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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azusgm's picture

Private aircraft can be as dangerous as hot tubs.

smiler03's picture

Beware of Hotel Maids parading up and down holding placards saying "FUCK ME!"

Race Car Driver's picture

 

His name is R. Budd Dwyer.

He blew his brains out on national TeeVee ... and did it over a lot less than what goes on now seemingly everyday.

 

http://www.youtube.com/watch?v=3xqQ5g1tgho&feature=related

 

In the long run, R. Budd was a good man. He failed with panache. We could use a few more like R. Budd Dwyer.

 

tickhound's picture

They stick it in your face and let you smell what they consider wrong.  That's why I say hey man, nice shot.

http://www.youtube.com/watch?v=jC1jZAInGIY

holdbuysell's picture

Ten bucks says IBKR saw this, turned tail, and ran out the door.

Royal Fleming's picture

1% stealin from other 1% ers...I'm shocked

 

I am a Man I am Forty's picture

Everyone dealing with this shit company deserves to get burned and Corzine needs to go to fucking jail.

Goldtoothchimp09's picture

 

HOLY COW!!  Corzine should be TORTURED!  and i'm not kidding

XitSam's picture

That's only in Republican administrations.

TheFourthStooge-ing's picture

Then there should be no impediment, since Obama's administration is functionally equivalent to a third term for George W. "Chimpy" Bush.

 

High Plains Drifter's picture

FIIIIIIIIIIIIIIXXXXXXXXXXXXXXXXXXXXXX !!!!

 

FIIIIIIIIIIIIIIXXXXXXXXXXXXXXXXXXXXX !!!!

 

BAYYYYYYYYOOOONETTTTTSSSSSSSS !!!!!

 

AAAAAAAAAAAAAAAAAAAAAAAAAAHHHHHHHHHHHH !!!!!!!!!

 

fuck em, fuck em all.............

Justaman's picture

No more rule of law = no one is going to jail.  I will take the under of no jail time. 

BTW, good to hear that Rubes is still involved in the top economic team.  Phew, I was really worried there but now I feel much better as to how this is going to unfold.

.....not. 

RobotTrader's picture

No way Corzine is going to go to jail.

He'll get off somehow by pulling some strings and blaming somebody else.

He's a member of the top of the top of the PigMen/Plutocrat regime.

penisouraus erecti's picture

No doubt you are correct - presidential appointment in the offing.....

Pladizow's picture

Congrats on your first post that makes sense!

Ruffcut's picture

Robo's mom would not let him go trick or treating unless he made sense, for once.

Rick64's picture

Thats right, Rogue trader alert. We need a scapegoat. Nobody at the top had a clue. Blah blah blah. You know the drill.

natty light's picture

They need a youngish trader with an African-sounding name to blame it on.

TheFourthStooge-ing's picture

...or a youngish trader with an odor eliminator-sounding name, like Fabrice.

 

chindit13's picture

Did he, or can he, donate enough to Obama's re-election campaign to get himself a Presidential pardon?

SovietCong's picture

I understand completely the bitter expectation of the playing dumb strategy working well for Corzine. But he may actually end up in jail, I think. Comingling is really a fundamental no-no and it is also a sin easy to comprehend: either you took the clients' money or you did not. Even former Goldmanites at the SEC and people in Congress can understand that. 

Now, one other thing I would like to know is whether the $1.2bn of bond debt held by JPM is held in its own name or as administrator for its clients.

penisouraus erecti's picture

I'm sure the SEC and AG Holder are all over this and will make sure that justice is served and the peoples interests protected.........

tallen's picture

Corzine sure is one massive MF'er.

He deserves hard time in a pound me in the ass prison, but he'll most likely be found innocent and given some job in the Fed/Government.

 

DoChenRollingBearing's picture

Again...

 

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

He is the dirtiest POS on planet Earth!

smiler03's picture

"He deserves hard time in a pound me in the ass prison"

Holy Shit! I can't stop laughing, fuckin hilarious! +1000

LasVegasDave's picture

Finally some good news

Corzine shoud have been executed for treason for what he did in NJ

Ill settle for life in prison.

Whats that smell when the squid on the grill starts to char? 

RobotTrader's picture

Wall St. CEO's are like Hollywood Moguls.

The more spectacular the failure..

The more they are wanted by other firms.

Just look at guys like M. Night Shyalaman.  Huge Hollywood bombs, one after another.

Yet he's always at the top of the list of getting hired to direct the next big film.

RobotTrader's picture

Guarantee?

You mean the guarantee that if there was any selloff in stocks, there would be an instantaneous flight out of "Things" and into "Paper"???

Blagio's picture

You just got pwned by TD.

Hephasteus's picture

Man that TD dude sure knows how to troll financial sites. It's like he's knowledgable or something.

Oh regional Indian's picture

Unless it's TD 1 talking to TD 2.

Or worse/better yet, TD 1 talking to TD 1!

ORI

Hephasteus's picture

TD in this post has about a 70 percent masculine 30 percent feminine energy composition.

Robot Trader in this post has about a 60 percent feminine 40 percent masculine energy composition and his energy composition still matches robotrader.

TD has a tight highly focuses crown chakra. Robot Trader has a crown chakra that looks like a fisting porn video.

And robert downey jr is dead.

http://en.wikipedia.org/wiki/Morton_Downey,_Jr.

It's only a 3mb video your dialup should handle it in about 12 minutes. It is worth the wait.

http://www.youtube.com/watch?v=S9dqJRyk0YM&feature=player_embedded

 

nmewn's picture

ROTFL!!!

"Yep, any news of paper manipulation or the failure of a firm like MF Global causes everyone to shoot and sell PM's first, ask questions later.

I guarantee you that most >>>retail stocks<<< tomorrow will be unfazed."

Dude.

TheFourthStooge-ing's picture

HAW HAW HAW!!!!!

I'll bet his mother encourages him to go play in traffic.

 

High Plains Drifter's picture

hey robo. go play with your avatar tits and shut the fuck up already...

lieutenantjohnchard's picture

no, the performance anxiety guarantee 'tard: "I guarantee you that millions of hedge fund managers will be scanning furiously the "Top Percentage Gainers" list every morning in order to start dryhumping all kinds of "bargains"..."

lieutenantjohnchard's picture

are there really millions of hedge fund managers?

Hulk's picture

This place is brutal. I love every second of it!

Nostradumbass's picture

Yeah, 2.5% drop - no real effect in the market...

penisouraus erecti's picture

Yep, as I predicted, Corzine will get a high level appointment in the newly re-elected Obama administration early in 2013. Can't waste a talented guy like that behind bars, c'mon now.

malikai's picture

Corzine for Treasury Secretary, Maddoff for FED Chairman.

They are the only ones qualified for these jobs.

lawton2's picture

 M. Night Shyalaman had a few movies do pretty good but lately his movies have been all busts I guess

brew's picture

anybody seen milliondollarbonus...

Pure Evil's picture

Yeah, he had trouble pulling some satire out his ass to use for polishing his dollar sign green turd.