The Corzine Caper

By mw | Related entries in Bad Decisions, Banks, Barack, Change, Corporate Business, Democrats, News

From the department of “The more things CHANGE…”

What does this sound like to you? – A high risk “bet the company” culture, huge leverage, “smarter than you” corporate arrogance, regulators asleep at the switch, a”rock star” CEO cozying up to the President of the United States, questionable accounting, bankruptcy, investigations, and criminal prosecutions.

How about Enron, “Kenny-Boy” Lay, and the Bush administration?

-or-

How about MF Global, “Jonny” Corzine, and the Obama administration?

Most of the mainstream media coverage of the MF Global failure has focused on the leverage and the highly speculative bad business bets made by CEO Jon Corzine. But with the SEC and FBI looking under the covers, Dan Primack of Fortune Magazine goes where the NYT fears to tread:

Is Jon Corzine going to jail?

This may just be the beginning of Jon Corzine’s troubles.

Jon Corzine is unlikely to ever again work in finance, after overseeing this week’s collapse of brokerage MF Global. But he may have much bigger things to worry about. Like going to jail.

Federal officials reportedly say that MF Global (MFGLQ) has admitted to transferring hundreds of millions of dollars of client money into company accounts, perhaps to cover investment losses. This is on top of Craig Donohue, CEO of the Chicago Mercantile Exchange, saying that MF Global wasn’t “in compliance” with the CMOE’s cash management regulations.

“The first thing you learn on the first day of your first financial job is that client money is not to be mixed with corporate money,” says a source familiar with MF Global. “Nobody could have done this by accident.”…

“If this was a former Republican senator and governor, the press would be all over it,” argues a GOP-affiliated investment professional. “They’d be talking about how it is emblematic of corruption on Wall Street. But because it’s a Democrat, everyone keeps focusing on bad investments rather than the possibility of fraud.”

Video of CNBC interview with Primack linked HERE.

Curiouser and curiouser.

Dipping into MF Global client funds to backstop the firm’s heavily leveraged high risk bets on European debt is about as serious as it gets. We’re talking – Federal Felony / Criminal Fraud / Grand Theft / Go To Jail / Do Not Pass Go / Do Not Collect $200 / Throw Away The Key / – that kind of serious. If tapping segregated client funds at a broker dealer is not criminal fraud, then it at least rises to criminal negligence on the part of the CEO of that firm.

Then there is the special relationship with the President and the related special provisions of the “Investment Grade” debt offerings from MF Global only two months ago:

“The futures broker sold $325 million of five-year unsecured notes, the company said today in a statement. The notes will pay an extra percentage point of interest if Corzine is named to a federal post and confirmed by the Senate before July 2013, New York-based MF Global said yesterday in a regulatory filing.

“That seems crazy,” said William Larkin, a fixed-income portfolio manager who oversees $500 million at Cabot Money Management Inc. in Salem, Massachusetts, and has 22 years of experience. “I’ve never heard of something like this.”…

A Democrat, Corzine is among the biggest fundraisers for President Barack Obama’s 2012 re-election campaign. He has been the subject of speculation about administration jobs such as Treasury secretary or White House economic adviser, said Christopher Allen, an analyst at Evercore Partners Inc. in New York…

Corzine’s employment contract is written with a view to future government service. It stipulates that he’ll be paid his $1.5 million retention bonus on a pro rata basis if he leaves to work for any “U.S. federal, state or local government” before March 31, 2014.”

I wonder if Corzine’s retention bonus and the bond interest kicker will be invoked if it turns out that Corzine’s federal employment is working in the laundry of a Federal Prison?

Meh – probably not worth worrying about that “Investment Grade” Bond Interest kicker. These bonds (which were sold in August and have yet to pay a coupon) were trading at 40 cents to the dollar on Monday. BTW – Thank you S&P for another great call. In the same time frame that S&P was downgrading US Debt early this summer, they rated this MF Global bond offering “Investment Grade”. U.S. Treasuries have increased in value since that rating. The MF Global bonds? Not so much.

