MF Global Roundup: the [so-far] Great Escape of "Teflon Don" Corzine; Bankruptcy Shenanigans Exposed; the "F" Word Revisited

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Ahead of Tuesday's Senate Banking Committee hearing on MF Global, we present the April 20 installment of Capital Account with Lauren Lyster, featuring futures industry veteran guest, Mark Melin.  Ms. Lyster pulls no punches in the opener:


Has the case really gone cold? Or, are those who are in charge of the investigation, the "regulators" and the trustees, simply spraying teflon on every piece of sticky evidence that could lead to criminal prosecutions--and, ultimately--the recovery of stolen customer money?


We wish that MF Global were just a one-off affair--a bad apple, if you will.  Unfortunately, it seems more likely to us that this is another milestone in the history of what we see as criminality, which has swept through the financial services industry, like some sort of Medieval Black Plague--the Black Death for capital formation.  It seems the only time people are held accountable anymore, is when they commit crimes that affect the super-rich.


Bernie Madoff is a prime example...Madoff is securely behind bars, but Jon "Teflon Don" Corzine is busy ordering carmel-Frappuchinos at the local Starbucks as he goes to shop for office space in New York...bothered only by the low din of discontent emanating from the blogosphere (and shows like this, Capital Account).  What a nuiscance we must be to the new God-fellas of Wall Street...


Nuiscance, indeed, to which we hope we are part.  Below is the entire episode, in which Ms. Lyster and Mr. Melin cover the following salient points, all pointing to a criminal intent to commit fraud, as well as the role of regulators and investigators aiding and abetting the criminals:

  • Why was the MF Global back office cleared out with three top personnel allowed to leave, just as the firm was exeriencing its most serious liquidity (ahem solvency) crisis in its soon-to-be-terminated existence?
  • Why were C-level executives, far from being sequestered by investigators and being placed in an information silo, allowed to run the company for six weeks (prior to Mr. Freeh being installed as Trustee of the Holdings company)?
  • Why did Freeh wait until early March to have MF Global Holdings USA declare bankruptcy, the very entity that retained the few remaining executives and employees and may have been cash-rich? 
  • Why did Federal cops and investigators fail to so much as question Mr. Corzine nearly six months after the crime?
  • Why were large counterparties paid with wire transfers, when requests from lowly customers for wires were converted to checks (which ultimately bounced)? "Sloppy is when you don't do things consistently.  Sending all checks to customers and all wires to counterparties--that's consistent."  See here for details published by John Roe of the Commodity Customer Coalition.
  • Why were the final days characterized as so "chaotic" when a properly programmed iPhone or Android smart phone (sorry, RIMM) should have been able to handle what amounts to maybe a few dozen megabytes of transfer instructions?
  • Just what were the details surrounding the successful lobbying effort by top level MF Global execs that effectively postponed reforms on rules that would limit use of customer funds (coincidentally, or not perhaps, just ahead of a $325 million bond offering by MF Global)? [For more details, see our prior piece from this week, which includes exclusive CFTC emails on the issue.]

