Guest Post: The Audacity of Bonuses At MF Global

Tyler Durden's picture

Submitted by Nomi Prins

The Audacity of Bonuses At MF Global

In the spirit of George Orwell’s Animal Farm commandment: “all animals are equal, but some animals are more equal then others” comes the galling news that bankruptcy trustee, Louis Freeh, could approve the defunct, MF Global to pay bonuses to certain senior executives. This, despite the fact that nearly $1.6 billion of customer funds remains “missing” or otherwise partially accounted for, yet beyond the reach of those customers, perhaps forever, since before the firm declared bankruptcy on October 31, 2011.

Another commonality between the MF Global incident and Animal Farm is the abject rewriting, or re-interpretation, of rules. At the farm, the rule ‘No animal shall drink alcohol” was ultimately ‘re-remembered’ as ‘No animal shall drink alcohol to excess.’ Absent opposition to this particular fact alteration, the pigs got drunk. It wasn’t pretty.

The Orwellian nature of finance is spiraling out of control. It was acutely demonstrated during the fall 2008, merge-and-be-bailed period, and subsequently, through mainstream acceptance that “too big to fail” validates the subsidization of reckless banking practices (bail first, ask questions or consider tepid regulation later), and the European debacle.

Three wrinkles of audacity underscore the potential MF Global bonus approvals. First, there is the moral responsibility layer. MF Global, classified as a broker-dealer wasn’t specifically subject to the investment-advisor fiduciary rule that requires ‘systemic safety and soundness’’ with respect to retail customers. But, comingling customers’ funds inappropriately with the firm’s, as former chief, Jon Corzine’s European bets were blowing up, was an abject misinterpretation of the rule's intent.

Aside from that, MF Global lied about funds segregation to its customers, which constitutes fraud. The final page of the firm’s brochure touts “the strict physical separation of clients’ assets from MF Global accounts.”

Separately, MF Global broker-dealer activities were subject to SEC oversight and restrictions on its use of client funds. During any normal investigation, like say for embezzlement, funds should be frozen until issues are resolved. Releasing any bonus pay until this matter is settled is just plain wrong.

The reason for possibly allowing bonuses for MF Global chief operating officer, Bradley I. Abelow, finance chief, Henri J. Steenkamp, and general counsel, Laurie R. Ferber follows the same twisted logic pervading Wall Street: no one else can do the job as well.

These people are apparently so special that despite incompetence, negligence or potential malfeasance in diverting customers’ funds away from their rightful spots, their expertise is critical to the bankruptcy proceeding. In that realm, their ‘job performance’ will help Freeh "maximize value for creditors of the company”. Translation: it will ensure banks like JPM Chase keep their cut, since customers are not creditors. Again, plain wrong.

But forget simple matters of right and wrong for a moment. After all, this is Big Finance: what's most important is what’s not necessarily what’s legal or illegal, but more practically, what you can get away with and what you can’t. In that regard, the sheer impotence of regulators, the Department of Justice, and the FBI are enabling factors in perpetuating financial crimes. 

In early 1933, during the Depression that followed the 1929 Stock market Crash, Democratic president, FDR and Republican Treasury Secretary, William Woodin, declared a bank holiday, during which Treasury Department agents examined banks’ (which included at the time, broker-dealers) books to determine solidity and solvency.

Today, our regulatory bodies are incapable, or simply don’t want to be bothered with, tracing money and returning it to the public customers to whom it belongs. The inability to independently examine MF Global’s books, without its executive involved, reveals the sorry state of our financial system.  In this post-Glass-Steagall-repeal world, the mixing of customer money and speculative betting – whether at a super-market bank or broker-dealer, whether involving subprime loans packages or European Sovereign debt, poses too dangerous a level of complexity. If regulatory bodies can’t, or won’t, diminish the related risk, more concrete Glass-Steagall boundaries throughout the financial framework should be resurrected.

