MF Global Looted Customer Accounts

MF Global Looted Customer Accounts

November 25th, 2011 

 

By Stephen Lendman

Wall Street's business model is grand theft. Jon Corzine was MF Global's CEO. Earlier he headed Goldman Sachs, America's premiere racketeering organization.

He also was one of legions of corrupt politicians as US senator and New Jersey governor. His extreme, longstanding criminality warrants putting him in prison for life. No restitution can reverse his harm. It's true also for many others like him.

Before its collapse, MF Global (MFG) faced a run on its holdings. On October 31, it filed for Chapter 11 bankruptcy protection.

On November 19, Reuters said the firm "moved hundreds of millions of dollars in customer money from its US brokerage unit to Bank of New York Mellon Corp. in August, just months before filing for bankruptcy...."

In other words, MFG lawlessly looted customer accounts. It used client money for its own purposes to speculate, as well as cover debt obligations and losses. At issue is grand theft.

In fact, it's one of the most brazen acts in memory in a business notorious for outrageous criminality. What ever's gotten away with incentivizes Wall Street crooks to steal more. Why not! At most, they're slap on the wrist punishments mock rule of law justice.

On November 19 on the Kaiser Report, Barry Ritholtz commented on the big lie, hyper-leveraged banks, the MFG scandal, and congressional political whores, saying:

People responsible for creating these problems shift blame to others. Facts say otherwise. Wall Street speculators take big risks. They use hyper-leverage that's only effective when it works.

"Their models were wildly optimistic. Banking is supposed to be very boring." Decisions are supposed to be made about who's credit worthy and who isn't. Instead, reckless speculation replaced investing and sound lending policies.

Wall Street's ideology is bankrupt, "and it's causing global damage to the economy. For investment banks, the five biggest houses got waivers on leverage rules."

SEC collaborators rigged the system for them. These banks also "happen to be the five biggest donors to Congress," or among the largest. Over time, successful lobbying removed everything affecting profits, no matter the risk. The SEC, Fed, FDIC and CME rigged the system for them.

Brazen fraud became standard practice. Criminals deserving prison keep stealing. The dirty game involves grabbing "whatever the hell you want and run for the hills. No one will prosecute you."

"MF Global is another order of magnitude. If anyone is going to jail over this whole period, it has to be" their top officials. Don't bet on it, especially a power broker like Corzine.

He's directly responsible for stealing $1.2 billion in client funds. He looted them brazenly. According to Bloomberg:

"Examiners from CME Group Inc., the world's largest futures exchange, found unexplained wire transfers" and $1.2 billion missing "during the weekend the failing broker was talking with possible buyers, a person briefed on the matter said."

Multiple investigations began, including by Justice Department lawyers. The Commodity Futures Trading Commission (CFTC) and Chicago Mercantile Exchange (CME) were responsible for overseeing MFG. They knew what went on but did nothing.

Huffington Post writer Daniel Dicker said the Koch Brothers were tipped off in time to get out safely. Others weren't as lucky.

MFG is America's eighth largest bankruptcy, the first major one the Eurozone crisis caused. Expect more ahead.

Practices cratering economies in 2008 continue. Nations teeter on bankruptcy. Corzine bet heavily that Spanish and Italian debt wouldn't collapse.

Using 40 to 1 leverage, he bet massively the wrong way. His second quarter $190 million loss drove investors away. Those remaining lost everything. Corzine and top executives pocketed millions.

In 1999, he was worth an estimated $400 million when he left Goldman Sachs. Perhaps its double that now, including funds looted from MFG. We may know more later on.

From 1994 - 1994, Corzine headed Goldman Sachs during the time banking became deregulated. Carter began it late in his tenure. Reagan did much more. Clinton completed unfinished business. James Petras calls the 1990s "the golden age of pillage," the decade of anything goes.

It persists in the new millennium because political Washington and regulators look the other way, profiting handsomely by doing it. Everyone feathers nests belonging to others. Self-sustaining corruption continues. Only little people and unknowing investors get scammed. Power brokers make out like bandits.

After losing his 2009 gubernatorial reelection bid, government regulators welcomed Corzine back on Wall Street. New York Fed president William Dudley (a fellow Goldman alumnus) made MFG a "primary dealer." Despite its size and a former trading scandal $10 million fine, it became one of a handful of firms marketing US Treasuries.

At the behest of Corzine and other power brokers, CFTC head Gary Gensler suspended implementation of new rules imposing limits on broker-dealer use of client funds, especially for foreign sovereign debt. In other words, they were freed to commit grand theft. MFG took full advantage.

Wall Street Journal Money & Investing editor Francesco Guerrera wrote about "Three Lessons From the Collapse." He quoted University of San Diego Professor Frank Partnoy, saying:

MFG's "failure illustrates how much financial markets are about trust and confidence. Once you lose those, you are done."

