By Jamie Dettmer In Washington
Last updated at 10:26 PM on 15th December 2011
Comments (0) Share
America has become sadly accustomed to witnessing spectacular crashes involving so-called ‘masters of the universe’. But the ruinous fall of Jon Corzine, who once co-headed Goldman Sachs and is a former prominent Democrat senator and governor, remains astonishing.
Just months ago, Corzine was seen as a likely successor to Timothy Geithner as US Treasury Secretary. So high was the expectation, that investors in his company, MF Global, a financial derivatives broker and futures trader, were promised an extra 1 per cent in interest if he left the firm before 2013 to join the government.
The offer had to be made to ensure that demand wouldn’t slip for bonds in MF Global.
Puzzled: Jon Corzine told a congressional committee he did not know what happened to his clients' funds
Now the last thing on the mind of MF Global investors is that extra 1 per cent. They would like to know where $1.2billion (£773million) of their money has gone – and the man once viewed as a financial wizard says that he too is puzzled as to its whereabouts.
MF Global filed on October 31 – the eighth-largest US bankruptcy – after making a wrong-way $6.3billion trade on bonds of some of Europe’s most indebted nations. And it now appears that MF Global broke a cardinal rule that requires keeping customers’ cash separate from a brokerage’s own funds.
More... Markets backslide after Hungarian and Czech tax demands send EU 'fiscal compact' into turmoil
When Corzine took over MF Global, after losing a re-election bid as New Jersey governor, most observers predicted that he would quickly turn around an investment house that had struggled in recent years to recover from a rogue trading scandal. Instead, by betting big on eurobonds, Corzine led the company into a spectacular collapse that made it the highest-profile US casualty of the European debt crisis.
Now Corzine is in the midst of grillings from former congressional colleagues, as the regulators examine MF Global’s financials in a search for missing customer funds that may have been used improperly to try to prop up the beleaguered firm. Last week, Corzine testified before a congressional committee and manfully – but possibly unfortunately – declared that the ‘buck stops’ with him. But he then undercut that by denying firmly having any responsibility for the missing $1.2billion.
‘I simply do not know where the money is, or why the accounts have not been reconciled to date,’ he said.
This week he appeared before another Capitol Hill committee, and repeated that line – the time-honoured position adopted before congressional panels when criminal charges are a possibility.
So, is Corzine heading for jail?
‘I think there is a good chance of a civil enforcement action,’ says Peter Henning, an expert on white-collar crime. ‘On the issue of potential criminal liability, the problem that prosecutors will face is the same hurdle that has dogged investigations of executives at Wall Street firms involved in the financial meltdown – proving intent.’
The fallout from the collapse of MF Global – the largest Wall Street bankruptcy since the Lehman Brothers crash in 2008 – is widening. Among the issues being raised is whether customers’ accounts at brokerages are safe, highlighting major gaps in customer protection and prompting questions about the effectiveness of the regulator – in this case, the US Commodity Futures Trading Commission. Brokerage firms are required by federal law to maintain segregated accounts that hold all client assets.
Robert Cook, a director at the Securities and Exchange Commission, said the obligation to protect customer assets ‘is considered sacrosanct’. Even when Lehman was falling apart, there was no plundering of customers’ assets in a last desperate bid to stay afloat.
That appears not to have been the case at MF Global, when the consequences of the catastrophic bets it was making became apparent.
The trustee liquidating MF Global has spotted suspicious trades in customer accounts.
Lawyer James Kobak, who appeared at a hearing in the Federal Bankruptcy Court in Manhattan last Friday, said that most of the transactions appeared to have taken place close to the weekend before MF Global filed for bankruptcy.
The revelation that client money was missing at MF Global prompted panic in the futures industry, with customers saying they were losing faith in a system that promised to protect their money.
Federal regulators have scrambled to act in the wake of the MF Global bankruptcy, approving tougher constraints on risk-taking. New rules now limit how the brokerage industry can invest customer money, largely by prohibiting firms from borrowing money from their own customers or using client funds to buy foreign sovereign debt. ‘I believe that these rules are critical for the safeguarding of customer money,’ said Gary Gensler, a federal regulator.
The MF Global crash has also cast further doubts about the reliability of the credit ratings agencies.
US lawmakers believe the starpower of Corzine clouded the rating firms’ judgment of MF Global, which was downgraded by only two of the main agencies just days before the brokerage filed for bankruptcy. Standard & Poor’s downgraded it only after the bankruptcy.
MF Global’s woes are now rippling into the American heartland, from farmers in the Midwest to pensioners in Florida. Don Feddie, a South Dakota agriculture finance manager, has clients who are out ‘upwards of $100,000’ from MF Global. He said: ‘It’s plain thievery.’