Was MF Global a parking lot for European sovereign debt?
On another note, Pam Martens, writing for has a fantastic exercise in out-of-the-box thinking, as well as her own round-up.  She begins:
Only on Wall Street can you bankrupt a company; misplace $1.6 billion of customers’ money; lose 75 percent of shareholders’ money in two weeks; speed dial a high priced criminal attorney and get a court to authorize the payment of your multi-million dollar legal tab from the failed company’s insurance policies; have regulators waive your requirements to take licensing exams required to work in the securities and commodities industry; have your Board of Directors waive your loyalty to the firm; run a bucket shop out of the UK; and still have the word “Honorable” affixed to your name in a Congressional investigations hearing.
One of the few to question the role of JC Flowers in the MF debacle, Martens continues:
But wearing the three incompatible hats was not the only fatal flaw in Corzine’s management model: he contractually did not owe his total loyalty to MF Global. The August 11, 2011 proxy issued to shareholders and filed with the SEC carried this caveat:
“During the term of Mr. Corzine’s employment agreement with the Company, Mr. Corzine will spend substantially all of his business time and attention on Company matters, except that he may serve as an operating partner of J.C. Flowers. Pursuant to his contract with J.C. Flowers, Mr. Corzine will not receive any salary from J.C. Flowers as long as he is serving as Chief Executive Officer of the Company, but he will have a financial interest as a limited partner in certain of J.C. Flowers’s investment management entities. Mr. Corzine’s employment agreement with the Company contains a provision regarding corporate opportunities. In general, this provision provides that, if Mr. Corzine acquires knowledge from J.C. Flowers (and not the Company) of a potential transaction or other business opportunity that may be a business opportunity for the Company he will have no duty to communicate or present such opportunity to the Company…” 
We would point out to MF Global customers pursuing redress against Mr. Corzine, individually, that it is not always the case that simply by disclosing something, one waives his or her responsibility under the rule of law for it.  
And, how the CATO institute founders, the Koch Brothers (see this EPJ exclusive), got out of Dodge early:

Compared to Corzine’s former employer, Goldman Sachs, MF Global was a flea on an elephant’s back.  It had experienced a string of quarterly losses since 2007, was predominantly a Futures Commission Merchant (FCM) holding retail and institutional commodity and futures trading accounts, and had 80 regulatory actions against it since 1997. It had a securities brokerage unit with 300 to 400 U.S. accounts according to the trustee. How big those accounts were is unknown.  If they were all institutional or hedge fund accounts, it could have been a sizeable operation.  One known account, which presciently moved out before the bankruptcy, belonged to the $100 billion private energy firm, Koch Industries, majority owned by Charles and David Koch, financial backers to numerous corporate front groups.

