Weill wrote, “MF’s demise was a major scandal mainly because of Corzine’s celebrity.” No it was a scandal because in the long history of Futures trading in the modern era it is the first time customer segregated funds were breached.
Weil may think the CFTC is making an example of Corzine but I can assure him that most people involved in the industry feel the CFTC had dropped the ball and are outraged the Department of Justice has not vigorously pursued this case.
There were more than 50,000 futures accounts at MF Global. Those customers still have not been made whole even though everything told to them by everyone in the industry from brokers to exchanges to regulators is that their funds by law would be safely segregated and not at risk in the event their FCM went bankrupt. Many people from introducing brokers to commodity trading advisors to farmers and ranchers were put out of business because their money was not safely segregated as was required by law.
The bankruptcy was no big deal. The shortfall in customer segregated funds rocked the industry and is still rocking the industry, which is why so many people are angry that Corzine has not to date, been criminally prosecuted.
And remember, Corzine was not just the head of the firm failing to ensure rules were followed. He orchestrated the huge sovereign debt trades that put the firm at risk in the first place. He replaced a chief risk officer who questioned the size of his positions and lobbied regulators to retain certain rules that allowed him to dip into overseas secured funds.
Gensler a former colleague of Corzine from their days at Goldman Sachs felt compelled to recuse himself from the investigation several days after the bankruptcy filing. Gensler, however, didn’t feel compelled to recuse himself when Corzine was lobbying over rule changes.
The first controversy had to do with the CFTC allowing MF Global Inc. to be split off and placed in a Securities Investor Protection Corp. (SIPC) bankruptcy even though the vast amount of accounts (roughly 95%) were futures accounts and the entity was short nearly $1 billion customer segregated funds and MF Global Holdings was allowed to remain intact days after the initial filing. The CFTC has argued that the law required a SIPC led bankruptcy proceeding but not everyone agreed.
It is something worth looking into. As is the fact that an attorney for MF Global told a whopper to the initial bankruptcy judge—stating he was unaware of the shortfall in customer segregated funds. He did this right in front of lawyers for the CFTC, SEC and Justice Department. No one objected even though they had all been informed the night before that there definitely was a shortfall. Who directed that attorney? Corzine and the leadership at parent MF Global Holdings were still in charge at that point.