Someone Is Going To Jail For This: MF Global Caught Stealing Hundreds Of Millions From Customers?

Tyler Durden's picture

Say you are the head back office guy at MF Global, it is the close of trading on Thursday, the firm has already completely drawn down on its revolver, and all the resulting cash in addition to all the firm's cash at your disposal in affiliated bank accounts, up to and including petty cash, has been used to satisfy margin demands due to declining collateral value, yet the collateral calls just won't stop, and impatient voices on the other side of the phone line demand you transfer even more cash over immediately or else risk default proceedings commenced against you within minutes. What do you do? Do you go ahead and tell your superior that the firm is broke even though the co-opted media is trumpeting every 5 minutes that "MF Global is fine", knowing full well you will be immediately fired for being the bearer of bad news, or do you assume that courtesy of your uber-boss being the former head of the Vampire Squid, and thanks to infinite moral hazard which after Lehman made sure nobody would ever fail ever again, that there is simply no way that you will be left without some miraculous rescue, if only you can last one more day, and as a result proceed to "commingle" some client funds with the firm's cash. It turns out that at MF Global you do the latter... over and over... until you have literally stolen hundreds of millions from the firm's client accounts in hopes that the miracle rescue will come on Friday... then over the weekend... and then you realize no miracle is coming, partly because your actions have been exposed, partly because miracles only exist in fairy tales. The next thing you know, your firm is bankrupt and hundreds of clients are about to learn that all their money is gone. Poof. This is not a fictional tale. This is precisely what very likely happened at MF Global in the past 72 hours. And someone has to go to jail. That someone, if indeed this criminal act is proven to have taken place, should be none other than Jon Corzine himself.

The sad truth of just how low Wall Street has fallen comes to us courtesy of the New York Times:

Federal regulators have discovered that hundreds of millions of dollars in customer money have gone missing from MF Global in recent days, prompting an investigation into the company’s operations as it filed for bankruptcy on Monday, according to several people briefed on the matter.


The revelation of the missing money scuttled an 11th hour deal for MF Global to sell a major part of itself to a rival brokerage firm. MF Global, the powerhouse commodities brokerage run by Jon S. Corzine, had staked its survival on completing the deal.

As for the details:

What began as nearly $1 billion missing had dropped to less than $700 million by late Monday. It is unclear where the money went, and some money is expected to trickle in over the coming days as the firm sorts through the bankruptcy process, the people said.


But regulators are examining whether MF Global diverted some customer money to support its own trades as the firm teetered on the brink of collapse. If that was the case, it could violate a fundamental tenet of Wall Street regulation: Customers’ money must be kept separate from company money.

And just like in the Lehman collapse where tens if not hundreds of international prime brokerage hedge fund clients, due to no fault of their own, found themselves insolvent after their cash ended up being caught at the London Lehman office (the details of how that money was illegally transferred from London to the US is a different topic entirely) and never to be seen again except to satisfy general unsecured claims, so thousands of MF clients are about to realize that money they thought they had, even if completely unencumbered with other assets, read pure cash, read money not at risk, is now gone forever, and they will have to wait years until the bankruptcy process determines if the claim deserves priority status to the unsecured bondholders. Best case: assume a 70% haircut on the money, if it is every to be seen again at all.

So who can be sued? Who can be blamed for this malicious and purposeful criminal act? Why everyone from the back office clerk presented in the thought experiment above, all the way up to the man at the very top, Jon himself, who, like in every other act of Wall Street impropriety will plead stupidity and deny he ever knew of this crime. Unfortunately, our criminal regulators, who will be just as complicit in clearing him of all wrongdoing, will aid and abet this latest destruction of faith in US capitalism.

What happens next? Why customers at all other brokerages, all other exchanges, afraid that their money will suffer the same fate as MF, even if they transact with perfect solvent clearers and agents, will proceed to pull their money, as they know they have nobody to trust but their own prudent and forward looking actions. Which in turn will start the kind of liquidity drain that killed not only Lehman, but froze money markets, and with that brought the complete capital markets to a standstill, only to be thawed after the Fed pledged multiples of the US GDP to rescue Wall Street in October of 2008.

