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Its just so salacious, its better than TV!
The MF GLOBAL story just got more interesting. The regulators are all geniuses now and putting out cya press leaks..
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The Federal Reserve Bank of New York expressed concerns over MF Global’s internal controls as far back as 2009, more than two years before the brokerage declared bankruptcy in October and an estimated $1.2bn in customer funds was discovered missing.
You've been served
In the days just prior to MF Global’s demise, CME – tasked with auditing MF Global’s futures business – had auditors reviewing the firm’s segregation reports. The Oct. 26 and Oct. 27 reports, said Duffy, showed the firm in full compliance.
In fact, the Oct. 27 report “showed the firm held $200 million in excess segregated funds.”
Then, on Oct. 30, “the CFTC informed us they were aware of a draft segregation report for the close of business on Friday, Oct. 28, which showed more than a $900 million shortfall in required segregation,” testified Duffy, CME Group Executive Chairman.
“CFTC and CME staff and auditors returned to the firm on Sunday, Oct. 30, and were informed by this discrepancy was caused by ‘an accounting error.’ Our auditors, working with the CFTC, devoted the rest of the day and night, to find the so-called ‘accounting error.’ No such error was found.
“Instead, at about 2 a.m. Monday morning, Oct. 31, MF Global informed both the CFTC and CME that the shortfall was real and that customer segregated funds had been transferred out of segregation to the firm’s broker dealer accounts.
“After receiving this information, CME remained at MF Global while (the firm) attempted to identify funds that could be transferred into segregation to reduce or eliminate the discrepancy.”
Duffy then spiked Corzine’s credibility. “A CME auditor also participated in a phone call with senior MF Global employees, wherein one employee indicated that Mr. Corzine knew about the loans made from the segregated accounts.”
On Monday, Oct. 31, continued Duffy “MF Global revised its segregation report for Thursday, Oct. 27, indicating that the alleged $200 million in excess segregated funds should have been reported as a deficiency of $200 million. This shortfall on segregation on Thursday, Oct. 27, was hidden by the inaccurate report, a telling sign to keep regulators in the dark.
“It remains to be seen whether this failure to disclose permitted additional segregated funds to be improperly transferred.
“Throughout this time, the firm and its employees were under the direction and control of MF Global management. Transfers of customer funds effectuated by MF Global for the benefit (of the firm) constitute very serious violations of our rules and of CFTC regulations.”
Dec. 20 (Bloomberg) -- JPMorgan Chase & Co., a lender to bankrupt MF Global Holdings Ltd., asked a judge if it can trade claims on the company, including its bank loans and 6.25 percent bonds.
Like fellow committee members Bank of America Corp. and Elliott Management Corp. who sought permission to trade MF Global claims, JPMorgan said it would have “ethical walls” to ensure that knowledge it gains from being on the committee doesn't reach its traders, it said in a court filing today.
“Although JPMorgan owes fiduciary duties to the unsecured claimholders of these estates, it also has fiduciary duties to maximize returns to its respective clients,” including pension funds and high-net-worth individuals whose money it manages, the bank said.
One e-mail chain refers to the transfer of roughly $200 million that MF Global owed JPMorgan Chase on Oct. 28 — the firm’s last business day before it filed for bankruptcy. In that chain, a senior official in the firm’s Chicago office was told to make the transfer, said the people close to the investigation who requested anonymity because the inquiry was still open.
Mr. Corzine, a former United States senator and New Jersey governor, testified that on the morning of Oct. 28, JPMorgan told him that one of the firm’s accounts at the bank in London was overdrawn. He said he passed the notice along to his staff.
“At that time, I was trying to sell billions of dollars of securities to JPMorgan Chase in order to reduce our balance sheet and generate liquidity,” Mr. Corzine told lawmakers. “JPMorgan Chase told me that they would not engage in those transactions until overdrafts in London were cleaned up.”
After the transfer, JPMorgan, one of MF Global’s main banks, questioned Mr. Corzine about the source of the money.
