Are the Regulators Allowing Banks To Act on Privileged Information with MF Global Customers?

Francine McKenna writes the blog, Re: the Auditors. I like her writing quite well, as it is clear and concise, and enjoy the depth of understanding of the accounting profession she brings to bear on the issues of the day.

In this guest post at the blog BankThink of The American Banker she illuminates the ongoing mistreatment of the MF Global customers whose money was stolen three times: once by MF Global, a second time by MF Global's Banker, and a third time by Banks and Funds with special access to information through the financial system.

What she is adding to what others, including myself, have said is the linkage she draws between the Banks and the MF Global collapse via their common auditors.

I suppose we cannot blame the Big Wall Street Banks, because as the recent Greg Smith resignation incident has shown,  they are in the business of cheating their customers at every opportunity.   In fact, one could say that cheating through the hiding and manipulation of information and the subversion of the rules is their stock in trade.

Although as the financial press was quick to point out it can't be called cheating because everyone who is not a naive fool should know what they are doing, and keep both hands on their wallets, and trust nothing that the Banks or Wall Street, or their enablers in the press and the government, say.  The favorite rationale of last resort on the Street is your own foolish trust.  After all, no one made you do business with them.  No one made you buy that fraudulent instrument.  No one made you deposit your money with a proto-criminal enterprise.   So be a good muppet and shut up and pay up.

They are doing God's work. It was our mistake to assume that we knew which god it was that they are serving. They serve Mammon, and themselves, for they would be as gods.

The real shame of this is with the regulators, who were hired by the customers to protect them. Not by the industry, not by the corporations, but by the people, for it is still a government of, by, and for the people, at least on paper and for now.

That is what they are paid to do, and the oath which they have sworn to uphold.

BankThink
Banks with Inside Track Take Advantage of MF Global Mystery
By Francine McKenna
March 16, 2012

...All parties have practiced misdirection. The trustees, the regulators, and the investigators from the FBI and U.S. Attorney's office dole out anonymous updates to reporters with the goal, I suppose, of attracting more information, buying time, or preparing customers for the worst.

There is one thing we know for sure. Some banks must know where the missing customer funds are.

Otherwise why would they be so sure that customer claims will be paid in full and paid soon that they're bidding as much as 90% of face value for the claims?

"These banks are so confident that they’re buying the claims for their own account, not resale," says Barry Slotnick, a white-collar defense lawyer and a partner at Buchanan Ingersoll & Rooney PC who's not involved in the case.

The New York Times has reported that Barclays, the Royal Bank of Scotland and Seaport Group, a firm that specializes in distressed assets, "are all scrambling to buy MF Global customer claims." Barclays has agreed to purchase most claims for 90% of face value and RBS says it will pay 91% for the claims of institutions (but not those of individuals). Seaport is adding something else: $200,000 to help fund the Customer Commodity Coalition, a group of MF Global clients led by attorney James Koutoulas, who negotiated the offers. Other banks willing to buy claims include Credit Suisse, which was offering more than 80%, and Deutsche Bank, offering 89%.

I think the banks know something the rest of us don't know. They certainly have windows on the situation not available to the general public.

Barclays, for example, is audited by PricewaterhouseCoopers, which happens to have been MF Global’s auditor. The British bank is also no stranger to the problem of keeping customer assets secure. The U.K. Financial Services Authority recently fined Barclays Capital £1.12 million for failing to protect and segregate client money held in sterling money market deposits.

Credit Suisse, meanwhile, is audited by KPMG, the professional services firm that is also running the MF Global bankruptcy in the U.K., Canada and Singapore.

Deutsche Bank is a creditor in the MF Global Chapter 11 proceedings due to its role as the indenture trustee for four different bond issues. Next to JPMorgan Chase, Deutsche Bank is the most important non-customer creditor of MF Global. As a member of the creditors committee, Deutsche is privy to information customers do not have....

Francine McKenna writes the blog re: The Auditors, about the Big Four accounting firms. She worked in consulting, professional services, accounting and financial management for more than 25 years.

Read the rest here.