The other "JC"
More on the role of "the other JC," who, we note, was not only instrumental in securing Mr. Corzine's hire, but that of fellow ex-Goldmanite Laurie Ferber, who was MF Global's go-to reguatory fixer:
JC Flowers was the namesake of J. Christopher Flowers, a former colleague of Corzine’s at Goldman Sachs. Flowers had acquired a stake in MF Global to help shore it up in 2008 after a trader blew up $141 million of the firm’s money overnight in what the firm called an unauthorized trade. It was Flowers who invited Corzine to become CEO of MF Global.  Corzine left MF Global on November 4, four days after its bankruptcy filing, at the request of the Board.
Why Corzine, a man of great wealth and political stature, would join an obscure brokerage firm is a mystery worthy of pursuit by the FBI, which is investigating the missing customer funds according to Congressional sources. One avenue worthy of pursuit according to Wall Street veterans, is whether Jon Corzine turned MF Global into a giant parking lot for other Wall Street firms’ bad bets on sovereign debt. Fueling that speculation is the fact that JPMorgan, Citigroup and Bank of America were part of a syndicate of 22 banks that provided MF Global with an unsecured $1.2 billion revolving credit line that required no posting of collateral, despite the company’sstring of losses and weak credit rating.  The firm heavily tapped this line of credit in its last days.
And on the beleaguered trustee of the MF Global Holdings estate in Chapter 11 (who, incidentally is still under investigation by the Treasury department for allegedly accepting funds from a designated Iranian terrorist group):
The trustee of the Chapter 11 proceeding for the parent holding company is Louis J. Freeh, a former FBI director. On April 19, Freeh asked the court for an expedited hearing to grant him the ability to issue subpoenas to “the Debtors’ affiliates and subsidiaries, the Debtors’ former employees, current and former officers, directors and employees of the Debtors’ affiliates and subsidiaries, lenders, investors, creditors and counterparties to transactions with the Debtors…” 
The court is allowing Freeh’s own firm, Freeh Group International Solutions, to perform the accounting work. Four docket entries show that Freeh has asked for and received four extensions by the court to file a list of assets of the holding company.
We would add that Mr. Freeh and his firm(s) have exactly ZERO experience in bankruptcy prior to MF Global, and even Judge Glenn has expressed concern about the work he has been forced to outsource to a plethora of other law firms.
Revisiting the Trustee Conflicts
Then, there is the other trustee of the broker unit, Mr. James W. Giddens, who is statutorily designated under SIPA as the customers' advocate.  Ahead of the Senate hearings, we would like to remind that just over one year ago, the Office of Inspector General at the SEC released a scathing report of SIPC (the private corporation created by SIPA statutes), which is supposed to oversee failing securities broker dealers for the protection of customers and that now by-gone relic, "market integrity."
Liquidations are similar to ordinary bankruptcy cases, it does not provide any limit on the amount of trustee fees in SIPA liquidations, unlike bankruptcy cases. Second, under SIPA, where payments are made out of the SIPC fund, courts have no discretion whatsoever to limit fees that SIPC has recommended for trustees or their counsel. Thus, even if a court finds the amount of fees awarded to the trustee to be excessive, it is required to approve such excessive fees if SIPC determines that the fees are reasonable. We found that in one case, a Southern District of New York bankruptcy judge deemed fees to be awarded to the trustee in a liquidation to be excessive, but found that he had no choice but to approve the fees.
According to the latest published report, the fees paid to the trustee and his counsels processing the Lehman claims for the period from September 2008 to September 2010 (24 months) totaled approximately $108 million. According to the fourth interim fee application, as of September 30, 2010, the entire administrative fees, including fees for accountants, consultants, etc., totaled approximately $420 million. comments, "We hadn’t see anything yet.  October 24th Bloomberg reported that LBH had spent “642 million on its liquidation, with most of the money going for professional and consulting fees. Trustee James Giddens and his law firm, Hughes Hubbard & Reed LLP, have earned about $169 million.”
Not to fear, there has been commissioned a SIPC Modernization Taks Force to implement reforms, on which no lesser than MF Global Trustee (and former price-gouging Lehman Trustee), James W. Giddens is a member.
Speaking of Mr. Giddens' firm, Hughes Hubbard & Reed, Ms. Martens also had something to say about them in her aforementioned MF Global article:
Hughes Hubbard and Reed is the same law firm handling the bankruptcy of Lehman Brothers.  After more than three years, customers have yet to be made whole. There are over 7600 law firms in New York City according to the legal web site,  Why SIPC has selected the same firm for two of the largest Wall Street collapses in history is noteworthy.
Hughes Hubbard and Reed hired the same public relations firm to handle both the Lehman and MF Global matters, APCO Worldwide.  APCO was originally formed as a subsidiary of Arnold & Porter, the law firm aligned with spin for Big Tobacco in the 90s. [EB: Arnold & Porter was also heavily involved in lobbying the CFTC with respect to DF implementation, including CFTC Rule 1.25, investment of customer funds.]
According to Wendell Potter, an insurance company public relations insider and whistleblower, writing in his book  Deadly Spin, "One of the deceptive practices of which APCO has a long history is setting up and running front groups for its clients. In 1993, Philip Morris hired APCO to organize a front group called the Advancement of Sound Science Coalition in response to the U.S. Environmental Protection Agency's ruling that secondhand tobacco smoke was a carcinogen. Philip Morris also hired APCO to manage what it called a 'massive national effort aimed at altering the American judicial system to be more hostile toward product liability suits' and to build a coalition to advocate for tort reform. According to the Center for Media and Democracy, the tobacco industry paid APCO almost a million dollars in 1995 to implement behind-the-scenes tort reform efforts and specifically to create chapters of 'grassroots' citizens' groups called Citizens Against Lawsuit Abuse."
In the same month that Corzine was hired by MF Global, March 2010, there were confirmed news reports that APCO Worldwide had been hired by the Financial Services Roundtable, a Wall Street trade group, to promote the image of Wall Street as trustworthy.  An APCO spokeswoman says they no longer represent the account.
Lets not forget that, according to the New York Post, MF Global was also paying Bill Clinton and Tony Blair's consulting firm, Teneo Holdings, betwen $50,000 and $125,000 per month for "public relations and investment advice."  
The arcane bankruptcy structure
Coming full circle, we will finally get back to the arcane bankruptcy structure of the MF Global entities that ought to be questioned in detail at Tuesday's Senate hearings.  In particular, the SEC Director of Trading and Markets, Robert Cook, should be held accountable for what was ultimately his decision (though with no protest by the toothless CFTC) to subject 38,000 futures customers to a SIPA liquidation, which offers no insurance protection and that places futures customer claims to MF Global estate assets in legal limbo.  For, as we have pointed out previously, it was his predecessor, at the then-styled position of Director of Market Regulation, who exercised authority to put Lehman in a SIPA liquidation (at least Lehman was primarily a securities firm, not a futures firm).
Stanley Haar discusses this, and other issues, here:
Even Chuck Grassley, the sponsor of the now-widely criticized 2005 bankruptcy reform act, has stated, "The bankruptcy laws are written to ensure that company executives who were involved in the demise of a company because of fraud or mismanagement shouldn't be eligible for bonuses," Mr. Grassley said.
More broadly, MF Global customers have an absolute right to clawback of questionable margin payments and asset transfers from the broker unit that occurred in the weeks leading up to the firm's demise because there was a clear pattern of intent to deceive investors and customers alike--from manipulating regulators and the regulatory process to changing business practices in the final wee--all of which ensured that customers would be last in line for the remaining morsels of the MF Global carcass. (And, as we have pointed out since early November, 2011, the very nature of the Corzine Trade from Day One was such that all the risk was put in the customer brokerage house, while profits were diverted to an offshore business unit).
"Fraud" is the operative word here.  There is no dispute that the Commodity Exchange Act (sic, the law) has been broken, but until fraud is investigated, customers are at the mercy of a very fuzzy and opaque legal process.