“Since I had no personal knowledge of the issue, I asked senior people in the back office and the legal department to become directly involved in responding to JPMorgan Chase’s request,” he told the House Financial Services Subcommittee on Oversight and Investigations.
Mr. Corzine testified that Ms. O’Brien assuaged any concerns that MF Global had been improperly using customer cash.
“I had explicit statements that we were using proper funds, both orally and in writing, to the best of my knowledge,” he told the panel. “The woman that I spoke to was a Ms. Edith O’Brien.”
But JPMorgan was not satisfied. The bank once again contacted Mr. Corzine, this time requesting a guarantee in writing. Mr. Corzine handed the request to his general counsel, Laurie Ferber. Ms. Ferber would not authorize the document, according to one of the people close to the investigation, saying the firm did not offer such special assurances.
Two days later, at about 6 p.m. on Sunday, Oct. 30, Ms. Ferber notified regulators that there was an apparent shortfall in customer money. She blamed an accounting error, according to the CME Group, the firm’s primary regulator and an exchange where it conducted business.
At about 1 a.m., Ms. O’Brien and another executive in Chicago told the exchange that the shortfall in the customer accounts was real, according to the CME.
Ms. O’Brien is considered an expert of sorts on the protection of customer money at futures firms.
Jan. 20 (Bloomberg) -- Jon Corzine, MF Global Holdings Ltd.’s former chief executive officer, was sued under U.S. racketeering law by commodity customers alleging he and other executives “unlawfully” took money from their accounts and failed to segregate their money as the law requires.
sued? he needs to be cuffed!
Reuters) - The former chief risk officer at MF Global who raised red flags about the firm's aggressive trading bets told lawmakers that his warnings contributed to the firm's decision to let him go in early 2011.
Michael Roseman, who was ousted in January 2011 from the now-bankrupt futures brokerage, said he rang alarm bells about the firm's exposure to European sovereign debt a year before the firm collapsed in late October of 2011.
"My views on risk certainly played a factor in that decision," Roseman told a House Financial Services subcommittee, about why he was asked to leave the firm.
hes goin to jail. this is like enron.
Michael Stockman and Michael Roseman may have had the same title at MF Global, chief risk officer, but their testimony Thursday for the House Oversight Committee highlighted distinct differences in actual roles, responsibilities, and personal perspectives.
Stockman said in his testimony yesterday that he believed his responsibilities and position were similar to Roseman's.
However several significant differences are now apparent. Stockman reported to Brad Abelow, MF Global's new COO, also a Goldman Sachs alumni and consigliere to Corzine during his tenure as governor of New Jersey. Stockman gave reports to the board only as requested. Most often he prepared reports and gave them to Abelow and Corzine.
Roseman reported directly to CEO Bernie Dan and to Corzine when he replaced Dan. From a corporate governance best practices perspective, I would say Corzine roadblocked CRO Stockman and put trusted advisor Abelow between Stockman and himself as chief trader and between Stockman and the Board.
Roseman had formal, direct access to the CEO and to the board. He led the design and implementation of the firm's enterprise risk management program and reported the results on a routine basis. He was not afraid to speak up when he saw danger ahead, even if it, in the end, cost him his job.
Stockman repeatedly admitted yesterday that he was not involved, or not there, for key executive decisions and key C-level meetings during his tenure. He was questioned extensively about his lack of direct involvement with the MF Global "break the glass" contingency plan developed in early October. He said hadn't seen the final plan until Congressional staff sent it to him. Finally, in spite of an important title at his previous job at UBS, chief risk officer for the Americas, Stockman admitted he was not involved in senior executive meetings when business strategy was discussed there either.
Finally, the measure of a man is sometimes taken based simply on what he's paid. If Stockman had significantly more experience with risk management in investment banks, I would have expected Stockman to have higher organizational status and receive premium compensation compared to Roseman.