Meanwhile, two senators have taken on the bonus-pay fight. Senator Amy Klobuchar (D., Minn.), member of the Senate Agriculture Committee investigating MF Global, wrote to Freeh that the plan is "unacceptable." Senator Jon Tester (D., Mont.), whose constituency includes a number of farmers with funds in the ‘missing’ category, called it "outrageous.”

On Sunday, Freeh's spokesperson released a statement saying the senators’ concerns were ‘noted’ and a final decision on the bonuses hadn’t been made. But to the extent that the money trails shrouding MF Global’s final moments remain more apparent to its former employees than external examiners, it’s likely the people involved in the wreckage, will be paid extra for sorting thru it. And, that’s an expensive, outrageous, shame.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
narnia's picture

I'm opposed to virtually all government scope & the taxes required to fund such nonsense, but I'd personally vote for a special 1000% tax on MF global bonuses.  I'd also make that tax act applicable to bonuses from any financial institution without presentation of a credible mark-to-market balance sheet.

trav7777's picture

what the fuck, shouldn't EVERY spare dime of MFG's "assets" be encumbered and frozen due to the BK and the avalanche of claims against them??!?!

They freeze accounts of regular people with a phone call or a signed piece of freakin paper all the damned time and this fucking organization that is BANKRUPT is still going to pay BONUSES?!?!

How much longer before people start lighting matches?

Rainman's picture

yup..this economic fascism in full bloom sure gets confusing to us commoners

GetZeeGold's picture

 

 

Free Jon Corzine!!!!

 

Oh wait......he is.

 

savagegoose's picture

freedom aint enough, give him a big fat bonus, he's suffered a lot.

Harlequin001's picture

He's been very 'industrious' hasn't he?

 

TruthInSunshine's picture

Breaking @ 1:01 am est:

Joe Nocera, one who rarely calls out Wall Street & The Financial Scum Pond for what it is, actually has an article out tonight in The New York Times (another rag that pretends it doesn't support Crony Manhattan CapitalKleptocracy, but that really does; see Andrew Ross-Sorkin as just one example of their fine staff of sucktards), where he actually states Jon Corzine & MF Global clearly committed serious crimes and should be prosecuted without exception:

 

Nocera: Is MF Global Getting a Free Pass?

 

#TheImportantThingIsThatJonCorzineStole1.6BillionUSD&ShouldRemainFree4Ever

Confused's picture

Defies logic right? 

 

Sort of like buying insurance on a bond........

 

Laws don't matter for some.

Clueless Economist's picture

Louis Freeh...this is the same nitwit putting his nose into the Penn State/Little Boys case at the behest of the clueless board of trustees

Boxed Merlot's picture

Louis Freeh...

 

And the same ex-FBI head chosen by Teneo's founder to go lightly on his wife's bad memory of having stacks of FBI files laying around the white house residence who by now in her capacity as US secretary of state is asking for the US to come and strip search Syria on their way into I'm a dinner jacket's homeland.

 

HA!

MiguelitoRaton's picture

Make the individuals personally responsible for the money not returned to the clients. My guess is that they will be volunteering to help recover the money at no charge!

Harlequin001's picture

But that's the whole point of limited liability isn't it, so that individuals aren't personally responsible?

Seems to me that someone should have done better DD on their account issuer...

Archduke's picture

DD and limited liability has nothing to do with it.  Fraud is criminal and the domain of individuals.

What this is, is a blatant payoff to upper execs to keep silent and protect the stolen monies.

 

 

sgt_doom's picture

Same nitwit who supports American-killing terrorists:

http://original.antiwar.com/giraldi/2012/03/07/the-meks-useful-idiots/

The MEK has been on the State Department roster of foreign terrorist organizations since the list was established in 1997. Its inclusion derives from its having killed six Americans in the 1970s and from its record of violence both inside and outside Iran since that time. The group was driven out of Iran, denied refuge in France, and eventually armed and given a military base by Saddam Hussein.

......

