osoab
3rd November 2011, 05:35 PM
I caught a couple of stories about MF Global.
ZeroHedge is putting the customer losses @ 700 mil to 1.5 bill.
MF Global Client Theft Estimate Doubled To $1.5 Billion? (http://www.zerohedge.com/news/mf-global-client-theft-estimate-doubled-15-billion)
From Bruce Krasting @ ZeroHedge. Appartently one of the companies that was acquired by then Mann co-mingled accounts. Those customers never got their money back.
On MF (http://www.zerohedge.com/contributed/mf)
The MF Global story gets more bizarre by the minute. At this point one has to ask if it could become a systemic problem. At first, I did not think so. I’m rethinking that. There is no definitive information as of yet. The CFTC is suggesting that the missing client money is $633mm. It might be larger than that (Zero Hedge Link (http://www.zerohedge.com/news/mf-global-client-theft-estimate-doubled-15-billion)).
Some thoughts:
I was one of many who tried to stave off the bankruptcy of Drexel Burnham Lambert in 1989. Skadden Arps, (the same law firm who is advising MF today) was involved in the last month as the chess game played out. They were advisers. Their clear advice was to NOT commingle custody accounts. To commingle funds is potential jail time for any involved. Drexel went down. But client money/assets were returned.
Of course Corzine and all the other seniors at MF knew this. Skadden was giving them the same advice as they gave to DBL 20 years ago. So how can it be that three days after a chapter filing there appears to be a very big hole?
This happened with another big future’s house back in 2005. That was Refco. In that case there were significant client account losses. Of historical interest:
-Phil Bennet, the boss at Refco, went to jail for 12 years.
-Man Group bought what was left of Refco (they were good futures brokers).
-Man became MF Global. Rinse and repeat.
The history is relevant as it is more evidence that Corzine and MF management HAD to know that commingling was the ultimate no-no. It was part of their history.
My guess is that the missing customer cash was grabbed by one (or more) of the big players in the global bond market. MF did not sign off on the cash grab. The banks moved on them and their customer accounts. MF had no say in the matter.
Given Corzine’s relationship with Goldman, I put them high on the list of probable plug pulling bankers. Nomura was a place to go to finance AAA sovereign positions. One of the French or German banks could have been the warehouse for MF’s sovereign exposure. It wouldn’t surprise me if any one of them pulled the plug on the leveraged bets.
It should be noted that all of the big players talk when they are moving on collateral and closing relationships with financial firms.When the SHTF, they act as one.
MF has said that the funding for the sovereign exposure was “locked up” to maturity. That’s complete bullshit. I can tell you from first hand knowledge. When Wall Street is financing positions they always have a MAC (Material Adverse Change) provision that allows them to call the financing. If the debt is not immediately repaid it produces an event of default. That creates a cross default to all other asset positions. When they smell trouble they move first and ask questions later. They always lock up cash.
If you think this sounds far fetched consider what happened at Refco (http://www.forexfraud.com/forex-articles/the-refco-bankruptcy-and-its-impact-on-retail-forex-trading.html):
Refco’s forex brokerage arm, Refco FX, LLC, was holding over 17,000 retail customer brokerage accounts at the time that Refco declared bankruptcy shortly thereafter. In the bankruptcy proceedings, Bank of America and other large creditors managed to convince the bankruptcy court that Refco’s customers were actually unsecured creditors because of Refco’s failure to segregate its customer accounts from their own general funds, despite telling customers that it had done so.
Most of the broker’s 17,000 customers eventually received little or no compensation.
This is not supposed to happen. FINRA is the watchdog for this. Their words (http://www.finra.org/investors/protectyourself/investoralerts/p116996) on how “safe” customer accounts are with registered brokers.
In virtually all cases, when a brokerage firm ceases to operate, customer assets are safe and typically are transferred in an orderly fashion to another registered brokerage firm. Even if a firm fails, its customers' assets will be safe.
So much for FINRA.
Where could this go?
I think some drop in confidence by market investors in secondary firms has to happen. Money has to leave those players. With that, will go the flow trading that comes with the accounts. Liquidity across all markets (especially futures) will be affected.
If we go down this road (we will if MF/the Banks actually used/seized clients money) the short-term consequence will be another big ramp up in volatility. Most assets classes will suffer in that environment.
