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It’s Official: Wall Street Firms May Legally Steal From Their Customers
It’s Official: Wall Street Firms May Legally Steal From Their Customers - Rationalizations to Follow
Courtesy of Jesse's Cafe Americain
...and they may not have to pay them back, even when they are caught. The customers will be expected to 'take one for the team,' and for the good of the system. Confidence and all that.
“This means they can take segregated funds and leverage them to kingdom come. It means nothing is safe.”
Andy Abraham
If you have a commodity account with Wall Street, they may gamble with your money, with your assets, the rule on segregated accounts be damned. If they lose the money you might be reimbursed, or not. The losses may have to be 'socialized' and haircuts received.
This is most likely a distortion of the principle known as 'rehypothecation' in which a broker can use customer positions and holdings as collateral pledged for a margin loan for the purpose of securing funding from a third party to service that loan.
The principle at play here may be closer to a type of droit du seigneur, in which any assets you have posted at a futures brokerage may be used at will by the broker for their own purposes without regard to any customer obligations. It depends on the extent to which MF took customer assets and leveraged them.
In a way it is just making the unbalanced relationship between Wall Street and its customers official.
It means that customers are bearing hidden counterparty risks on assets to which they thought they had a clear title, such as Treasuries, and foreign currencies, and warehouse receipts for precious metals.
It means that brokers can go beyond the mere provision of funding for loss, and use customer accounts to fund their own leveraged speculation under exemptions duly granted by their 'regulators.'
This sort of systemic abuse is typically exposed when there is a market dislocation. It is what finally exposed Madoff, for example, despite the many years that the regulators were turning a blind eye to his scheme.
This sort of arbitrary distribution of gains and losses occurs more frequently than you might imagine on Wall Street, at least from what I have seen and heard, and not just with commodity brokers. I have even heard of specially privileged customers who can make $100,000 in a few trading days without even having any knowledge of the markets in which they have 'traded.'
I stopped trading on the futures exchanges a few years ago when I experienced enough one-sided 'rule changes' to persuade myself at least that it was becoming an insiders' game with slim odds of success for the 'outsider.' Or perhaps I was just becoming aware of it had already become, or had always been.
Unfortunately it is hard to escape inefficiency in markets, because despite all that has happened, these fellows still set the prices for much of the world's food, energy, and basic materials, at least on the official exchanges.
The CFTC has been disgracefully negligent, and given to cronyism, but in the spirit of modern American management practice it may just hide behind a claim of incompetence. They granted some exemptions to influential insiders, and the markets proved that the exceptions were loopholes for fraudulent abuse of the public trust.
The Justice Department is investigating the case of MF Global for any violation of the laws. I suggest they pay special attention to the laws regarding 'fraudulent conveyance' in the posting of the customer assets as collateral with MF's creditors, even as the firm was paying its employees bonuses, knowing that it was insolvent.
Actual fraud typically involves a debtor who as part of an asset protection scheme donates his assets, usually to an "insider", and leaves himself nothing to pay his creditors. Constructive fraud does not relate to fraudulent intent, but rather to the underlying economics of the transaction, if it took place for less than reasonably equivalent value at a time when the debtor was in a distressed financial condition.
For example, where the debtor has simply been more generous than they should have or, in business transactions, the business should have ceased trading earlier to avoid giving certain business creditors an unfair preference (see generally, wrongful trading).
Obama should bring meaningful reforms to the regulatory agencies and the financial markets after the shocking abuses of the past twenty years. But I doubt he will bite the hand that feeds him. He will likely hide behind committees and a building of 'consensus' with the unabashed servants of the monied interests. It's in the nature of a credibility trap that reform will not come until the system finally seizes, and crashes, and there is an opportunity to hide their crimes in the rubble.
Forbes
MF Global May Have Used Customer Funds In The Losing $6.3 Billion Trade Without Informing Clients
By Robert LenznerAfter an intense day of investigation, I have just discovered that a CFTC rule (1.29) allowed Jon Corzine’s MF Global to use the margin and cash in customers heretofore segregated accounts to amass a risky $6.3 billion investment in European sovereign debt that backfired. Nor did Corzine have the obligation to inform any of these customers he was gambling with their money. Or that he was intending to keep all the profits for himself and his troubled firm. Nothing for the customers.
The language of Rule 1.29 allows “The investment of customer funds in instruments described in 1.29 shall not prevent the futures commission merchant (MF Global) or clearing organization so investing such funds and retaining as its own any increment or interest resulting therefrom.” Increment refers to any trading profits or gains.