The well-connected friends of the MEK include well-known neocons like John Bolton and James Woolsey. And there is also the paid supporting cast including former head of the Democratic Party Howard Dean; former New York mayor Rudy Giuliani; ex-CIA director Michael Hayden; former generals Anthony Zinni, Peter Pace, and Hugh Shelton; former congressman Lee Hamilton; ex–attorney general Michael Mukasey; former Homeland Security director Tom Ridge; former national security adviser Jim Jones; ex-senator Robert Torricelli; former FBI director Louis Freeh; and former New Mexico governor Bill Richardson. Current representatives Dana Rohrabacher and Brad Sherman also openly support the MEK and joined 96 other congressmen in calling for the lifting of the terrorism label.

http://www.huffingtonpost.com/2011/08/08/mek-lobbying_n_913233.html

http://www.delistmek.com/bipartisan-group-of-u-s-leaders-calls-on-state-department-to-remove-iranian-dissidents-from-terror-list-urges-un-to-protect-them/

Harlequin001's picture

so these terrorists are not terrorists then?

Riiight... They must be freedom fighters then...

It's good that we have a distinction isn't it, otherwise we could all be terrorists today and not tomorrow depending entirely on someone's whim...

SMG's picture

Time for pitchforks and torches.

Clueless Economist's picture

aint gonna happen at least until lardass americans (Species: Obestius Americanus) stop watching Jersey Shore or Celebrity Dancing with the American Talents crap

There is No Spoon's picture

By that time the non Obestius Americani will have gone Galt and taken their physical gold and silver out of the cities and suburbs. Obestius Americani will get mad once food prices inflate to the point of pain, which doesn't have to be much, but it looks to be a few years away. Until then, the circus continues with ever louder bells and whistles to distract the overfed, overmedicated "rugged individualists" who take money from the government any way possible.

It's really getting more obvious by the day that the criminals at the top are playing for an endgame, and we are at or almost at the penultimate node. Maneuvering for more war, more stimulus, inflation targets, looting entire countries, unelected leaders, looting customer accounts, and so on. All this is occuring right out in the open which is just amazing, that regular people in the U.S. are so disconnected from what's happening, that the thieves don't even have to hide their actions. Anytime I express concern for our future as a country, I'm labeled "negative" or "cynical," and these are educated people calling me that. So our society has failed, and while I don't subscribe to all of Rand's credo, going Galt seems like the only thing anyone can do to prevent getting caught up in the inevitable disorder that's coming.

GMadScientist's picture

Slight hitch: "going Galt" requires you to have something society needs.

Rand was a pretentious twit.

CynicLaureate's picture

The whole point is that if you want something from society, you'd better have something society wants from you.

Value for value.

Harlequin001's picture

yeah, like paper money, and the ability to move it from one column to another for a rather large fee...

Society simply can't exist without these people...

BeetleBailey's picture

You left out the other species: Doofus Americanus, who couldn't find Texas on a map with a Garmin, two hands, a pointer and hints, let alone knowing anything else, and Ignoramus Politicalopolous, who are mesmerized by all the politicans words and are also as dumb as a jackass.

SMG's picture

Look I know it's discouraging, but you've got to try and educate as many as you can.  It's only when everyone is educated about what's really going on can we overthrow our oppressors.  IE. Never give up.

Baleful Runes 4 U's picture

Should only take about 58 million years, smg

Xkwisetly Paneful's picture

Give or take 10million years that time is available.

 

LongSoupLine's picture

 

 

Hmmm...nothing on the MSM outlets anywhere...nothing.  gasp...

Gubbmint Cheese's picture

the audacity of grope..

sessinpo's picture

Play on words are so fun.