Leveraging of "liquid" assets is a critical component of the global system. The repo markets are already under serious attack. The MF story could take us to a new level.
The absolute craziest outcome would be that we learn that it was Goldman who closed the books and seized the cash last Friday (someone did). It would be even crazier if this leads to a problem that gets out of hand. There’s a decent chance that it plays out along these lines.
Then this one. Try not to puke.
http://us.bc.yahoo.com/b?P=MB1Mc0wNcmBOX402pL4upQE.TMcJa06zJEcADOli&T=1ct96valk%2fX%3d1320363079%2fE%3d2142203358%2fR% 3dfin%2fK%3d5%2fV%3d2.1%2fW%3dH%2fY%3dYAHOO%2fF%3d 968143544%2fH%3dY29udGVudD0iZmluYW5jZTtyZWZ1cmxfdG lja2VyZm9ydW1fb3JnIiByZWZ1cmw9InJlZnVybF90aWNrZXJm b3J1bV9vcmciIHNlcnZlSWQ9Ik1CMU1jMHdOY21CT1g0MDJwTD R1cFFFLlRNY0phMDZ6SkVjQURPbGkiIHNpdGVJZD0iNDQ1MTA1 MSIgdFN0bXA9IjEzMjAzNjMwNzk5MDY5NTIiIHRvcGljPSJsZW dhbC1tYXR0ZXJzOztyZWZ1cmxfdGlja2VyZm9ydW1fb3JnIiA-%2fQ%3d-1%2fS%3d1%2fJ%3dDC730D4C&U=12bn9ij3c%2fN%3doci9HGKImhs-%2fC%3d-1%2fD%3dNT1%2fB%3d-1%2fV%3d0 Regulator gave $10k to NJ Dems as Corzine ran (http://finance.yahoo.com/news/Corzine-and-regulator-worked-apf-3930599725.html?x=0&sec=topStories&pos=3&asset=&ccode=&vm=r&vm=r)
Corzine's regulator, a former Goldman colleague, gave NJ Dems $10k as Corzine ran for governor
WASHINGTON (AP) -- Gary Gensler, the regulator overseeing the investigation of Jon Corzine's collapsed securities firm, built close ties to Corzine as they rose through the ranks of Goldman Sachs. Later, they collaborated on Capitol Hill to pass an anti-corporate fraud law.
When Corzine ran for New Jersey governor, Gensler gave $10,000 to the state Democratic Party, which was trying to get Corzine elected.
Now, Gensler, head of the Commodity Futures Trading Commission, is leading an inquiry into how hundreds of millions vanished last week from client accounts at Corzine's firm, MF Global.
At a Senate hearing Thursday, Gensler had harsh words for Corzine's company.
"You don't put your hand in the cash register; you just don't," Gensler said.
He said MF Global's failure to separate clients' money from its own assets violated "the core foundation" of investor protection.
But Gensler's long and deep ties to Corzine pose an apparent conflict of interest that could taint the probe's findings, experts say. Some say he should remove himself from the case.
"The appearance of a conflict is there, there's no question," said Jay Lorsch, a professor at Harvard Business School. "It might be wise for Mr. Gensler to recuse himself from this particular investigation."
Gensler gave $10,000 to the New Jersey Democratic Party in August 2005 as Corzine ran for governor, election records show. Corzine was elected later that year.
The donation followed years of collaboration between the two men on both Wall Street and Capitol Hill. Gensler and Corzine had worked alongside each other on Goldman's trading floor after they joined the firm in the 1970s.
Gensler rose to become Goldman's co-head of finance before leaving in 1997.
Corzine left Goldman in 1999, after serving as chairman and CEO.
The two worked together again when Corzine was a senator and Gensler worked on Capitol Hill. As an advisor to Sen. Paul Sarbanes, D-Md., Gensler helped Sarbanes craft the accounting law that bears his name. At the time, Corzine was a senator from New Jersey.
Speaking at a Princeton University conference last year on the day before Corzine's wedding, Gensler described working with Corzine as a "privilege."
He recalled that when the full Senate voted on the Sarbanes-Oxley accounting law, "Jon was sitting in the presiding chair, and I was staffing Chairman Sarbanes on the floor."
Surveying the audience at Princeton's Financial Institutions and Regulation Colloquium, Gensler quipped, "Jon, your life has changed a lot since our days together on a trading floor if this is your idea of a bachelor party."
