodities or categories; (3) unlimited number of investors allowed per hedge fund; and (4) naked short selling via DTCC’s Stock Borrow Program, were realized during the Clinton administration, and expanded under the Bush and Obama administrations!

I am a lifelong democrat --- I would love to support Obama, but Obama, Biden, and both Clintons are simply just some more neocons.

Ned Zeppelin's picture

And so, as with me, you must conclude that Obama is a Wall Street plant. And in November we can pick between Obama or Romney, another intimate friend of Wall Street.

Yippee.  The menu at this restaurant sucks.

Bollixed's picture

"The menu at this restaurant sucks."

I thinks it's the loop between the toilets and the kitchen that gives the menu that "just flushed flavor".

eatthebanksters's picture

_________ man speak with forked tongue.

worbsid's picture

Eric Holder must think this is much to complicated to pursue. So he tells his boss, "There is nothing here.  It may be immoral but not illegal." I think that was how the president expresses it ...

BidnessMan's picture

Can imagine the Secret Service guys who were caught in "immoral but not illegal" activities in Colombia wished that applied to them.  Only the Banksters get a pass.  

eddiebe's picture

Same shit same shovel. Excuse me while I go throw up.

q99x2's picture

How about a new Senate Hearing for the CFTC.

'The awkward phrasing sure sounds smart.' They should have added a hyphen Money-Smart Week.

How about a new Senate Hearing for the SEC.

Catullus's picture

The myth of government oversight and regulation evaporates every day. And Obama wants money for the CFTC to go after "market manipulators"? That picture with him and Corzine speaks a million words about this president.

Please, someone at the DOJ. This is something worth risking your career over. People's confidence in the market is eroding everyday. The stock market is literally running on fumes. The LME is no longer trading in pounds for certain contracts. It's not one or two freak events that's causing this. It's a train of abuses and fraud that destroys generational confidence. Do the right thing and get to the bottom of this.

sgt_doom's picture

Would you trust Gary Gensler with your wallet?

Bastiat's picture

Hell, yeah!  Look how he followed through after acknowledging strong evidence of manipulation in the silver futures market . . . . oh . . .

knukles's picture

Hell, he'd appoint Corzine head of the new division given his ample first hand experience.

BidnessMan's picture

Well, what Roosevelt did when he appointed Joe Kennedy head of the SEC.  It could happen.

tony bonn's picture

i saw a c-span replay of some of the congressional investigations of that criminal trio of asswipes a few days ago....steenkamp and ferber are all lying cunts....the body language and the stilted verbal language are strong indicators that practically every word they uttered was a deception....those fucking punks are perfect examples of the psychopathic arrogance of corporate america - and don't get me started on corzine...

Nobody For President's picture

Ah come on, TB, tell me about Corzine.

iDealMeat's picture

+1,  Me too!  ANd don't hold back.  Let it all out,  all of it..


ebworthen's picture

It's taken them this long to gin up some nebulous emails and figure out how they are going to let Corzine off the hook.

Madcow's picture

Blythe Masters recently reported that JP Morgan has $76 Trillion in physical silver - stored somewhere in a vault in Manhattan.  Does anyone know where that vault is?  Can the NYPD be called in to verify the existance of $76T in physical silver?

BidnessMan's picture

Someone would likely have a hard time hiding a pile of silver that big.  A 1,000 ounce silver bar has dimensions of about 13" x 5" x 3".  About 1.5 standard house bricks.  $76 trillion of silver is about 2,375,000,000,000 ounces - 237 billion 1,000 oz bars.  About 2.3 bars per square foot.  A 12 foot wide 1,000 ounce silver bar road would require about 150,000 of these 1,000 ounce silver bars per mile.  So this pile of 237 billion silver bars could pave a 12 foot wide road about 16,000 miles long.  About 2/3 of the way around the earth at the equator.  So my guess is Ms. Masters does not really have a vault in Manhattan capable of holding 237 billion 1,000 ounce bricks of physical silver.  

More likely she has a pile of paper (could be a big pile or a small pile), or a file server with a disk drive that says she has claims to $76 trillion of silver.  Just my guess.     

ziggy59's picture

76 Trillion?? There's not that much silver, gold, platinum, palladium etc combined on the planet..

JustObserving's picture

All the silver bullion available in this world is only a billion ounces.  That is worth about $32 billion.

All the silver mined in human history is about 80 billion ounces (16 times all the gold mined).   That is worth $2.56 trillion.

How did Blythe Masters get $76 trillion of silver?


Sweet Chicken's picture

As I said above....


Because she slipped and used their silver reserves value in silvers REAL UNMANIPULATED PRICE. ;)





SilverRhino's picture

Where the hell are they going to store 73.6 MILLION metric tons of silver?   That's a SOLID cube of silver 191.4 meters on a fucking SIDE. 


[Math based on 1 troy ounce = $32]

NotApplicable's picture

Your math should be 1 piece of paper equals 5000 oz. of silver. Remember, Comex paper is just a different type of physical as far as the Street is concerned.

Now, how many pieces of paper are in that vault?

Sweet Chicken's picture

Where the hell are they going to store 73.6 MILLION metric tons of silver?   That's a SOLID cube of silver 191.4 meters on a fucking SIDE. 


[Math based on 1 troy ounce = $32]



Who knows maybe they slipped and referred to the value in its UNmanipulated value. ;)

SubjectivObject's picture

Any glossy new buildings that we arn't allowed to enter going up in Manhattan lately?

Bollixed's picture

That wasn't JP Morgan who reportedly had $76 Trillion in silver located in a vault in NYC.

That was my ex-wife's attorney claiming it was me who had it in my basement...

Joebloinvestor's picture

Gensler needs to be indicted and prosecuted.