And that, dear reader, is called unintended consequences, and how the bankruptcy of a small exchange can avalanche into a crippling Ice Nine of what is left of capital markets all over again, courtesy of crony capitalism, rampant criminality and a regulator and enforcement body that is more fascinated with midget porn than any regulating or enforcing of the very firms it hopes to get an assistant general counsel job from in a few short years.

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navy62802's picture

I said it back then and I say it now ... there are many Madoff's out there. We just haven't found them yet. Hell, no one is out there trying to find them.

azusgm's picture

Harry Markopolous is trying. He found BONY. Of course not enough is happening there since it is mostly J6P's pension money being stolen.

navy62802's picture

It's not that there aren't a few people here and there trying to find the fraud. It's that the overarching system works against that ultimate goal. The regulatory system is so colluded with the major Wall Street players that it's effectively impotent. What's more, I personally feel that our markets are so wrought with fraud that if said fraud was completely ferreted out of the system, our economic system would cease to exist in its present form.

Freddie's picture

Oddly enough - two of the biggest whistle blowers were Greek-Americans.  James Chanos and Harry Markopolous.  Kudos to both of them.

nmewn's picture

Inject the damned Stox-net before they get away!

Hulk's picture

Jail ? Yah right. Thats sooo 90's...

CClarity's picture

The banks don't want a credit event in Europe and are undertaking lots of "voluntary" actions to avoid that classification.

My guess is some banksters are going to "magnanimously" return some gigantic bonuses or some symbolic act so as to keep the judges and jailors at bay.  But this is where the likes of OWS may actually break through and shake the attention away from the campaign contribution crazy pols.  Naw, that is just a dream on Halloween.  I'll be back to normal cynic status by All Saints Day or Day of the Dead/Dan Mrtva/Dia del Muerto) or the time when life and death are at their closest reach - depending on your bent.

wardawg12's picture

F- me, just f- me

Sofa King's picture

You all need to see Rollover!  Never mind the bullshit romance between the main characters, the banking stuff incredible...puts that Andrew Ass Sorkin piece of shit to shame.

Mercury's picture

Hey, not bad.  Didn't know about this one.  It's not easy to dramatize numbers on screens either....but global financial melltdown sure is an attention grabber - now even more than 1981:

Money market funds are a fucking powder keg right now too.  Ouch.


navy62802's picture

That's a very eery clip to be watching on this Halloween. The Chinese could do something like this, though it would undoubtedly lead to their own economic destruction as well.

ricocyb13's picture


this movie has been made in 1981 ???

Outlaw Of The Wasteland's picture

no one is jewier than that smiling rat faggot.

looks like horowitz from Bad Boys all growed up.

what a punchable jew.

Mercury's picture

Makes you wonder which bucket of cash is designated for Corzine's golden parachute.....


penisouraus erecti's picture

Probably some sort of high level appointment to the newly re-elected Obama administration in a early 2013

knukles's picture

No way.
Most of the back office types I've known (and always cultivated close relationships with them as a matter of good business sense) would not take actions such as that upon themselves.  Always instigated by the higher ups.  Then when the poop splatters, it'll unltimately be the back office guys who take the rap.
Either way, such actions approved, unapproved or done with no knowledge thereof, are the direct responsibility of the Grand Fromage.
But then again, when the GF is a past major fund raiser, Governor, Senator...  oh why even bother. 

It's all fucked up.  Again.
Oh, there'll be frothing in the aisles, pledges to clean up the system, etc., ad hoc, vootie and nothing the fuck will change.

Who fucking cares anymore.   This shit is the New Normal.

Mike2756's picture

I'm not so sure about that, people are pissed. Not quite Cairo pissed but, getting there.

knukles's picture

Indeed, it's Palpable.  I hope more peole get pissed.  There must be a rising broad based anger to engender any change in the kleptocracy.