Representatives for Gensler and Corzine declined to comment on their relationship or to say whether Gensler should recuse himself.
But the investigation's high profile and Corzine's connections make it especially important that those involved avoid any appearance of a conflict of interest, experts in corporate governance said. To do so, Gensler should step away from the case, they said.
"I'm not sure what other options there are," said Naveen Reddy, a research analyst with the firm GMI Inc. "Gensler is a highly qualified guy, but these cozy relationships tend to taint the oversight in these big blowups."
MF Global filed for bankruptcy protection on Monday after a disastrous bet on European debt spooked its investors and trading partners. It was the eighth-biggest U.S. bankruptcy and the largest collapse on Wall Street since Lehman Bros. It also was the first major U.S. firm to fall because of bets on European debt.
Gensler and other regulators forced it to file after MF Global acknowledged that hundreds of millions in clients' money was missing. The FBI is examining whether the company broke criminal laws.
Securities companies are required to keep clients' money separate from their own assets. That way, clients don't have to worry about their cash if the company fails.
Corzine maintained close ties to Washington even after leaving for the New Jersey governor's mansion. He is a top fundraiser for President Barack Obama who has helped raise at least $500,000 for Obama's re-election since April, according to records released by the campaign.
In an April securities filing, MF Global offered investors in its bonds an extra 1 percent interest if Corzine left "due to his appointment to a federal position by the President of the United States."
Officials with the Obama campaign and the Democratic National Committee said any contributions from Corzine would be refunded if he's charged with any wrongdoing -- criminal or civil -- in the investigation. That would also apply to any MF Global employees who might be charged in the probe, if they contributed to the president's re-election efforts, the officials said.
The chairman of the Republican National Committee said that the Obama campaign should return all the money that Corzine helped raise.
Examiners from the Securities and Exchange Commission have been reviewing the company's operations since last week, Chairman Mary Schapiro said Thursday.
SEC examiners have been reviewing MF Global's finances and the events leading up to its bankruptcy filing, officials say. And staffers from the agency's trading and markets division have been monitoring the liquidation proceeding.
AP News Researcher Judith Ausuebel in New York and AP Business Writer Marcy Gordon and Associated Press writer Ken Thomas in Washington contributed to this report.
ZeroHedge is putting the customer losses @ 700 mil to 1.5 bill.
MF Global Client Theft Estimate Doubled To $1.5 Billion? (http://www.zerohedge.com/news/mf-global-client-theft-estimate-doubled-15-billion)
From Bruce Krasting @ ZeroHedge. Appartently one of the companies that was acquired by then Mann co-mingled accounts. Those customers never got their money back.
On MF (http://www.zerohedge.com/contributed/mf)
The MF Global story gets more bizarre by the minute. At this point one has to ask if it could become a systemic problem. At first, I did not think so. I’m rethinking that. There is no definitive information as of yet. The CFTC is suggesting that the missing client money is $633mm. It might be larger than that (Zero Hedge Link (http://www.zerohedge.com/news/mf-global-client-theft-estimate-doubled-15-billion)).
Some thoughts:
I was one of many who tried to stave off the bankruptcy of Drexel Burnham Lambert in 1989. Skadden Arps, (the same law firm who is advising MF today) was involved in the last month as the chess game played out. They were advisers. Their clear advice was to NOT commingle custody accounts. To commingle funds is potential jail time for any involved. Drexel went down. But client money/assets were returned.
Of course Corzine and all the other seniors at MF knew this. Skadden was giving them the same advice as they gave to DBL 20 years ago. So how can it be that three days after a chapter filing there appears to be a very big hole?
This happened with another big future’s house back in 2005. That was Refco. In that case there were significant client account losses. Of historical interest:
-Phil Bennet, the boss at Refco, went to jail for 12 years.
-Man Group bought what was left of Refco (they were good futures brokers).
-Man became MF Global. Rinse and repeat.
The history is relevant as it is more evidence that Corzine and MF management HAD to know that commingling was the ultimate no-no. It was part of their history.
My guess is that the missing customer cash was grabbed by one (or more) of the big players in the global bond market. MF did not sign off on the cash grab. The banks moved on them and their customer accounts. MF had no say in the matter.
Given Corzine’s relationship with Goldman, I put them high on the list of probable plug pulling bankers. Nomura was a place to go to finance AAA sovereign positions. One of the French or German banks could have been the warehouse for MF’s sovereign exposure. It wouldn’t surprise me if any one of them pulled the plug on the leveraged bets.
