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Memo Shows Corzine Ordered Raiding MF Global Customer Account of $200 Million

We know America is a hopeless kleptocracy, but if Corzine does not go to jail, given the revelation that he approved the raiding of a customer account of $200 million, it means that no one in the officialdom is interested in keeping up the pretense that we have a functioning regulatory and judicial system.

The revelation per Bloomberg:

Jon S. Corzine, MF Global Holding Ltd. (MFGLQ)’s chief executive officer, gave “direct instructions” to transfer $200 million from a customer fund account to meet an overdraft in one of the brokerage’s JPMorgan Chase & Co. (JPM) accounts in London, according to an e-mail sent by a firm executive.

Edith O’Brien, a treasurer for the firm, said in an e-mail sent the afternoon of Oct. 28, three days before the company collapsed, that the transfer of the funds was “Per JC’s direct instructions,” according to a copy of a memo drafted by congressional investigators and obtained by Bloomberg News.

 

The transfer occurred on October 28, when the firm had an overdrawn London account with JP Morgan and JP Morgan was holding up business in the US as a result. It isn’t hard to imagine the firm would have failed that day as opposed to on the 31st, and with lower customer losses, had the pilfering of the account not taken place.

This was also the same transfer in which JP Morgan asked for written assurance that the funds were not coming from customer holdings. The assistant treasurer, Edith O’Brien (who was also the author of the e-mail saying that she had the approval of Corzine for the action) never provided the requested confirmation.

Note that this e-mail contradicts Congressional testimony by Corzine:

Corzine testified that he never intended a misuse of customer funds at MF Global, and that he doesn’t know where client funds went.

“I did not instruct anyone to lend customer funds to anyone,” Corzine told lawmakers in December.

It isn’t hard to anticipate that Corzine will deny the O’Brien e-mail, but with the CFO on holiday during the meltdown and O’Brien an assistant treasurer, it seems entirely credible that she’s seek senior level approval for an action like this. And we have this tidbit:

The memo’s account of the e-mail exchanges aligns with what Terrence Duffy, the executive chairman at CME Group Inc. (CME), told lawmakers during a December congressional hearing. Auditors at CME, which had authority to oversee MF Global, learned from an employee of the brokerage that Corzine knew about the loans involving a European affiliate, Duffy told committee members.

Put it another way: if there isn’t some serious action after this revelation, between this and Obama’s Make America Safe for Bucket Shops Act, investors can no longer regard themselves as having adequate protection from broker chicanery.

This post originally appeared at naked capitalism and is posted with permission.

One Response to “Memo Shows Corzine Ordered Raiding MF Global Customer Account of $200 Million”

WaltFrenchMarch 25th, 2012 at 7:45 pm

“Edith O’Brien, a treasurer for the firm, said in an e-mail sent the afternoon of Oct. 28, three days before the company collapsed, that the transfer of the funds was “Per JC’s direct instructions,” according to a copy of a memo drafted by congressional investigators and obtained by Bloomberg News.”

I'm not a lawyer, but sorry, if I were Corzine's and if this was all the prosecution had on him, I think I would feel pretty good about my chances.

First, this evidence is by somebody who has obvious actual responsibility for the transfer, both in directing it and failing to recognize it as illegal. Her claim could be painted easily as to save her own skin.

Second, this article cites that JPM requested direct confirmation about its legality, and never received it. So how is Corzine responsible for some miscommunication that resulted in funds transferred incorrectly?

I have exactly zero additional information to any other reader's, but this seems like the worst kind of overreaction to some dodgy evidence. The history of congressional fact-finding is, in my casual reading over the years, worse than zero.

I do understand how badly this reflects on the securities industry, and indirectly attacks the reputation of perfectly honest people. And certainly, many people shouldn't have lost the money. But the extent of the politicization of the issue looks harmful to the goal of preventing such losses in the future. Sure, sharpen up the tines on the pitchforks, but it might be a while still.

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