UPDATE:
Jon Corzine resigned this morning and lawyered up.

The Bush Justice Department prosecuted and convicted Ken Lay. Let’s see what happens to Jon Corzine.

X-posted from Divided We Stand United We Fall.


This entry was posted on Friday, November 4th, 2011 and is filed under Bad Decisions, Banks, Barack, Change, Corporate Business, Democrats, News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

6 Responses to “The Corzine Caper”

  1. Lucas Harvey Says:

    From the department of “The more things CHANGE” What does this sound like to you?A high risk “bet the company” culture, huge leverage

  2. cranky critter Says:

    The media should do a much better job than they do of focusing on actual wrongdoing by the wrongdoer. To me it’s regrettable when connections to other powerful figures become the biggest part of the story.

    They’re part of the story, of course. But the biggest part should always be the biggest scumbag.

    Part of the coverage problem relates to the relative economic and financial illiteracy of most reporters who don’t work for the WSJ or a regular financial beat.IF you don’t really get or have interest in the details of the malfeasance, then all you sniff out is the :who else has got some on him now that the shit has hit the fan” angle.

  3. mw Says:

    @Cranky

    This is why I find myself increasingly reliant on the financial news outlets (CNBC and Bloomberg) over the network news or the usual cable suspects (CNN, Fox, MSNBC). I feel I get a much better understanding of the real issues facing us economically, globally and politically. CNBC coverage of Corzine this morning.

    We’re in the early stages of the story, so – while the “biggest scumbag” in the story has been identified (Corzine), we have yet to see where he fits in among the rich pantheon of corporate and wall street scumbags we have come to know and love over recent years. It has not yet been formally alleged there was criminal negligence and fraud at work here, or whether this was simply another example of hubris and reckless trading in the c-suite destroying a company.

    What is known is that $600M of client funds is still missing, and the sacrosanct segregation of client and corporate trading accounts was violated. We also know that the FBI has opened a criminal investigation. Plenty of smoke to assume the fire.

    Regarding the connections between Corzine and the Obama administration, there is quite a bit more here than reporters simply pointing to collateral damage in the breaking shit storm.

    The relationship between Corzine and the Obama administration was so significant that the potential of him being tapped for a job in the administration had to be acknowledged and incorporated into the terms of the bond offering sold to investors just last August. Another Wall Street firm “Jeffries” (who was the chief underwriter of those bonds) has also had its stock hit and been tainted by that bond offering – unsurprising with those bonds now trading at a fraction of what they were when sold to investors as investment grade 3 months ago.

    Moreover, the relationship between regulator and the regulated is again coming to the fore. Obama appointee Gary Gensler – Chairman of the Commodity Futures Trading Commission has recused himself from participating in the investigation of MF Global because of his close ties to Corzine. Fine and good. But he did not recuse himself from meeting with Corzine about tightening CFTC rules on segregating client accounts.

    The Corzine / Obama administration connection is an integral part of this story.

  4. cranky critter Says:

    Unless it’s shown that the admin knew of and tolerated the malfeasance in question, then _I_ personally am uninterested in the nature of the relationship. And that’s my mileage. Everyone else is entitled to their own.

    My sense is that politicians inevitably end up having relationships with tons of wealthy powerful people. That’s the rule, not the exception. A certain portion of them will turn out have done unscrupulous things.

    When that’s the case, I’m interested only if it turns out the politicians were somehow involved in the malfeasance or fostering it or protecting it from being exposed. Guilt by association doesn’t do it for me. My standard is “guilt by actual involvement.”

  5. Mia Kaur Says:

    While he was governor of New Jersey, Jon Corzine lived in the same building for a time, but later moved elsewhere in Hoboken.

  6. Donklephant » Blog Archive » Let’s play “Clue” – Was it Mr. Corzine in the Board Room with the “Smoking Gun” E-mail? Says:

    […] segregated client funds was not something that could be explained away with run-of-the-mill corporate incompetence and executive malfeasance. If investors cannot trust the custodian of their brokerage funds, the system cannot […]

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