02/03/2012 10:33 am ET

MF Global's Regulator Says Oversight Was 'Flawless'

The hubris of financial industry titans truly knows no bounds.

The chairman of the derivatives exchange that had oversight of bankrupt hedge fund MF Global raised some eyebrows on Thursday morning when he told analysts on a conference call that self-regulation worked "flawlessly" in that case.

When Matthew S. Heinz, an analyst with Stifel, Nicolaus & Co., asked CME Group chairman Terry Duffy and CEO Craig Steven Donohue a standard question about whether they had learned any lessons from the MF Global debacle, the executives got defensive.

Duffy claimed that CME's self-regulation "worked flawlessly," adding that "we did the right things and the answers for the Congress, where others we're seeing they don't know what happened to the money."

In the wake of MF Global's collapse, regulators have questioned whether CME Group could have done more to safeguard over $600 million in missing customer money. The Commodity Futures Trading Commission does not police futures commission merchants like MF Global and has to rely on self-regulatory organizations (SRO) like CME for oversight. CFTC chairman Gary Gensler is skeptical of the SRO system and has ordered a review of how futures brokerages are regulated, Reuters reported Wednesday.

Duffy has vigorously defended CME's role, saying that his examiners noticed problems with MF Global's segregated customer account days before the bankruptcy -- though it failed to report those concerns immediately to the CFTC.

The CME boss seems to have a fondness for certain adverbs -- in a video last year, Duffy said that the futures and options markets "function flawlessly" for their customers coping with the financial crisis.

Obviously not so flawlessly, since CME Group announced on Thursday that it would establish an insurance plan to cover up to $100 million in losses suffered by farmers and ranchers in the wake of another bankruptcy. But, as The New York Times' Ben Protess noted, the plan is "largely symbolic," since farmers and ranchers represent a tiny slice of the futures market and the fund will not cover losses related to MF Global's implosion.

Will the SEC Friend Facebook's IPO?

Regulators won't friend the Facebook IPO until they ensure that the social networking giant is making all of the proper disclosures of material information to potential investors. Securities and Exchange Commission staffers will be poring over the company's S-1 filing in the next few weeks and months to see how it makes its billions.

The three top areas of concern, Santa Clara University law professor Stephen Diamond tells Corporate Counsel, are "(1) whether or not the company's financial records are presented accurately; (2) the presentation of risk factors, such as the capital structure of the business; and (3) the description of the business."

Could Wall Street Criminals Face Longer Prison Sentences?

A little-noticed proposal based upon a requirement buried deep in the Dodd-Frank Act could lead to stiffer sentences for financial fraudsters, reports.

On Jan. 19, the U.S. Sentencing Commission proposed changes to current guidelines for financial fraud, insider trading and securities fraud that could lead to more time behind bars -- for "sophisticated insider trading," two points will be added to the "base offense level" (the starting point for establishing criminal sentences), and four points for top-level executives such as officers or directors who engage in such fraud.

Bill Kelleher, a lawyer at Robinson & Cole, told the site:

If adopted, these changes may dramatically increase sentences for the specific defendants to which they apply and continue the recent trend of stiff sentences in significant cases of securities fraud, insider trading and financial institution fraud. The changes will also likely give federal prosecutors more leverage to obtain guilty pleas and to foster cooperation from other defendants, which assistance is often key in making these types of charges stick due to the nature of the conduct.

Quick Hits

* Wall Street Wins Again: The Securities and Exchange Commission routinely lets the biggest firms on Wall Street avoid sanctions that apply in fraud cases, according to an analysis of agency documents by The New York Times.

* The former global head of Credit Suisse's CDO unit charged with fraud by federal prosecutors -- Kareem Serageldin -- has actually been cooperating with the feds and regulators in the UK for four years, his lawyer says.

* Former federal air marshal Robert MacLean was fired for blowing the whistle on the Transportation Security Administration's plan to cut costs by removing air marshals from flights. Even though many lawmakers praised him and the agency fixed the problem, the U.S. Merit Systems Protection Board sided with his retaliators. He has one last appeal -- to sign a petition urging members of Congress to defend MacLean, click here.

* Linguists hired by the Dallas field office of the Drug Enforcement Administration were not properly certified, according to the Justice Department's Inspector General.