It's time for Congress to put pressure on those in charge of this investigation and oversight to break their own glass of silence and dare them to utter the magic "F" word.

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malek's picture

This is one of the articles where you feel like a child first visiting a chocolate factory... even after years of reading ZH

bankruptcylawyer's picture

there is no way jpmorgan is going to give back the money. and if it comes close, they'll kill corzine and bury the story with his corpse. as much as people want to dump it on corzine he is just the face of a high level operation far bigger than corzine himself. 

Widowmaker's picture

Fraud doesn't matter.  Fraud is the business.

There are zero legal complications when "the incorporated" commit fraud. 

For fuck's sake get a clue ZH, and quit wasting my time.


ihedgemyhedges's picture

Sorry folks, but if I were injected with truth serum and then interviewed by Lauren, every answer to every question would be: "Yes, I'd love to rub melted butter all over you and eat you like a lobster................."

Smart, hot as hell, no BS.  Whew............................

Buck Johnson's picture

Your totally correct, I would also love to do the exact same thing.  Also MF Global was acting as a front/bad bank/etc. for bad assets and it couldn't handle it.

Bagbalm's picture

He screwed over a bunch of prairie dog shooters. Why is he still alive?

Judge Arrow's picture

Coming from those parts I can tell you that centerfire cartridges and varmint guns are ready if the law doesn't get this right, and right quick. Mister Corzine is a man that needs killing. But then, most of them do.

MrBoompi's picture

For every dollar they take in, the people that run these banks spend 2 on themselves, so it's not hard to imagine they're all insolvent and from time to time have to decide which turkey get cooked and carved up when they need cash.

One of these days they're going to turn on the stock market.



connda's picture

Has the case really gone cold? Or, are those who are in charge of the investigation, the "regulators" and the trustees, simply spraying teflon on every piece of sticky evidence that could lead to criminal prosecutions--and, ultimately--the recovery of stolen customer money?


Uh, yeah!  And you expected what?

palmereldritch's picture

Where's J. Edgar Hoover when you need him?

FeralSerf's picture

Where was J Edgar in Nov 1963 when the country needed him?

