Will Jon Corzine, former U.S. senator, former New Jersey governor, former chairman of Goldman Sachs, end his high-profile career in the slam?
In a just world, perhaps he should. But don't bet the farm on it. Corzine's most recent gig, of course, was as head of MF Global Holdings, the firm that went bust when Corzine made some $6.3 billion in unfortunate wagers that European sovereign bonds were a bargain. He was buying when nearly everyone else was selling. (Does the man read the newspapers? What could he have been thinking?)
Nothing illegal about losing your shirt, of course. But MF Global apparently not only bet its own wad but threw over a billion dollars in segregated customer funds into the same transactions; hundreds of millions of money from customer accounts went missing. A lot of the money is still unaccounted for. You can imagine what his clients are saying the "MF" stands for.
Mixing customer money with the firm's own proprietary bets is illegal, big time.
Or is it?
The signature outcome of the current financial collapse, with its major willful frauds that cost innocent parties trillions of dollars, is that none of the biggest fish have been subjected to criminal prosecutions. Mostly, they get to plead no contest to civil charges without even admitting any wrongdoing, and pay fines that in the scheme of things are chump change.
Of course, if you are brazen enough and just make stuff up, you can still do time, like Bernie Madoff. But Madoff was a one-off. You can literally count on the fingers of one hand the number of major financial fraudsters responsible for the 2008 collapse who are behind bars.
Let's recall, the essence of the systematic fraud that crashed the economy was that America's bluest chip investment bankers created securities almost guaranteed to go bad, and then sold them to trusting customers as sound investments. If that's not criminal fraud, it should be.
But the Securities and Exchange Commission has been denuded of adequate personnel, and Wall Street lobbyists in the 1990s and 2000s succeeded in weakening relevant laws to raise the bar on what it took to prove deliberate fraud. The result: more and more slaps on the wrist, and hardly any criminal prosecutions.
Last week, the exquisitely surnamed U.S. District Judge Jed Rakoff indignantly threw out a proposed settlement by the SEC of a major case against Citigroup. In the sub-prime madness, Citi literally created a portfolio of more than a billion dollars in securities that it planned to bet against. Its sales force then peddled them to clients as good investments. But its lawyers took pains to include small print saying that Citi did not guarantee results, blah, blah, blah, no matter what its salespeople were saying.
The SEC concluded that it would be risky and time-consuming to pursue a criminal prosecution that it might lose on a technicality, and settled for a deal in which Citi paid a fine of $285 million, and admitted no wrongdoing.
Judge Rakoff described the settlement is "neither fair, nor adequate, nor in the public interest," and termed Citi a "recidivist." He was incensed that the SEC punished Citi's shareholders rather than the senior executives who cooked up the fraud. The pattern is that Citi breaks the law, promises that it won't do it again, and then is a repeat offender. This will obviously continue until one of its top executives does some hard time.
Which brings us back to Corzine and MF. Last week, in a hearing before the Senate Agriculture Committee (which has partial jurisdiction over regulation of derivatives), it came out that while it is illegal to use customer money to cover margin calls for the firm's own proprietary bets, some other maneuvers that improperly put customer money at risk may not be illegal.
For instance, futures brokers such as MF Global can use "repurchase" agreements to swap customer money for collateral. If the collateral turns out to be worthless, well, too bad for the customer. It is this kind of lawyerly technicality that could keep Corzine a free man.
Testifying at the hearing, Gary Gensler, chair of the Commodity Futures Trading Commission (CFTC), which regulates derivatives, said that such transactions need to be banned. Well, yes. But good luck getting Congress to make such maneuvers a criminal offense.
Oh, and the CFTC is not even MF Global's primary regulator. That would be the CME Group, formerly known as the Chicago Mercantile Exchange, a for-profit commodities exchange where MF Global made its trades. So we have one private company regulating another. You can just imagine how tough a regulator the CME Group is.
The fact is that all of these complex securities do not make the economy more efficient. They simply allow insiders to make highly lucrative bets putting other people's money at risk if they turn out to be wrong. And for all the self-congratulation after the Dodd-Frank Act was finally passed, Dodd-Frank does not touch Wall Street's deeper abuses or its toxic business model.
MF Global was "only" an $8-billion operation, so when it went bankrupt, it did not take down the entire financial system. But its activities were exactly the same kinds of highly leveraged gambling with ratios of 30 or even 50 to 1, beyond the reach of regulators or the comprehension of investors, that took down Lehman Brothers and the rest. Three years later, Wall Street can still play these kinds of games.
And this will continue until Bernie Madoff has lots of company.
Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is A Presidency in Peril.
Janet Tavakoli: Jon Corzine Dodges the Fraud Question
Until libs like you demand one of your own is prosecuted, it will not happen. Prosecution did not happen with Blago until things started to leak that made the current Administration look bad, and prosecution will not happen here. Of course, if you are the CEO of a big oil (energy) company and accountants cook the books you will go down hard, but have some ties to the nepotistic money trough of Goldman Sachs and steal 1.2 billion dollars – not a chance.
What is really odd to me is DEMOCRAT John Corzine should be the poster child for the Occupy movement, and his indictment should be their #1 cause. Of course, it will not be and for me, this is as odd as never reading an article about John Corzine that provides he is the former DEMOCRATIC Senator and former DEMOCRATIC Governor of New Jersey.
It appears Corzine spent so much time wasting and misppropriating taxpayer resources in New Jersey, that he thought he could do it in private business. That's the difference between public and private administration. In public administration the unions and the liberals love you. In private business, investors will come after you with clubs and bats.
He's hiding out somewhere, afraid of getting his head bashed in, with good reason.
There is no such thing as a guaranteed investment! People need to understand that~
The problem is that, when you have one monopoly body acting as regulator, 'capture' is very easy. This is true in all sorts of industries: agriculture, pharma, finance, etc. etc. Our whole system has fallen prey to regulatory capture. Is the solution more regulation? What could would it do if the regulations weren't enforced anyway?
The libertarian argument is this: people should not trust large institutions, people should be careful what they do with their money. Their should be competing, private, voluntary regulatory firms that derive their basis not from government mandate but from the trust that millions of people put in them to invest in the organizations they certify.
The party of deregulation, the Ray-publican party.
The only major CEO,Maurice Greenberg of AIG,
was forced out in 2005 by then New York AG
Elliot Spitzer for massive fraud. Spitzer paid
the price for daring to go after one of Wall St's
chosen not only by being forced to resign
governor but in the years leading up to that
time street Republicans like Larry Kudlow
led the charge against Spitzer. If the #1
Bush contributed, Roland Arnall were alive
today,would he be in jail? I'm talking about
the guy who deliberately taught his sales
force to load up mortgages and loans
with up to 20 hidden points that were
almost guaranteed to default. Roland Arnall
would package then and sell them to
Lehman who would get them AAA
rated and resell them. The polnt being
they were mainly fraud based b4
they got to Lehman. Arnall could always
count on a Republican AG to get him
the cheapest fines while he skimmed
3 billion in personal for himself.
If Dick Cheney can go around brazenly admitting to war crimes and nobody even raises an eyebrow, of course they're not going to go after Corzine.