The criminal division of the Justice Department in New York — as well as the SEC and the CFTC and members of Congress– are investigating whether any laws were violated and if so, whether any criminal charges can be brought. As of 3 pm today, there has been no sign of the missing $633 million. My sources believe it was probably grabbed by the institutions that made the margin calls on MF Global as the European bonds sank in value.
This shocking loophole, which is available to all commodity traders, whether giant ones like Goldman Sachs or members of commodity exchanges, means that huge risks are being taken with money that does not belong to the trading firms– without the customers having any idea of the danger they are in. As Andy Abraham, a futures trader in Israel put it to me today; “this means they can take segregated funds and leverage them to kingdom come. It means nothing is safe.”
This rule, which has been in effect since 1974, is shocking and highly irregular since it allows any futures dealer to use customers money for its own selfish purposes– and never inform its customers it is doing so. What’s even more unfair is that the dealer (MF Global) gets to keep all the income and the trading profits, if any from a transaction that uses other people’s money– not its own house capital. That is unless some prior arrangement about sharing profits was made privately beforehand with the client. None of the MF Global clients I’ve spoken to today had the foggiest notion about this arrangement– which at minimum is outrageously unfair to the rule that the customer comes first. All losses must be made up by the dealer, which in this case may be totally impossible..."
Read the rest here.
I wonder if they will even disclose the name of the firm that took the $600+ million in customer assets as collateral.
That will speak volumes in itself.
Here is some additional information from Lenzner at Forbes: Some MF Global Customers Want Corzine "Led Away In Cuffs"
My most well-informed source, who won’t identify himself tells me my original story was “partially correct in the usage of customer funds.” IE MF Global was allowed under Rule 1.29 of the CFTC, to use segregated customers accounts to invest in “high quality, liquid investments.”
He insists that, “The segregated funds rule prevents the firm from answering margin calls with Seg (segregated) funds for house bets. Lots of people in other trading firms are taking bets on when Corzine will be led away in cuffs.” My source also insists that Corzine was NOT allowed to use these funds for directional bets- and that “customer funds can only generate interest for MFG while they are held separately from house money.”
Lots of excuses will be made for what happened. The status quo has a huge vested interest in covering this up, for their personal benefit and 'the sake of the system.'
For example, the analogy in the above piece by Lenzner about customer banks deposits, and the actions of banks in lending them out to other people. Yes, and you are paid interest for that usage, and you know that they are doing it, and you know that their loan operations and deposits are (at least theoretically) regulated and insured by the government.
But overall Lenzner is one of the best financial reporters, and he shows remarkable journalistic integrity. Most mainstream reporters won't even touch this one because they are afraid to say something that might involve the sacrosanct monied interests and TBTF. Simon Johnson was not waxing poetic when he said that there had been a financial coup d'etat.
Wall Street has a wonderful way of rationalizing their slimier behaviour. After all, when the tech bubble of fraudulent representations crashed, the financial news anchor said that 'no one had MADE people buy those stocks.' Its not Wall Street's fault that people are uninformed and gullible, right?
"There will always be apologists for the powerful and politically connected who commit crimes."
Eliot Spitzer
My expectations for reform are remarkably low. I just hope that the customers get their money back, and more people become aware of what is going on. If anything is done about this except to make excuses for it, I will be pleasantly surprised to say the least.
In the short term, I think the avoidance of the worst neighborhoods in the financial system is a likely reaction by investors. And those seem to be the forex, stock options, and futures markets, with a few of the slimier ETFs that are designed to lose as well. Such de facto boycotts have happened before and will happen again. What else can one do?
Wall Street is trying to organize a boycott of Mario Batali for remarks he made about #OWS and Wall Street. I think they are showing what they fear the most - a boycott by their own retail customers.
A credibility trap is not a pretty thing. It smothers goodness and justice with a dark cloak of complicity. This will not be resolved quickly or easily.
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@ JohnG Suing will be a mess. I read one or two days ago that there is a huge up to 3 years backlog of civil cases in Federal courts because they must try criminal cases first (right to a speedy trial). The Federal courts are faced up with an enormous number of criminal cases because the Feds have taken over crimes that used to be the exclusive perview of the state courts. The Federal statutes have greater penalties so the prosecutors bring them to the Federal courts. It is a huge problem -- part of the general disfunction of this country.
"Who" could have seen this coming?
Italy auctioned off 3 Billion Euros this morning and the auction went just swimmingly. Plenty of demand, the yield dropped and "all is well"!
Sure ... the ECB stepped up and bought this auction. It is "illegal" according to their own charter ...whatever that means these days ... anything you can get away with passes for "the good of the system". The ECB is prohibited by charter from buying newly issued debt so it is interesting just "how" this magic trick was performed.