Zero Govt's picture

..he's pushing up the daisies

..but we do have Bumma who's a Marxist and believes in "fairness" and "social justice" and his socialist side-kick Joe Biden... despite Corzine being their top go-to economic advisor i'm sure these 2 creeps will put Party politics aside, not that they've said a friggin peep on the issue

seems the socialist elected as the 'Man of the People' just turns out to be another banker puppet ...what a shocker

donsluck's picture

He can't be both a socialist and a banker puppet. Make up your mind!

brettd's picture

He's a fascist, which allows for both. 

palmereldritch's picture

It's not called the Hoover building for nothing.

Incriminating evidence gets sucked up and disposed of later...

Tijuana Donkey Show's picture

Sucked up and dressed as the opposite sex, then disposed of later

Amish Hacker's picture

What the 2012 election will really determine is whether Corzine's pardon comes this year or next.

Joebloinvestor's picture

Gensler needs to be indicted and prosecuted.


They wonder why money is on the side and people have lost "faith" in the system.


They leave SHITS like this WEASEL untouched and let well connected presidential "bundlers" walk (after STEALING $1.2 billion).



Widowmaker's picture

Gunt-Gensler will get a pardon followed by promotion to the private sector.

Bank on it.

The people cant win, it's the wrong game.

Eric L. Prentis's picture

Dear Lauren Lyster;


Excellent piece on the continuing shenanigans by our corrupt politicians in the MF Global $1.6 billion dollar looting of segregated customer funds. If politicians and Wall Street are allowed to sweep this under the rug, it will confirm their criminality and more importantly, the US financial system will be severely damaged. Investing professionals will not take lightly the possibility of having their money stolen, and will go elsewhere.


The trust is gone; it now has to be earned. Putting Jon Corzine in prison and returning MFG customers’ money is the first step.

Widowmaker's picture

Obviously, the Fed-Fuckup-Cartel will print more trust.

PRESTO!  Real cheese.

ebworthen's picture

Sounds like Corzine and J.C. Flowers planned the whole thing all along.

Remember Lind/Waldock?  Yeah, tons of commercials on CNBC?  They were bought out by MF Global months before customer money was "vaporized".

I'd bet an ounce of Gold Jon "Teflon Dom" Corzine knew he could milk more regular folk's money out of that before he sank the Bismark (sorry, "MF").


iDealMeat's picture

You would think that someone running for POTUS would point out the connection Obama > John Corzine > MF Global > Goldman  Sachs..


Then you'd also point out the bank rollers and stewards of Romney's fortune being Goldman Sachs..


Sad that Ron Paul doesn't really want to be POTUS..


SAT 800's picture

Hey, I like the guy, (Ron Paul); it's really nice being able to hear something that makes sense once in a while; but if you elect him, you'll kill him. I don't think he deserves it. You don't actually think Lee Harvey Oswald shot JFK, do you? I mean, are you naive? They murdered old Julius on the floor of the Roman Senate, you know, sacred place. this has been going on for a while now.

imaginalis's picture

Then you'd also point out the bank rollers and stewards of Romney's fortune being Goldman Sachs..


I thought his hedge fund was significantly bankrolled by right wing investors from El Salvador. Some of whom were alledgedly supporters of the death squads.

iDealMeat's picture

Pretty sure there is a direct link between Goldman Sachs and El Salvadorian death squad supporters too..



Widowmaker's picture

Point it out??  Seriously, holmes?

Fuck, this is 100% by acciden.   

I guarantee that Uncle Sam will pay the difference.  This is the fucking racket you live in.  Fraud pays, and so does the taxpayer.

The rule of law does not apply.

Kastorsky's picture

Koch Brothers?!

These creatures are more evil than Obama and all of Bushes combined.

They should be hung 100 times than dismembered, burned and fed to pigs.

divide_by_zero's picture

Still an order of magnitude below Soros evil, he picked the bones after BK

FeralSerf's picture

It looks like the Eastern European tribe of junk dealers is alert and on duty.

shovelhead's picture

How funny would it be if MF 'disappeared' the SEIU gangsters skim money?