Guerrera's three lessons include:

* closing accounting loopholes and strengthening oversight;
* establishing lead regulators for nonbank financial firms; and
* writing new rules for "nonsystemic" firms as well as "too big to fail" ones.

Dodd-Frank financial reform left a broken system in place. The entire law needs rewriting. Better still, scrap it and start over. Stiff regulations with teeth are needed, including mandatory prosecution of crooks, especially those highest up to let others know invulnerability days are over.

When culpable CEO heads roll, it'll be a good start. However, game-changer differences won't happen until all high level Wall Street swindlers wear numbered striped suits.

Trends forecaster Gerald Celente lost $100,000 in an MF Global gold futures account. He told Russia

Today:

"I really got burned. I got a call," saying "I needed to have a margin call. (W)hat are you talking about," he asked? "I've got a ton of money in my account. They responded, oh no you don't. That money's with a trustee now."

His advice for everyone holding gold ETFs is cash out because "they are going to steal all our money." Angry about MF Global's theft, he called Corzine a "cheap SOB." He's that and much more.

"How come he's not in Jail," railed Celente. It's "because he's one of the white shoe boys from the Goldman Sachs crowd." He added that "the merger of state and corporate power" brought "fascism" to America.

The entire system's too corrupted to fix. Only tearing it down and starting over can work. It's high time the process started. Hopefully, OWS protests began it.

Rumor has it that JPMorgan Chase and perhaps other Wall Street banks are involved. Judge Martin Glenn is handling MFG's bankruptcy. HL Camp, Proprietor of HL Camp Futures, wrote him as follows:

"Our firm is a registered introducing broker with the CFTC. I have written to you previously on behalf of our customers."

"Here is a comment this morning from one of our former customers in Europe," saying:

"I will never do business in the United States of America again."

According to Camp, "(t)he system is to protect futures accounts is broken. And the whole world knows it."

"What started as a failure of one FCM (Futures Commission Merchant) that quickly gave a black eye to the CFTC and especially the CME has now made our United States of America a very bad joke to commodity futures traders all over the world."

"The problem this morning is not just excess margin equity."

"The problem this morning is the reputation of the United States of America."

"Thank you very much for your time and for listening."

Forbes staff writer Robert Lenzner said traders and clients didn't know about MFG's unscrupulousness.

He said a CFTC loophole lets firms speculate with segregated client accounts. Few know it without carefully reading contract fine print or getting sound legal advice.

Lenzner's lesson one is CFTC Rule 1.29 must be scraped. It lets futures commission merchants gamble with client funds.

Lesson two is knowing personal funds aren't safe in futures metals, energy, precious metals, or agricultural futures accounts.

Lesson three is resolving which regulator oversees firms like MFG - the CFTC or CME. One should have primary responsibility and be held accountable for fraud.

Lenzner added that Justice Department attorneys are determining whether federal crimes occurred. He expects a lengthy process because MFG's books "are in a state of chaos," deliberately no doubt.

Whether anyone ends up indicted isn't sure. At most perhaps, expect lower level patsies hung out to dry to let crime bosses like Corzine stay free to steal more. It's how it always works.

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Stephen Lendman lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.

Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.

http://www.progressiveradionetwork.com/the-progressive-news-hour/

Metals trading (gold, silver) update

Thanks to the Dodd-Frank Act, over the counter trading of gold and silver is going to be illegal starting on July 15th.  Or at least that is what some companies apparently now believe.  The following is an excerpt from an email that Forex.com recently sent out to their customers….

Important Account Notice Re: Metals Trading
We wanted to make you aware of some upcoming changes to FOREX.com’s product offering. As a result of the Dodd-Frank Act enacted by US Congress, a new regulation prohibiting US residents from trading over the counter precious metals, including gold and silver, will go into effect on Friday, July 15, 2011.

In conjunction with this new regulation, FOREX.com must discontinue metals trading for US residents on Friday, July 15, 2011 at the close of trading at 5pm ET. As a result, all open metals positions must be closed by July 15, 2011 at 5pm ET.

We encourage you to wind down your trading activity in these products over the next month in anticipation of the new rule, as any open XAU or XAG positions that remain open prior to July 15, 2011 at approximately 5:00 pm ET will be automatically liquidated.

We sincerely regret any inconvenience complying with the new U.S. regulation may cause you. Should you have any questions, please feel free to contact our customer service team.

Sincerely,
The Team at FOREX.com

Apparently, Section 742(a) of the Dodd-Frank Act prohibits anyone “from entering into, or offering to enter into, a transaction in any commodity with a person that is not an eligible contract participant or an eligible commercial entity, on a leveraged or margined basis.”