Barclays and Others Seeks Bulk Claim Purchases from MF Global Customers

I have spoken to one customer of MF Global who has already accepted an offer of 91 1/2 cents on the dollar for his claims. He could no longer bear the waiting and the uncertainty, and wanted to move on. Others have indicated that they are going that to accept offers as well.

Although the sums of money involved may not seem substantial to those on Wall Street and in Washington, to the retail customers and their families it represents a significant amount of their savings and liquid net worth.

It was weighing heavily on their minds.

While I am glad to see the customers obtaining their funds, I cannot again help but note the disgraceful manner in which the government, the exchange, and the regulators, the CFTC and the SEC, allowed this theft of customer funds to unfold, especially the manner in which the Banks twisted the aftermath to their own advantage.

And Jon Corzine and his good friend Barack Obama should be ashamed.

Reuters
Barclays, Seaport eye bulk buys of MF Global claims
By Nick Brown and Ann Saphir
Mar 15, 2012 9:26pm EDT

(Reuters) - Barclays PLC and the Seaport Group have separately begun working to group together thousands of MF Global customer claims with an eye toward acquiring the claims in bulk, according to an attorney, and to a term sheet obtained by Reuters.

Barclays and Seaport, which have been in talks with customer groups to acquire claims at more than 90 cents on the dollar, are looking at ways to bundle smaller claims to make bigger bulk purchases, according to a term sheet from customer advocate group the Commodity Customer Coalition.

The coalition, which negotiated the offers, sent the term sheet to thousands of customer constituents this week, saying offers from Seaport and Barclays were contingent on the size of the claim.

Seaport has said it will only take on claims worth $100,000 or more, according to the sheet.

Trace Schmeltz, an attorney for the coalition, told Reuters on Thursday his firm, Barnes & Thornburg, will work with Seaport to find ways to bundle.

"They asked if we'd do it, and we have a team in place to help them," Schmeltz said.

Meanwhile, Barclays this week cold-called R.J. O'Brien, the futures broker with the most former MF Global clients, to seek the firm's help in reaching potential sellers.

"They asked to have a meeting with us to share with us the plan that they have in mind," the broker's chief executive, Gerald Corcoran, told Reuters at the Futures Industry Association's annual meeting in Boca Raton, Florida, on Tuesday. "If we can do it, we will facilitate" communication between Barclays and customers interested in selling their claims, Corcoran said.

Some $1.6 billion of customer funds originally parked with MF Global went missing after the broker's failure last October. James Giddens, the trustee charged with recovering client funds, has paid back about 72 percent of the money in commodity trading accounts.

Customers with foreign exchange claims have so far received nothing from the trustee.

More than 27,000 clients have filed claims with the trustee to retrieve the balance in their accounts, and it is these claims Barclays and others are after.

A spokesperson for Seaport did not return a call seeking comment. A Barclays spokesman declined to comment.

According to the coalition's term sheet, Seaport has offered 91.25 cents on the dollar to acquire claims for customers who traded on U.S. exchanges, and 66.25 cents for claims belonging to customers who traded on foreign exchanges.

Barclays has offered 91 cents and 66 cents, respectively, for U.S. exchange and foreign exchange claims belonging to institutions. It has offered 90 cents and 65 cents, respectively, for U.S. exchange and foreign exchange claims belonging to individuals.

Royal Bank of Scotland has made an offer for institutional accounts equal to Barclays', but the coalition is not touting RBS' offer to customers because the bank refused to take on individual accounts, according to the sheet.

A spokesperson for RBS could not be immediately reached on Thursday.

Trustee To Payout 80 Percent: Goldman and MF Global: Where the Customer Is Always Ripe

I have given up any hope that we will see justice in this scandal, but I remain optimistic that the poor customers will receive close to 90 percent of their money back over time.  And this seems to be the assumption behind the operations of the vulture funds, who have been recently supplied customer lists by KPMG.

While the Obama Administration and the Congress remain complacement about fraud and corruption, the risk of serious loss remains elevated across all markets in the US. I mean, it is foolish to expect anything else.  The financial press has told us so.  People who expect to be dealt with honestly with equal protection under the law are naive fools.