It should be noted that all of the big players talk when they are moving on collateral and closing relationships with financial firms.When the SHTF, they act as one.
MF has said that the funding for the sovereign exposure was “locked up” to maturity. That’s complete bullshit. I can tell you from first hand knowledge. When Wall Street is financing positions they always have a MAC (Material Adverse Change) provision that allows them to call the financing. If the debt is not immediately repaid it produces an event of default. That creates a cross default to all other asset positions. When they smell trouble they move first and ask questions later. They always lock up cash.
If you think this sounds far fetched consider what happened at Refco (http://www.forexfraud.com/forex-articles/the-refco-bankruptcy-and-its-impact-on-retail-forex-trading.html):
Refco’s forex brokerage arm, Refco FX, LLC, was holding over 17,000 retail customer brokerage accounts at the time that Refco declared bankruptcy shortly thereafter. In the bankruptcy proceedings, Bank of America and other large creditors managed to convince the bankruptcy court that Refco’s customers were actually unsecured creditors because of Refco’s failure to segregate its customer accounts from their own general funds, despite telling customers that it had done so.
Most of the broker’s 17,000 customers eventually received little or no compensation.
This is not supposed to happen. FINRA is the watchdog for this. Their words (http://www.finra.org/investors/protectyourself/investoralerts/p116996) on how “safe” customer accounts are with registered brokers.
In virtually all cases, when a brokerage firm ceases to operate, customer assets are safe and typically are transferred in an orderly fashion to another registered brokerage firm. Even if a firm fails, its customers' assets will be safe.
So much for FINRA.
Where could this go?
I think some drop in confidence by market investors in secondary firms has to happen. Money has to leave those players. With that, will go the flow trading that comes with the accounts. Liquidity across all markets (especially futures) will be affected.
If we go down this road (we will if MF/the Banks actually used/seized clients money) the short-term consequence will be another big ramp up in volatility. Most assets classes will suffer in that environment.
Leveraging of "liquid" assets is a critical component of the global system. The repo markets are already under serious attack. The MF story could take us to a new level.
The absolute craziest outcome would be that we learn that it was Goldman who closed the books and seized the cash last Friday (someone did). It would be even crazier if this leads to a problem that gets out of hand. There’s a decent chance that it plays out along these lines.
Then this one. Try not to puke.
http://us.bc.yahoo.com/b?P=MB1Mc0wNcmBOX402pL4upQE.TMcJa06zJEcADOli&T=1ct96valk%2fX%3d1320363079%2fE%3d2142203358%2fR% 3dfin%2fK%3d5%2fV%3d2.1%2fW%3dH%2fY%3dYAHOO%2fF%3d 968143544%2fH%3dY29udGVudD0iZmluYW5jZTtyZWZ1cmxfdG lja2VyZm9ydW1fb3JnIiByZWZ1cmw9InJlZnVybF90aWNrZXJm b3J1bV9vcmciIHNlcnZlSWQ9Ik1CMU1jMHdOY21CT1g0MDJwTD R1cFFFLlRNY0phMDZ6SkVjQURPbGkiIHNpdGVJZD0iNDQ1MTA1 MSIgdFN0bXA9IjEzMjAzNjMwNzk5MDY5NTIiIHRvcGljPSJsZW dhbC1tYXR0ZXJzOztyZWZ1cmxfdGlja2VyZm9ydW1fb3JnIiA-%2fQ%3d-1%2fS%3d1%2fJ%3dDC730D4C&U=12bn9ij3c%2fN%3doci9HGKImhs-%2fC%3d-1%2fD%3dNT1%2fB%3d-1%2fV%3d0 Regulator gave $10k to NJ Dems as Corzine ran (http://finance.yahoo.com/news/Corzine-and-regulator-worked-apf-3930599725.html?x=0&sec=topStories&pos=3&asset=&ccode=&vm=r&vm=r)
Corzine's regulator, a former Goldman colleague, gave NJ Dems $10k as Corzine ran for governor
WASHINGTON (AP) -- Gary Gensler, the regulator overseeing the investigation of Jon Corzine's collapsed securities firm, built close ties to Corzine as they rose through the ranks of Goldman Sachs. Later, they collaborated on Capitol Hill to pass an anti-corporate fraud law.