Stockman signed a two-year employment agreement with MF Global, but did not receive a signing bonus or stock options immediately, unlike CEO Corzine, COO Abelow, or General Counsel Laurie Ferber. His employment agreement describes a reporting relationship "initially" to the Chief Operating Officer Abelow, but this was subject to change. "If not to the COO, then to an officer of a comparable senior level." Stockman actually bought 10,000 shares of MF Global on the open market within weeks of starting the job but eventually received a restricted stock grant with a three-year vesting at the end of May 2011.
Roseman received a generous severance when he left in January 2011, according to the annual report. Roseman was paid severance totaling $1,350,000 under his employment agreement including his 2011 target cash bonus amount of $500,000, his 2011 target equity bonus amount of $500,000 and his entire 2011 salary. All of Mr. Roseman's unvested restricted stock (18,987 units) vested as of March 31, 2011.
Trustee power point
The investigation to date has found that transactions regularly moved between accounts and that funds believed to be in excess of segregation requirements in the commodities segregated accounts were used to fund other daily activities of MF Global. In the past, such transfers were in amounts of less than $50 million, but as liquidity demands increased and could not be met from internal sources, much larger amounts were used, apparently with the assumption that funds would be restored by the end of the day. By Wednesday, October 26, as the result of increasing demands for funds or collateral throughout MF Global, funds did not return as anticipated. As these withdrawals occurred, a lack of intraday accounting visibility existed, caused in part by the volume of transactions being executed, and the 4(d) U.S.segregated commodity customer account appears to have reached a deficit condition on Wednesday, October 26 that continued through to MF Global’s bankruptcy.
The number of transactions executed by MF Global during the last week prior to the bankruptcy escalated to unprecedented volumes. The rush to meet funding needs for collateral, margin and customer liquidations led to billions of dollars in securities sales, draws on credit facilities, and a web of inter-company loans across affiliates, some foreign. The company’s computer systems and employees had difficulty keeping up with the unprecedented volume of transactions. A number of transactions were recorded erroneously or not at all. So called “fail” transactions – where either the buyer or seller fails to deliver the cash or the security, respectively – were five times the normal volume during the firm’s final week.
Starts @ 13 minutes mark..
cuffs I say, cuffs!
“Jon Corzine hired a chief yes officer, instead of a chief risk officer,” Feuga says referring to Stockman.
Feuga, who worked closely with Roseman, says there also are more structural issues that led to the collapse. “The basic reason why MF Global collapsed was not because of Jon Corzine doing stupid things, and people digging in the cookie jar for customer money. It was because they were allowed to do it – by two major corporate governance flaws that every major corporation in America has.”
Feuga spent three years at MF Global, both before and during Corzine’s 19-month tenure, when the firm started its transition from a futures commission merchant (FCM) into an investment bank. With Corzine’s efforts to bring the firm to profitability, the influence of the teams in risk and IT, and risk and compliance began to fade. “Corzine came a year-and-a-half ago. It took him a year-and-a-half to destroy a company that is more than 200 years old,” Feuga says.
FCMs earn income through interest on customer funds, what is called “the float” in the industry. The low interest rate environment had put pressure on most futures brokers in recent years. “Our business model [did] not allow us to survive too long in such an environment,” Feuga says. “Something had to be done. But everyone in their right mind knows that you can’t do 40x leverage with all your eggs – actually, with as many eggs as you had borrowed — in one basket. It’s suicidal.”
But that is what happened, Feuga explains. “Corzine saw the company was not making money, and he decided to take action.”
In attempting to expand MF Global from its commodities roots into an investment bank, “[Corzine] started a proprietary trading group that failed to deliver results. And when that failed, he decided to take the huge bet.
“It’s easy to buy [a large] position and play the difference between the return of the position and the funding cost,” he says. “But all they did was play the credit spread. That is very dangerous. Corzine took a stupid bet thinking he would never have to pay back at a discount, and the collateral, the repo, would not require a haircut. The fact is, it did.”
Feuga says that the transition to an investment bank required MF Global to create a stronger and faster risk management system. “I basically wrote down all the specifications on what we needed to do,” Feuga says.