Magic or no magic, it does not matter.
Italy's bonds were being dumped wholesale yesterday and for good reason. Mathematically they cannot pay the interest at much higher than 7-8% let alone the principal on the nearly $1.5 Trillion of debt.
Did anything change from the panic selling yesterday to cause panic buying at the auction this morning?
No, not a thing!
The only thing that changed is that some "unofficial" money from the "secret official" sector was lined up to make sure the auction did not fail. No matter, the EFSF pulled an auction of the same size very recently for lack of demand so their "slip is already showing".
There are more "Greece's and Italy's" in Spain, Portugal, France and ultimately Germany so don't worry, the comedy is not coming to an end. The debt numbers across the board (globe) are unsustainable and the "money" doesn't exist to fund all that is needed to be borrowed. The money spent this morning to prop up the Italian auction has been pissed away and just as every "support effort" to prop up Greece failed, this will too. They are wasting "money" by trying to postpone the inevitable, it is merely a matter of time before the whole Ponzi blows up.
The exact same scenario that the ECU is experiencing is coming. It already should have by now. Anything and everything that can be done to prolong this farce has been tried and used whether legal or illegal.
It is so so obvious that the math doesn't add up and the end of the line is near, yet the complacency continues. When all is said and done, as with every panic, the masses will say "how did we not see this coming?".
How could ANYONE not? This entire calamity would end up in the laps of the Fed and U.S. Treasury. Such blasphemy is fashionable and this is exactly where it is today, inside the Fed's and Treasury's kitchen!
The totally fraudulent "auction action" showed what a wonderful credit Italy is was "helped" by U.S. hands.
Cynics, conspiratorialists, tin foilers or whatever called it and simply cannot believe the outright stupidity, complacency, gullibility and naivity of the average investor today.
"Who could have seen it coming?", ...your average 11 year old who has not been dumbed down with video games and brainwashed by the mainstream media.
www.lemetropolecafe.com
I know the rules articulated here. 1.29 does not allow the broker to hypothocate. It allows them to keep the gains of customer's non-margined assets of enumerated assets. The interesting thing will be what they were "invested" in and the movement of the money and to where. I would be able to discover this in a day if I had full access to the information. I anticipate the CFTC therefore will never find it. Soveriegn debt may very well have been an allowable asset. It will be interesting when the folks in MF treasury made those investments into soveriegns relative to the house bets.
The United States long ago fell into being a country with absolutely no law or legal protection for anyone except friends of the US oligarchs. After about 1991 when the Soviet Union fell, the US legal and regulatory system started becoming totally hopeless.
Here in Belgium we have someone who used to live in the USA, who once was maybe the most important web journalist on US legal corruption.
So the same US federal judges in the USA, who threatened to murder this man when he was there, asked Google to block all of his websites around the world from Google searches, because everyone realised what this man was saying was true ...
And Google Inc, a CIA-sponsored company, agreed to help hide from the whole world, how corrupt and hopeless the US judicial system has become. While another CIA company, Wikipedia, constantly tells lies about this man who barely got out of America alive.
This man now lives here in Belgium under the protection of the House of the Belgian King, but the US still wants to destroy him.
Case now before the EU Commission against Google, and going into the Belgian courts as well ...
Live Photo: Google Inc. Caught Censoring EU Search Results (for USA - CIA)
Google Internet Censorship - Censure d'Internet par Google - Internet censuur door Google
http://www.flickr.com/photos/22325431@N05/6100668211/in/photostream
Report to the EU Parliament and the Commission of the European Union
Anti-Competition Crimes of EU Internet Monopoly Google Inc. (with CIA) and Wikipedia (with CIA), to Erase EU Journalism, to Slander and Murder EU - Polish Citizen, Writer, Journalist Dr Les (Leszek - Leslie) Sachs
http://www.indymedia.nl/nl/2011/07/77181.shtml
Original in pdf format:
http://eureportsnonzionistjews.hostfile.nl/file/0zndj5ea3v/410/nzjd-eu-r...
'Ex-Agent: CIA Seed Money Helped Launch Google', retired intelligence agent Robert David Steele interviewed by Paul Joseph Watson on Alex Jones' Prison Planet site, and speaking of the CIA's Dr Rick Steinheiser and his connections with Google:
http://www.infowars.com/articles/bb/google_cia_seed_money_launched_googl...