DoChenRollingBearing's picture

WHAT, WHAT, WHAT, WHY, WHY, WHY was I screaming about Jon Corzine earlier today???!!!

He is the dirtiest POS on planet Earth!


Do I sound pissed?

Carlyle Groupie's picture

Fuel for the Occupants. Now can I please witness some violence?!

nmewn's picture

Maybe building a few more condos to demolish would help ;-)

nmewn's picture

Oh my...unicorns mating with dragons.

"In a sign manufacturing growth is moderating, new orders placed at Chinese shipyards in the first nine months of the year dropped 42.8 percent, the Ministry of Industry and Information Technology said on its website on Oct. 20. Guangzhou Shipyard International Co. said last week its third-quarter net income dropped 45 percent from a year earlier due to higher costs and an impairment provision for shipbuilding contracts."

disabledvet's picture

what's an "impairment provision"?

slewie the pi-rat's picture

it provides for two ims, BiCheZ!

dwdollar's picture

Watching Nightly Business Report this evening you'd think this was 1999 all over again. I suspect the short squeeze is over and this is the catalyst.

deebee's picture

this will be a civil matter with a $200 fine (to cover admin fees)

TheFourthStooge-ing's picture

...and no admission of wrongdoing.


TooBearish's picture

If there is any element of truth in this, which for me is not a huge leap of faith - THIS IS AN ATOM BOMB

penisouraus erecti's picture

I hate those rich republicans like Corzine..........

ReallySparky's picture

I think they will have to quickly arrest a bunch of people this time, because there is no political will to do another bailout. Corzine is going to be locked up and become wall streets poster boy. How else can they keep the status quo? If they are smart tomorrow, they arrest them all and ask questions later.

DoChenRollingBearing's picture

One more time...

WHAT, WHAT, WHAT, WHY, WHY, WHY was I screaming about Jon Corzine earlier today???!!!

He is the dirtiest POS on planet Earth!

Pumpkin's picture

Some poor client that had all their money stolen will go to jail, is my guess.

High Plains Drifter's picture

watch cramer tomorrow..........oh jon is a good man. he didnt do anything wrong. i am sick of these blogs trying to say that he is a crook. blah blah blah.......

disabledvet's picture

Jimmy's a good guy. That's a fact. He's so good in fact "he can't see the evil in others." And that's a fact.

stant's picture

 i am shocked there is gambaling in this establishment !! round up the usual suspects

The Fonz...before shark jump's picture

This is one of those scandals where someone kills that executive from enron ( not Kenneth lay, that guy faked his own death) that other guy Baxter killed himself....just watch some bodies are gonna start dropping

seek's picture

I agree, the political liability here is far too big. You've got the President on record saying Jon Corzine is his "wall street guy," and he's on the Treasury Secretary shortlist.

Meanwhile there's thousands of protestors in the streets, daily, pissed about Wall Street.

If they go after Jon Corzine, he probably knows enough to cause problems. If they don't, that's a political liability in itself. The only outs I see are getting rid of anyone who knows anything, or doing a sham prosecution that both sides are "in" on that drags out past the election.

This is a huge problem for the top levels of government and wall street. I'm surprised we're even hearing about it, it makes me suspicious that it's a ploy of some sort.


malikai's picture

All I know is the next election will be hilarious indeed.

i-dog's picture

There won't be a next election.

Oh regional Indian's picture

Spot on again. If there is one, it will be a proper Banana Republic one, with one candidate. Only.


TheFourthStooge-ing's picture

I would find this surprising. The current American one-party system, in which the Party runs its Red candidate against its Blue candidate, has been extremely successful in cultivating an illusion of choice and keeping people occupied with controversial, yet inconsequential, wedge issues.

Any significant deviation from this scheme would indicate more than just shit hitting the fan. It would be more like the waste stream of a factory hog farm meeting the turbine blades of a wind tunnel.


bobert's picture

I've a feeling that this life has become a very dangerous place for Jon.