They needed a system for Value at Risk (VAR). “To do that, you need specific risk measurements, because once you start principal trading, market-making and proprietary trading, the risk is much bigger than being a broker,” he says. “I was leading the project to install such a system, which Mike Roseman was very eager to get. But when Mike Stockman came in, he totally stopped it.”
Feuga says Stockman wanted another team to handle this.
What followed appears to have been a game of cat-and-mouse, in which Stockman passed the project to the front office. “It was complete nonsense,” Feuga says. “Because front office cannot meet such a project, they cannot produce the numbers; there is a major conflict of interest.” Eventually, front office could not fulfill the goal to install a VAR system, and “they were about to create a mid-office group to do it, because risk did not want to do it. But that mid-office would be staffed with people from risk, because those are the people who can run such a project. You see how bad it is,” Feuga says, noting that Stockman eventually got excluded from most of the meetings. “When the company was about to collapse, a week before it filed for bankruptcy, [Stockman] came in [briefly] in the morning and then went away.”
So with people scrambling to save the company because it had too much risk on, the chief risk officer was nowhere to be found. “He came back in again in the afternoon… and went away again, when people spent the entire Saturday and Sunday night to save the company.”
Feuga says Roseman battled with Corzine over the nature of the risk. “Jon got really annoyed, which is when he started thinking of getting rid of Mike,” Feuga says. “He told Mike ‘it’s not an excess, it’s a new limit.’ If you increase your exposure, and you have no limit, that shows that Jon was not reasonable. He had all the numbers on his desk to check, to prove that what he was doing was not reasonable, and he did it anyway,” Feuga says.
Feuga indicates that Stockman was paid to look the other way. “Stockman was not monitoring, he was just doing the bare minimum; he was asked to do the bare minimum.”
That was apparent when Stockman was asked in the hearings regarding his role in the so-called “Break-the-glass plan.” He said a senior member of his staff assisted in the creation of that document. “I actually did not see the final outcome,” he said, and also seemed unable to reconcile whether it was 10 days before MF Global’s collapse when he became “less comfortable” with the risks, or in August.
“He didn’t know what it involved – he didn’t want to be exposed, which was amazing because it was his job,” Feuga says. “He was not pushing to get involved, and people knew he was completely irrelevant.”
Key to Stockman’s arm’s length relationship with his staff is that he worked in a different building, and in the same building as the senior staff – the CEO, COO and General Counsel, Laurie Ferber, Feuga says. “Mike Roseman was let go on Jan.30, but stayed on the premises for two months just in case people needed him. Mike Stockman was in [another] building, the Park Avenue Plaza, when Mike Roseman and myself were in the 717 Fifth Ave. Building, two blocks away.”
Stockman came to the 717 Fifth Ave. Building “only once in nine months,” Feuga says. “And this was only because he sought to come by one of my co-workers, to join a farewell party. It was not even a formal meeting. He came to the farewell party, ate his pizza and just went away”.
Feb. 24 (Bloomberg) -- The judge who may oversee investor lawsuits against Jon Corzine, MF Global Holdings Ltd.’s former chief executive officer, and separate cases filed by customers of the firm suggested that plaintiffs’ lawyers organize themselves to push the suits forward.
“Something big happened at MF Global last December,” U.S. District Judge Victor Marrero said at an initial conference today in Manhattan federal court, where dozens of lawyers in at least three set of lawsuits gathered. “Whether the case is in New York or Chicago or somewhere else, you’re going to need a leadership structure.”
Looks like an apparent sarbanes oxley violation is no reason not to get a bonus...
For example, Bradley Abelow, president and chief operating officer at MF Global, got a salary of $829,545 and a bonus of $1.25m for the fiscal year ended March 31, 2011, according to a securities filing. His total compensation was $7.6m. After the Chapter 11 filing, Abelow agreed to cut his annual salary to $60,000, another securities filing shows.
The other high-ranking MF Global executives who could collect bonuses under Freeh's plan are Henri Steenkamp, the company's chief financial officer, and Laurie Ferber, general counsel, people familiar with the matter said.