"Jon Corzine's body found in car trunk at Newark airport parking lot."

Catullus's picture

Theyre not laws if no one prosecutes them. All the government, none of the laws. Idiots blame it on capitalism. Sometimes some will say it's big corporations... The problem is putting your faith in the government to begin with. There's nothing the government can do about a crisis in confidence when that confidence has been eroded by years of state sanctioned fraud. There's nothing they can say or do to restore credibility.

I would have thought some damage control and a show trial by now. Maybe a perp walk or two. Nothing. Just a lot of angry people who want their money back.

Great article. Great questions raised. I'm afraid there are few in Congress with the brain capacity to demand answers.

GoinFawr's picture

Like you, 8 people have great memories, they're just really really short.  

Remind me who Bill Black worked for again? Is it just me or does the 1,000 plus convictions he eked out kinda refute your ideological blather?

The problem isn't 'expecting those who get paid in tax-payer dollars to do their jobs', it's in them actually not doing their jobs... big difference there.

Capitalism isn't the problem, unmitigated capitalism is. Idiotic echochambermaids don't know the difference, and prey on duped zealots who have memories as unbelievably stunted as their own.

slackrabbit's picture

The reasons why the SEC is covering this thing up is because the amount of money stolen just keeps on growing. Currently the total is 28.- 3.9 billion - but who knows? This is just another example of the commming crash. Evenutally even the sheeple stop watching Pop Idol...

justinius1969's picture

A funny story...I met Corzine at  Mf function in Geneva.. the most underwhelming public figure/CEO you could ever come across.. he looked like a Geography teacher... apologies to Geography teachers the world over.. However apart from looking like a big of shite he laso talked the bigeest load of bollocks I have ever heard... At the "excusive" round table dinner, Big John enquired whether the local housing market was priced in US Dollars.... WTF.!!!!!..... to say one could hear a pin drop... EX CEO of Goldies/Ex Governor of.. EX..of this/that.. CHF was the strongest performing ccy in the world at that point.. What a bell end.


SAT 800's picture

That's very revealing; I'm grateful to you for posting it. It's very helpful in understanding the play. As far as I know his actual history is a complete failure; he was dumped at Goldman for following Russian Bonds into the toilet, but they gave him a golden handshake with the newly acquired public money, (IPO), so right away we have a confused public who thinks he's smart becaue he has x hundred million dollars, when actually he has shit for brains. Notice he did exactly the same thing at MF Global, followed the (obvious) shit Euro Bonds into the toilet; making margin re-ups, averaging down, the whole ignorant civilian, non-professional, program; until his bankers cut him off. Kind of a one-trick pony, with no actual knowledge of markets or  how to function in the world at all.

justinius1969's picture

A complete failure! I worked at Mf for 14 years - a 225 year old company that he destroyed within 18 months - I spoke with him regarding the outlook on mkts just after he joined the firm. I was clear in my persepective that the crisis was far from over, he looked at me like I was an alien and more or less ushered me out of his office and I took that as a cue to leave the firm. I have to thank him for this, at least.

lakecity55's picture

Well, he was also a politician in the US, so you know he is brain-dead to begin  with.

NotApplicable's picture

Luckily for him, hired guns don't need to be that smart.

Just well connected.

Arnold Ziffel's picture

strange the WalMart thing is getting more press then MFGlobal.


SAT 800's picture

Oh, yeah. Strange. uh-huh. It's called manufacturing consensus, and defining the window of discussion. We've got a washing machine that's broke, it never finishes the Spin Cycle.

BlackVoid's picture

Why, why.

Because the whole thing was executed at the orders of the banking cartel.

They will not prosecute anybody on this. The US needs a second revolution.

Central Wanker's picture

I'm tempted to believe, that all this cover-up activity is needed to keep the gold and silver trading scam unexposed.

NotApplicable's picture

Basically, they blew up the bridge leading to the Comex vault.

JPM: 1

Keiser: 0

lakecity55's picture

TPTB: "Ve need another skandel to keep zee eyes off ze PM Markets..."