Share this article: Facebook Twitter Google+ Messenger LinkedIn Digg it Newsvine Fark Nowpublic Reddit Print article Email article DM.has('socialLinks', 'omniture', { value: 'share 2074756' }); window.plusone_vote = function(obj) { AND.Omniture.connectCallback('plusone_vote', 'money', obj); }; window.clickEventToAnalytics = function(intent_event) { AND.Omniture.connectCallback('twitter_click', 'money', intent_event); }; window.fbAsyncInit = function() { FB.init({appId: '146202712090395', status: true, cookie: true, xfbml: true}); FB.Event.subscribe('edge.create', function(response) { AND.Omniture.connectCallback('facebook_like', 'money', response); }); }; /* google +1 button */ window.___gcfg = {lang: 'en-GB'}; (function() { var po = document.createElement('script'); po.type = 'text/javascript'; po.async = true; po.src = 'https://apis.google.com/js/plusone.js'; var s = document.getElementsByTagName('script')[0]; s.parentNode.insertBefore(po, s); })(); /* fb like button */ (function(d, s, id) { var js, fjs = d.getElementsByTagName(s)[0]; if (d.getElementById(id)) {return;} js = d.createElement(s); js.id = id; js.src = "//connect.facebook.net/en_GB/all.js#xfbml=1"; fjs.parentNode.insertBefore(js, fjs); }(document, 'script', 'facebook-jssdk')); if (typeof(twttr)!=="undefined") { twttr.events.bind('click', clickEventToAnalytics); } var goog_ad = {}, google_ad_client = 'ca-an-dailymail'; goog_ad.prefix = 'row'; goog_ad.prefix = 'tim'; google_ad_client = 'ca-an-thisismoney'; goog_ad.channel = 'money_moneynews'; google_ad_channel= ''+goog_ad.prefix + '_' + goog_ad.channel; dm_google_ad_type = ''; google_ad_output = 'js'; google_ad_type = 'text'; google_language = 'en'; google_encoding = 'utf8'; google_safe = 'high'; google_ad_section = 's1 s2'; google_feedback = 'on'; google_max_num_ads = 2; google_skip = 0; DM.has("reader-comments", "readerComments", { mode: 'W' }); Add your comments Comments (0)
No comments have so far been submitted. Why not be the first to send us your thoughts, or debate this issue live on our message boards.
Add your comment Name: Town & Country: Your name and location will appear next to your comment. You have 1000 characters left. Libellous and abusive comments are not allowed. Please read our House Rules. I agree to the House Rules Remember me - this will save you having to type out your name and location when you next leave a comment. For information about privacy and cookies please read our Privacy Policy. Terms Clear Submit Content Enter search term: Search All Articles Share prices DM.has('rc2p0-search', "timSearch", {'link' : 'http://investing.thisismoney.co.uk/search/?q='}); Power Portfolio Forums (beta) Midas Extra FTSE 100 Win, Win, Win! Calculators CHRISTMAS SPECIAL Your festive finance All the deals, sales, tips and news adverts.addToArray({id: 'mpu_R_C2_P3', type: '300x250'}); MOST READ IN DECEMBER: 1. World's 8 most bombed out property markets 2. Guide: How to avoid the 12 cons of Christmas 3. Why markets say no rate rise until nearly 2016 4. UK stands alone over EU Treaty 5. Tables of official figures for UK salaries 6. Groupon investigated for 48 dodgy ad claims 7. BoE warns mortgage rates set to soar 8. Orange shocks contract customers with 4% rise 9. '29p choc orange shopper': How I spot glitches 10. Tesco's new inflation-beating eight-year bond DM.has('ec_R_C2_P4', 'omniture', { value: 'editors choice MOST READ IN DECEMBER:' }); DON'T MISS Online shoppers beware last order dates earlier than EVER Last order dates for Christmas revealed Tesco Bank sells out inflation-linked bond Swathes of investors snapped up Tesco's eight-year bond raising it £60m Calculate what you earn per hour and then give it away Sightsavers is urging workers to donate their final hour's pay for 2011 Six steps to beat the negative equity trap What you can to start improving the situation now TOP DEALS: Easy-access accounts rates rise as banks battle it out for savers' money Sylvia Morris picks out the best Get a better deal: Act now on Santander's plunging Isa Its Flexible Isa Issue 3 now pays just 0.5 per cent Drivers sold worthless car insurance by ghost brokers Fake brokers are popping up in their droves and motorists are left with insurance that is invalid Is now the worst EVER time to retire? Unlucky sixty-somethings get possibly the worst pension payout rates right now ASK TONY: Direct Line dumped my damaged car on the drive ... 8 months after it was stolen The Money Mail financial agony uncle takes up readers' disputes A simple guide for those who want to start investing in 2012 Author and investor Glenn Martin explains the basics of how to make money from stock markets Why don't YOU visit your local town centre High Street? Mary Portas needs your help to save the High Street Is Santander's RPI inflation-beating bond worth it? It pays 105% of the change in prices between now and 2016 MONEY MORALS‘Readers - help us solve some of life's trickier money dilemmas’
Latest: Should I pay my friend to nurse my son? MONEY MORALS My 4x4 car buying dilemma Should I cancel Christmas? Is it okay to haggle in shops? I would like to pay my builder in cash Should I get my daughter a Blackberry? Is it wrong to spend my funeral savings? Should I take parents' money to buy first home? DM.has('ec_R_C2_P8', 'omniture', { value: 'editors choice MONEY MORALS' }); COMPETITION: YOU CAN WIN A MACBOOK PRO WORTH £1,500‘Question: What's the definition of AER?’
Competition in association with MoneyVista GET MORE FROM THIS IS MONEYGO Sign up for our newsletter, newsflashes and latest deals
Find us on: Facebook Twitter You Tube RSS Feeds Apps CALCULATORS Inflation savings danger calculator Loan repayments calculator Stamp duty calculator Obesity calculator: Life insurance impact Vice-ometer calculator: Your tax Read Full Article »