Frank Piantidosi, an adviser to Freeh's firm in the MF Global case, said the compensation proposal is aimed at rewarding employees for preserving the bankruptcy estate's value, assisting in asset sales and negotiating with MF Global units outside the US.
Just realized those MF Global customers are just like the kid in south-park. Poof your money is gone.
WASHINGTON - A bankruptcy trustee's proposal to give bonuses to MF Global executives to find money it owes farmers around the country is "unethical" and "sick," victims said Monday.
Here’s the link to a video by William Rochelle of Bloomberg News explaining how the safe harbor in Section 546(e) of the Bankruptcy Code likely will prevent MF Global customers from ever getting their $1.6 billion back -- even when it’s located, as it has been evidently.
What people need to understand is that like the case of WorldCom, the MF Global bankruptcy illustrates the way in which the large Wall Street banks have used their Washington lobbyists to encroach upon the rights of investors.
The problem here is that the existing laws against pillaging customer accounts and other acts of fraud are in conflict with the bankruptcy statute designed to make the world safe for large banks and over-the-counter derivatives. Specifically, the post 2005 bankruptcy laws prohibit trustees from clawing back the $1.6 billion in stolen customer funds. Indeed, the Bankruptcy Court and trustee are precluded from pursuing the banks just as the trustee in the Madoff fraud has likewise been stymied
In addition to the clients of MF Global who were apparently defrauded, the big losers in this mess are the smaller independent broker dealers who have acted as custodian of client funds. Once institutional customers understand that they have no rights in the event that management of a small broker-dealer absconds with client funds to pay bank margin calls and a broker-dealer fails, the ability of independent dealers to hold customer funds is going to evaporate.
Purely as a matter of due diligence, no fiduciary will ever again be able to use a US-based broker dealer as a custodian. To do so would be reckless and would expose the fiduciary to claims of negligence in the event a loss similar to MF Global occurred.
The MF Global bankruptcy provides yet more evidence that the 2005 bankruptcy reform legislation passed by Congress is an abomination, but the cancer goes even deeper than the years of Bush II. The big banks who earn the lion's share of their profits in the quantum world of derivatives are literally looting the real economy and real investors, all with the full approval and complicity of the Fed.
Five months on, the public understands less about what happened to MF Global than it did on Nov. 1, the day after the holding company filed for bankruptcy.
That morning, the Commodity Futures Trading Commission and the Securities and Exchange Commission issued a joint statement explaining why attempts to sell the broker/dealer had failed: "Possible deficiencies in customer futures segregated accounts held at the firm."
Since then we've been treated to hundreds of stories, many contradicting each other, about where the money might be, who might have moved it there, and who may or may not be responsible for losing it. I've lost patience with trying to keep all the excuses straight.
All parties have practiced misdirection. The trustees, the regulators, and the investigators from the FBI and U.S. Attorney's office dole out anonymous updates to reporters with the goal, I suppose, of attracting more information, buying time, or preparing customers for the worst.
There is one thing we know for sure. Some banks must know where the missing customer funds are.
Otherwise why would they be so sure that customer claims will be paid in full and paid soon that they're bidding as much as 90% of face value for the claims?
"These banks are so confident that they’re buying the claims for their own account, not resale," says Barry Slotnick, a white-collar defense lawyer and a partner at Buchanan Ingersoll & Rooney PC who's not involved in the case.
Ironically, I know think the bigger story in this is not the MF Global people but JP Morgan
(Reuters) - A congressional subcommittee voted on Wednesday to issue a subpoena to a key employee of MF Global Inc, the futures-trading firm whose collapse in October triggered ongoing inquiries into the disappearance of more than $1 billion of customer money.
O'Brien hasn't been accused of any wrongdoing, and she could choose to invoke her right against self-incrimination.
Her reluctance to testify voluntarily was what prompted the investigations subcommittee of the House Financial Services Committee to vote on Wednesday to issue the subpoena.
Bill Black --MF cover up
So now nobody trusts their broker.
Saw this coming..
what about the little guy
Over the past six months, U.S. banks have boosted arrangements to ensure that their collateral and margin are protected by a third party to reduce the risk of anything happening to their funds, said the report.