So what impact is this going to have on the gold and silver markets?

Nobody is quite sure yet.

More Power Over Wall Street, but Little Chance to Discuss It

by Jesse Eisinger
ProPublica, May 4, 2011, 3:09 p.m

The most notable thing about the first-ever news conference of the Federal Reserve chairman, Ben S. Bernanke, last week was what wasn't discussed: banking regulation.
We hardly need more evidence that the most powerful banking regulator in the world, one that just became even more powerful after financial reform was passed, is also the least examined. Mr. Bernanke's opening remarks were about monetary policy and the economy. When he answered questions, he repeatedly referred to the Fed's "dual mandate" -- to keep inflation low and stable and to maintain full employment for the economy.

About The Trade

In this column, co-published with New York Times' DealBook, I monitor the financial markets to hold companies, executives and government officials accountable for their actions. Tips? Praise? Contact me at jesse@propublica.org

But that's not the Federal Reserve's true dual mandate. The Fed is indeed the steward of the economy, but it also has to regulate the financial system, making sure banks are safe and sound.

In the years before the financial crisis, the Fed was a miserable failure in that role, a creature of the banks, not a watchdog. The news conference was an opportunity for Mr. Bernanke to demonstrate what the Fed had learned from the crisis about banking oversight. After all, a collapsed financial system does spectacular damage to an economy.

There's more to discuss about this now than ever. Under the giant Dodd-Frank package, the Fed was given an expanded regulatory role. The new consumer financial products regulator is housed within the central bank. The Fed also now officially oversees investment banks, which it had to rescue during the crisis. Congress broadened the Fed's remit to cover nonfinancial institutions deemed "systemically important." Congress created a new role, the "vice chairman of supervision," to raise the prominence and importance of its responsibility. (It remains unfilled.) Perhaps most important, the Federal Reserve is supposed to play a major role in taking over big banks that fail.

Banking supervision has always been something of a backwater at the Fed. Within the institution, the sexy stuff is monetary policy. That's where most of the resources and attention goes. The chairman and the board spend a disproportionate amount of their time on it, and monetary policy expertise largely dictates the selection of board members. Many question that mind-set.

"Either expressly or implicitly, the Fed permeates every part of the Dodd-Frank reform," says Dennis Kelleher, the chairman of Better Markets, a new Washington advocacy group that aims to be a Wall Street watchdog. "Yet there is no indication that the leadership of Fed understands or is undertaking its new role as systemic risk regulator. It's not on the mind of the Fed chairman."

Without much public comment, the Fed is making critical decisions about the banks today. It just ran a round of stress tests for the banking system in which most banks came up smelling like roses.

Most big banks were allowed to pay dividends and pay back the government's Troubled Asset Relief Program money. Yet the economy is weaker than the Fed expected and the real estate market, which makes up the bulk of banks' exposure, is having a second downturn.

What gives the Fed so much confidence that the banks are properly valuing their assets and are adequately capitalized?

For a brief moment back in 2009, it was actually considered as bizarre to give the Fed more power. Christopher Dodd, then the chairman of the Senate Banking Committee, proposed creating a new financial regulatory infrastructure, stripping the Fed of its mandate.

Sadly, the bill was so dead on arrival it wasn't clear if even Mr. Dodd supported the Dodd bill. Nonetheless, removing banking regulation from the Fed's umbrella would have some clear advantages. Monetary policy is a pretty hard job. It might make some sense to split off regulation just to ease the burden.

And monetary policy can be in conflict with banking regulation. A central bank might prefer to shore up investor confidence and move on from a financial crisis without taking punitive action against wrongdoers, thinking that aggressive action might undermine faith in the system. Sound familiar to anyone?

Mr. Bernanke's news conference was also supposed to be a step toward realizing the Fed's new commitment to "transparency."

That's certainly welcome, but it has only gone so far. Congress repeatedly asked for more information on extraordinary actions taken by the Fed during the financial crisis, but was met initially with stonewalling. The central bank fought a lawsuit initiated by Bloomberg News to release data on what kinds of securities it bought during the financial crisis and from whom. When it lost and was finally forced to release the information, it did so in a fashion that it made assimilating the information difficult.

Earlier this year, when the Fed conducted its second round of bank stress tests, it made less information public than it had in the first round in 2009.

"Regulation needs accountability and transparency, and the Fed is just not set up to be accountable or transparent,"

says Mike Konczal, a fellow at the Roosevelt Institute, a liberal think tank focused on financial matters.

The sight of a Fed chairman answering reporters' questions in declarative English certainly was a departure from tradition. On Thursday, Bernanke is giving a speech on banking regulation. Let's hope that brings a comparable approach to regulation, which is ultimately far more significant.