When Corzine ran for New Jersey governor, Gensler gave $10,000 to the state Democratic Party, which was trying to get Corzine elected.
Now, Gensler, head of the Commodity Futures Trading Commission, is leading an inquiry into how hundreds of millions vanished last week from client accounts at Corzine's firm, MF Global.
At a Senate hearing Thursday, Gensler had harsh words for Corzine's company.
"You don't put your hand in the cash register; you just don't," Gensler said.
He said MF Global's failure to separate clients' money from its own assets violated "the core foundation" of investor protection.
But Gensler's long and deep ties to Corzine pose an apparent conflict of interest that could taint the probe's findings, experts say. Some say he should remove himself from the case.
"The appearance of a conflict is there, there's no question," said Jay Lorsch, a professor at Harvard Business School. "It might be wise for Mr. Gensler to recuse himself from this particular investigation."
Gensler gave $10,000 to the New Jersey Democratic Party in August 2005 as Corzine ran for governor, election records show. Corzine was elected later that year.
The donation followed years of collaboration between the two men on both Wall Street and Capitol Hill. Gensler and Corzine had worked alongside each other on Goldman's trading floor after they joined the firm in the 1970s.
Gensler rose to become Goldman's co-head of finance before leaving in 1997.
Corzine left Goldman in 1999, after serving as chairman and CEO.
The two worked together again when Corzine was a senator and Gensler worked on Capitol Hill. As an advisor to Sen. Paul Sarbanes, D-Md., Gensler helped Sarbanes craft the accounting law that bears his name. At the time, Corzine was a senator from New Jersey.
Speaking at a Princeton University conference last year on the day before Corzine's wedding, Gensler described working with Corzine as a "privilege."
He recalled that when the full Senate voted on the Sarbanes-Oxley accounting law, "Jon was sitting in the presiding chair, and I was staffing Chairman Sarbanes on the floor."
Surveying the audience at Princeton's Financial Institutions and Regulation Colloquium, Gensler quipped, "Jon, your life has changed a lot since our days together on a trading floor if this is your idea of a bachelor party."
Representatives for Gensler and Corzine declined to comment on their relationship or to say whether Gensler should recuse himself.
But the investigation's high profile and Corzine's connections make it especially important that those involved avoid any appearance of a conflict of interest, experts in corporate governance said. To do so, Gensler should step away from the case, they said.
"I'm not sure what other options there are," said Naveen Reddy, a research analyst with the firm GMI Inc. "Gensler is a highly qualified guy, but these cozy relationships tend to taint the oversight in these big blowups."
MF Global filed for bankruptcy protection on Monday after a disastrous bet on European debt spooked its investors and trading partners. It was the eighth-biggest U.S. bankruptcy and the largest collapse on Wall Street since Lehman Bros. It also was the first major U.S. firm to fall because of bets on European debt.
Gensler and other regulators forced it to file after MF Global acknowledged that hundreds of millions in clients' money was missing. The FBI is examining whether the company broke criminal laws.
Securities companies are required to keep clients' money separate from their own assets. That way, clients don't have to worry about their cash if the company fails.
Corzine maintained close ties to Washington even after leaving for the New Jersey governor's mansion. He is a top fundraiser for President Barack Obama who has helped raise at least $500,000 for Obama's re-election since April, according to records released by the campaign.
In an April securities filing, MF Global offered investors in its bonds an extra 1 percent interest if Corzine left "due to his appointment to a federal position by the President of the United States."
Officials with the Obama campaign and the Democratic National Committee said any contributions from Corzine would be refunded if he's charged with any wrongdoing -- criminal or civil -- in the investigation. That would also apply to any MF Global employees who might be charged in the probe, if they contributed to the president's re-election efforts, the officials said.
The chairman of the Republican National Committee said that the Obama campaign should return all the money that Corzine helped raise.
Examiners from the Securities and Exchange Commission have been reviewing the company's operations since last week, Chairman Mary Schapiro said Thursday.
SEC examiners have been reviewing MF Global's finances and the events leading up to its bankruptcy filing, officials say. And staffers from the agency's trading and markets division have been monitoring the liquidation proceeding.
AP News Researcher Judith Ausuebel in New York and AP Business Writer Marcy Gordon and Associated Press writer Ken Thomas in Washington contributed to this report.