Following the failure of MF Global in October, market players have "focused more intensively on the possible consequences of financial distress on the part of dealers with whom they have posted collateral," said the Fed's quarterly survey of senior credit officers.
Tavakoli: Yea Corzine knew...
JPMorgan Chase is in talks with the authorities to turn over customer money that disappeared from MF Global when the firm went bankrupt last year.
The development, announced this week by the trustee tasked with returning money to MF Global customers, suggests that a substantial sum of client funds is still sitting at JMorgan. The statement from the trustee, James W. Giddens, said that he and JPMorgan “are presently engaged in substantive discussions regarding the resolution of claims.”
April 12 (Bloomberg) -- A trustee for MF Global Inc., the failed brokerage, may sue individuals over breach of fiduciary duty and other issues related to the loss of customer funds, the trustee said today in a statement.
"There are possible civil liabilities faced by officers, directors and other employees," Kent Jarrell, a spokesman for the trustee, James Giddens, said in a phone interview. He declined to single out any individuals.
Giddens sees "more than colorable claims against some parties," Kobak told U.S. Bankruptcy Judge Martin Glenn, adding that aside from JPMorgan Chase, which the trustee has been holding talks with, the trustee "believes he may have claims against other parties."
Watch Jon Corzine's Washington Influence on PBS. See more from FRONTLINE.
Those wondering why the Department of Justice has refused to go after Jon Corzine for the vaporization of $1.6 billion in MF Global client funds need look no further than the documents uncovered by the Government Accountability Institute that reveal that the now-defunct MF Global was a client of Attorney General Eric Holder and Assistant Attorney General Lanny Breuer’s former law firm, Covington & Burling
Feb 21 (Reuters) - A key U.S futures-market regulator said Thursday it will block Jon Corzine, the former chief executive of failed broker MF Global, from the futures industry unless he clears an investigation into his fitness as a participant.
The National Futures Association, which oversees brokers and asset managers, is "aware of publicly available information that raises issues" about Corzine's fitness for membership, NFA Chairman Chris Hehmeyer said in a statement.
Corzine will not be granted membership in the future "unless NFA, after completing its fitness investigation, resolves those issues to its satisfaction," Hehmeyer said.
Corzine's membership has lapsed.
MF Global collapsed in October 2011 after dipping into customer accounts in violation of industry rules, leaving a $1.6 billion hole in its customers' accounts and shaking confidence in the futures industry.
According to some reports, Corzine had been considering launching his own hedge fund.
“He doesn’t need to be near anyone’s money ever again in the futures space, and we want to make sure of it,” Roe told the New York Post before the meeting.
>>According to some reports, Corzine had been considering launching his own hedge fund.
Who would entrust their money to Corzine?!?
Sounds like nobody.
how exciting for you.
C0lumbia C0unty in the winter. Paradise.
People who invest other people's money...
Reuters) - The "negligent conduct" of Jon Corzine and other officers of the MF Global Holdings Ltd brokerage contributed to the firm's dramatic collapse in 2011, according to a report by the bankruptcy trustee.
Freeh's 124-page report blamed the collapse on "the risky business strategy engineered and executed by Corzine and other officers and their failure to improve the company's inadequate systems."
That and an open container gets you the same thing......no jail time.
CORZINED - Urban Dictionary
When something of value is stolen, and everyone who was in charge of safeguarding the valuable claims ignorance of just about anything. People in charge who confronted with questions about the valuable items usually answer, "I just dont know where it is" or claim that the valuables were "vaporized" when it was their job to know.
Jon Corzine, the former head of MF Global Holdings Ltd., masterminded a scheme to inflate earnings that led to the eighth-biggest bankruptcy in U.S. history, according to an updated lawsuit filed by a trustee for the failed futures broker.
A new litigation trustee yesterday filed an amended complaint in Manhattan bankruptcy court saying that not only did they dramatically change the company's business plan without addressing weaknesses, but their actions rose to the level of a "scheme." -