MF Global Violated 'Core Foundation' Of Investor Protection: CFTC

WASHINGTON — A regulator investigating the collapse of Jon Corzine's securities firm, MF Global, said Thursday that the firm's failure to separate its clients' money from its own assets violated "the core foundation" of investor protection.

Gary Gensler, chairman of the Commodity Futures Trading Commission, told a Senate panel Thursday that "the most troubling aspect about the MF Global situation is the shortfall of customer money at the firm."

MF Global admitted to regulators early Monday that it had diverted hundreds of millions in client money. The company filed for bankruptcy protection Monday. The CFTC and the FBI are investigating whether it broke government rules or criminal laws.

MF Global ran low on cash last week after investors and trading partners grew nervous about Corzine's big bet on European bonds.

Gensler says he and another key regulator "really saw no alternative" to bankruptcy after the company admitted that money was missing from client accounts. He and Mary Schapiro, the chairman of the Securities and Exchange Commission, decided on an early-morning conference call to force MF Global into bankruptcy, he said.

The CFTC regulated most of MF Global's activities. Gensler said the agency has been working with the bankruptcy trustee and financial exchanges to move customers' accounts to other firms.

Another regulator, CME Group Inc., said MF Global appears to have moved the money in mere days and tried to avoid detection. CME, a private regulator that operates financial exchanges, said the transfers apparently occurred after the company passed an on-site audit last week.

More than $600 million was still missing on Tuesday.

MF Global was the eighth-biggest U.S. bankruptcy and the first major Wall Street firm to fail because of bets on European debt. Its collapse is the latest public setback for Corzine, who was head of Goldman Sachs and governor of New Jersey before joining the company. He had hoped to build MF Global from a brokerage into a high-flying investment bank.

Under Corzine's leadership, MF Global started making more trades for its own profit, a practice known as proprietary trading. Those bad trades triggered its worst-ever quarterly loss.

MF Global's credit was downgraded to junk status after it acknowledged the loss last week. Its stock plunged, and business partners required it to put up more money to guarantee its bets. The result was a cash crunch that forced MF Global into bankruptcy.

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AP Business Writer Marcy Gordon contributed to this report.

Comments

[Paris215]

06:20 AM on 11/05/2011

Another fund self destructs.... From pure greed - one less vulture to feed on honest investors. I hope they are all held accountable for the investor losses.. These Guys are far worse than 'common' criminals...

[Sooperbohl]

01:21 AM on 11/05/2011

Lock him and his cronies up. They are thieves no doubt about it!!

[nypapajoe]

09:16 PM on 11/04/2011

Why is he not in Jail? Anyone caught with a $5 dollar bag of marijuana would be arrested immediately! Yet this self confessed criminal has mismanaged millions and is walking around free?

[kamact]

08:59 PM on 11/04/2011

Seize Corzine's assets and throw him in jail,...

[halfpricefaustian]

05:37 PM on 11/04/2011

The regulators are implying that they are off the hook because the transfers of client money happened after the audit, but the audit did not catch the fact that they way the company was organized allowed for such a transfer to happen?

[Headhinge]

05:15 PM on 11/04/2011

What's the difference between these guys and Bernie Madoff, Reed Slatkin and all the others?

[Lahonda]

05:01 PM on 11/04/2011

Regulation and additional oversight are the only solutions. Investment banks must pay for that with a transaction fee on all trades.

[Paris215]

06:24 AM on 11/05/2011

I think simple ethics and morality is missing. That can't be regulated, until we see more of this in the upper eschelons of business nothing will change ,and no amount of regulation can help.

[Lahonda]

02:44 PM on 11/05/2011

They simply must not be allowed to invest their own assets together with depositors' assets. That is a formula for disaster.

[LLeGrande]

02:21 PM on 11/04/2011

Just so everyone knows that the big banks and Wall Street brokers actually own our government, the following provides additional evidence:

There were to be new rules regarding amounts of capital required to engage in certain types of risk transactions. For example, you could not go out and buy Greek debt in the amount of $1,000, use that $1000 bond as collateral, and borrow $900 (or more) to finance the purchase. Your equity in such a transaction is 10%. If the price of the bond falls 10%, you've lost it all.

But it could be worse - if the price falls more than 10%, the lender on the bond collateral also loses.

But it gets worse yet: the firm who bought the Greek bond would go purchase insurance against the decline in the value - just what was happening with AIG that got bailed out by the U.S. taxpayer.

In short - NOTHING HAS CHANGED. NOTHING.

But it gets worse: Jon Corzine, a failed risk taker prior to now, was also a connected, very rich politician.

So what did he do? He intimidated the regulators who attempted to rein in these risky transactions. And, as usual, these government wimps backed off.

If $600-million of customers funds are gone, who pays? Most likely, SIPC - a government agency insuring brokerage customer accounts.

Yep - Goldman Sachs, Wall Street and the big banks own our government - lock, stock & barrel. And they will tell you that they paid for it -

[StacheService]

01:52 PM on 11/04/2011

This burlesque routine of mine shows Jon Corzine's just deserts:

http://youtu.be/tCgaDz2ABRQ

[Jefferson Adams]

01:31 PM on 11/04/2011

Rich man tries to get richer. Other people pay. Happens a lot.

[mobqa1]

12:37 PM on 11/04/2011

What a bunch of corrupt bankers

[mobqa1]

12:36 PM on 11/04/2011

Bad boys

[farleft1917]

09:04 AM on 11/04/2011

Democrat Bankers are just as corrupt as anyone else: greed rules. Worse it looks like the loss of clients money will result in prosecution.

We need a new third party of the people and by the people, where bankers are never allowed to set foot and influence policy.

Our nation has been undone by our love of Wall Street and abandoning Main Street values of decency.

[iam99]

04:01 AM on 11/04/2011

And, have high-rolling hedge funds or some well-known billionaire scum naked short sell to get their riches, but because the are held in high esteem they are given a pass on the criminality of it all?
Or, did they contribute to the correct people that kept the door open for them to bask in the riches provided by the crime?

[roudy]

08:56 AM on 11/04/2011

C. All of the above.

[iam99]

03:53 AM on 11/04/2011

Divert the clients money or naked short sell to destroy value and market confidence;
what's the difference? Two criminal activities that reek.