The illusion of democracy must be maintained at any cost. Read up on Promis software and how the U.S. Dept. of Justice stoled the source code and resold it overseas after the CiA put a backdoor into the programming.
http://www.wired.com/wired/archive/1.01/inslaw_pr.html
CNN used to cover this a bit back in the days before TimeWarner bought them and turned them into fluff.
does this mean that there will be a futures meltdown? what if the client takes posession of the contract?
http://expose2.wordpress.com
Are you suggesting that the CIA is in some way connected to MFG? If so, where is the proof? If not, I really can't see the relevance of your comment to this thread. And, in fact, in its irrelevance, your comment serves the interests of the person you seek to defend rather badly IMHO.
and by the way:
deserves a response as well...no he was suggesting that Google was funded from start up through CIA black budget money which comes from the flow of drugs through a pipeline supervised and operated by semi-licit elements of the US military and security structures, that journalists(such as Gary Webb) who detail these FACTs in Amerika tend to sucide themselves using two bullets, that judges and military commissions prodded to investigate these wide reaching abuses of public infastructure and institutions are bought off or bullied into hushing up all exposures of same, that politicians of all stripes now expect to share in the spoils of such black market profits, and that whistleblowers in any part of the corporate crime club who dare appear are now freely disposable without penalty as all mechanisms to ensure their safety and proper investigation of their allegations of corriupt activity have been removed via legislation.
CIA connected to MFG? Is the pope catholic?
Well I just googled the articles that this dude claims are censored in the first article that bankguyinbrussels linked up there and there is absolutely no censorship in evidence here in Ireland, which is in Europe in case anyones wondering. Multiple hits for each article that is apparently 'censored' Make what ya want outta that
The illusions must be maintained at all costs. Or the natives could get restless.
1789 France is an example of what can happen when too many natives get restless.
So, you can't see the relevance to this thread of reporters being killed or forced into exile from the USA when they go off reservation and expose corruption in the politco-judicial caste!?!?
Silly, me, I thought this story and connected thread were about a corporate kleptocracy's ability to influence courts and regulators to purposely ignore their illegal and illicit theft of public&private funds in Amerika! And the culpability of the monopolist mediocracy (Google&the MSM) in aiding and abetting such abuses through choking all discussion of such corruption. How could I have gotten it so wrong?
Dr Sachs is a rare kind of Jew today, but like most Jews before the Holocaust, a religious non-Zionist who is willing to be a good friend to Muslims, willing to 'oppose Pharaoh', i.e., to speak against crimes by the US regime or Israel. Like the learned ancient rabbis of a thousand years ago, Dr Les Sachs asserts that the highest expression of law is to oppose those whom ancient rabbis identified as 'murderous judges', like the bribe-taking judges of the US political mafia, currently mounting their criminal attack on EU citizens and on the European government itself.
Do you have any forests near where you live, or just trees?
I probably would not have bothered to click on the guys link had I not read your amazing comment philipat, and thought WTF!?!So thank you for that....lot of stuff I never knew in those links, stuff most of us never knew, because of the complete domination of our daily lives by the fully integrated state-corporate-media oligarchy...aka Fascist dictatorship.
Dr Les Sachs has spoken about the topic that is most forbidden by the US mafia and government - the bribe-taking judges. No one is able to significantly confront this, without being murdered or nearly destroyed, while Google Inc. sponsors a series of murders of Jews and other dissidents who dare to oppose this taboo corruption topic.
Wow, Jews who think for themselves, outside the sionist hive mind get Moe Greened, for being too friendly to Muslims or thinking that the Constitution actually was meant to govern the behavior of men. Who knew>!
It's sooo convenient to the Kabbalist Kleptocracy Klub to keep jews and gentiles at each other's throats, christians and muslims warring, blacks and whites in total ignorance of common cause. This Les Sachs is an important guy, and that was a important comment Brussels Guy! Thanks a bunch, you served a lot of peoples' interest with that.
@Joyful That's right it's a Jewish conspiracy financed by Mossad.
Give it a rest.
@Mary....epic miss, Ms! I fear you may be one can short of a six pack, going into a long weekend...
I'm sooo Sooryy 4 U
read what I actually wrote, and weep...Ccc-
Always thought the CIA are the real puppet masters, hear they even "print" their own crisp $100 bills, so now what? fuck it and pop me beer I ques. Cheers.
Take it back a generation. When CIA started they were all bankers and lawyers, who better to set up an intelligence apparatus who's true purpose was to enrich themselves and the families. See skull& bones to find out which families - the Bush family was one.
Skull & Bones was the network where they all met and schemed up 'pranks' like the ones that manipulate our economy today. It was just a matter of scale the schemes were smaller back then.