MF bone us

Zero Govt's picture

dunno about "grope" but how about clawback ?

claw back every friggin cent of Corsine and Co's executive wage packets until every cent of customers segregated funds are repaid

..and f**k paying ex MF'ers a cent for going back to work to sort out the shambolic paperwork.. the paper trail is there, people had to have made decisions (and be accountable for them) moving customer money out of accounts to cover gambling junkies gone bad

these crooks are lucky not to be in jail already, they should be grateful for a day outside of prison to sort the books out

FeralSerf's picture

I would think that instead of giving them cash bonuses that maybe they would prefer having their prison sentences cut from 20 years to just 10 years.   Why aren't they in the same place Martin Armstrong was?

sampo's picture

Jonnie for Treasury Secretary!

resurger's picture

i read Nassim Taleb "fooled by randomness" book long time ago and he said: why the CEO's are paid that much money? because of on thing...

Their decisions

So let me get this straight, if a mother fucker makes a wrong decision and go leverage european junk bonds 100000zillion:1 and lose the clients money how the fuck do these people have the audacity to ask for a bonus?!!!

mrdenis's picture

 ...why are they calling it a performance bonus ?

GetZeeGold's picture

 

 

The destruction was extremely efficient.

 

Amish Hacker's picture

2008: I can't believe these crooks are getting huge bonuses after running their companies into the ground.

2012 I can't believe these crooks are getting huge bonuses after stealing the money in my account.

Problem Is's picture

Tyler: Where is the +5 button????

2008: I can't believe these crooks are getting huge bonuses after getting massive taxpayer TARP and Fed bailouts...

Fixed it a little for ya...

 

grid-b-gone's picture

Directors give them credit (and bonuses) for creating and working a system from which there is a payoff for being either correct or incorrect.

As the result of the strategies they developed, their firms can take larger risks for greater upside potential, but downside risk is covered by OPM. 

The one key element is that prison time seems to have been largely eliminated from the risk equation, even to the point that comingling customer funds is no longer sacrosanct. Bonuses however, still are.

By using OPM as risk capital and tagging failures to OPM, they created a perfectly skewed business model. From that warped perspective, which is the only one that matters to their bosses, they deserve greater bonuses than ever before. 

 

fattail's picture

They didn't "lose" their client's money; it was stolen from segregated accounts.  There will be torches and pitch forks when they steal from people who feel more helpless than the customers at MF Global.  I am all for blood, but the opportunity cost for me of maybe going to prison is to great.  Chalk it up to a hard lesson learned, and move on.

Sandmann's picture

Louis Freeh is part of the Magic Circle...FBI Director to Distributor of Largesse to Felons......only in Politics

Conrad Murray's picture

Someone needs to find Corzine and take his scalp and teeth. Use the proceeds from an auction of those goods to help pay back the clients.

Mad Mad Woman's picture

If Corzine's ass doesn't land in jail, you want to bet that those Mid-West farmers he screwed will be coming after him with AK-47's and Uzi's?  They will hunt him down. My money is on the farmers that he screwed.

michael_engineer's picture

"It was acutely demonstrated during the fall 2008, merge-and-be-bailed period, and subsequently, through mainstream acceptance that “too big to fail” validates the subsidization of reckless banking practices (bail first, ask questions or consider tepid regulation later), and the European debacle."

Kind of looks like IBG YBG run amok doesn't it?

I'll Be Gone, You'll Be Gone.

semperfi's picture

Well, when the citizenry just stand by and watch the govt trash The Constitution and the rule of law, most notably nixing gold & silver as our money - and do not protest & riot - this is what we get & deserve. 

Eric L. Prentis's picture

Bonuses for bankers bankrupting MF Global and stealing $1.6 billion dollars of customer money in segregated accounts? US capitalism is obviously rigged.

This is a big raspberry given by the bankers. Their lapdog politicians will protect the bankers, because they paid a few million dollars in campaign contributions to be able to rape, pillage and plunder.

BANKERS ARE LAUGHING AT US!!!!!

Bunga Bunga's picture

Get over it, only some white farmers were fucked, nobody on Wall St got hurt!

Grinder74's picture

That's right.  All of Holder's "people" were taken care of with the scam Pigford settlement.

roadhazard's picture

How about a list of names and addresses of those getting a bonus. I'd like to send them an xmas card.