On related note, based on commentary from the financial demimonde in defense of Goldman Sachs with regard to the letter from Mr. Smith, and the obvious predatory nature of their relationship with their customers, I am wondering if there is just a problem in labeling, marketing wise. After all, as Mr. Bernanke will attest, it is all about managing expectations. And what we have here is a failure to communicate.

Perhaps Goldman can clarify the situation and change its slogan to:

"Goldman Sachs: Where the Customer Is Always Ripe."

If a restaurant placed a notice at their door saying that at every opportunity they will pad the check, shortchange the food orders, attempt to pick pockets in the lavatories, and turn a blind eye to the occaionsal mugging of customers by the wait staff, perhaps there would be less cause for complaint when the inevitable pilfering occurs.

And think of the possibilities for other businesses like automobile dealerships, food stores, and doctors offices.

Perhaps the Administration and the Congress can craft a blanket immunity in a settlement with Wall Street and all the corporations, and cover themselves as well it should be noted, by changing their nation's motto from 'E Pluribus Unum' to 'Trust No One.' That's a win-win.

At least the complaints would be more easily ignored than if these businesses pretended to honesty and adherence to the rule of law, much less aspirations to doing God's work.

The financial press seems to think that the true nature of the financial system is already well understood by sophisticated (read non-retail) banking customers. They always tend to blame the victims, don't they?

But perhaps some truth-in-advertising would alleviate the outrage of those unsophisticated rubes who foolishly maintain a misplaced confidence in the efficiency and honesty of the regulated markets and the US financial system.

Reuters
MF Global customers may see more payback
By Nick Brown
Thu Mar 15, 2012 1:43pm EDT

(Reuters) - The trustee liquidating MF Global's (MFGLQ.PK) broker-dealer is asking a bankruptcy court for permission to distribute an additional $600 million to U.S. exchange customers whose accounts were frozen when the futures broker collapsed.

Trustee James Giddens announced the plan in court papers on Thursday, saying he would also seek to distribute as much as $50 million to customers who traded on foreign exchanges, and $35 million to some customers who hold physical property such as gold bars.

Customers who trade on U.S. exchanges have already received payouts amounting to roughly $3.9 billion, or about 72 percent of the value of their accounts. The latest payouts, if approved by Judge Martin Glenn in U.S. Bankruptcy Court in Manhattan, would increase that recovery percentage to more than 80 percent, Giddens estimated.

The payouts would represent about a 10 percent payback for customers who trade on foreign exchanges, a group that has seen no recovery as of yet, Giddens estimated.

Distributions would go out on a rolling basis, the trustee said -- a departure from previous payouts, which were done in bulk. The latest round would be paid out as customer claims are processed and validated, a process that remains ongoing, Giddens said...

Here is a program based on a model implemented in several European countries, such as the UK and Ireland, with good effect.

The Official Customer Relations Guide for Wall Street's Retail Clients

If you know how to behave yourself, we won't have any awkward misunderstandings.

1. Know your place.

When your money is demanded, pay promptly and courteously, asking no needless questions or even worse, raising impertinent objections.

Trustee Sells the MF Global Customers' Gold and Silver to Jefferies and Company

Who says that Wall Street does not take care of their customers.

The clients didn't have to do a single thing for themselves. They didn't have to decide when to sell, or to whom, or at what price. And they did not even have to hire a trustee to liquidate their assets.

This is what they call 'end to end' customer service.

WSJ
Jefferies to Buy MF Global Precious-Metals Assets
By PATRICK FITZGERALD
March 14, 2012,

Investment bank Jefferies Group Inc.'s commodities arm has agreed to buy the gold, silver and other precious-metals assets from the trustee liquidating MF Global Holdings Ltd.'s brokerage business.

James Giddens, the trustee overseeing the liquidation of MF Global's brokerage's commodities business, said in a court filing Monday that an offer from Jefferies Bache Financial Services Inc. is the "best available opportunity" to sell the remaining physical property under his control.

Jefferies is buying the warehouse certificates—not the actual gold and silver bars—of MF Global's former commodities customers. At current market prices, those customers would get about $14.5 million from the sale of the certificates, a value of more than 99% of the aggregate current futures value of the metals underlying the certificates.

The trustee, who worked with futures-market exchange CME Group Inc. to shop the certificates, said no other buyers stepped forward.

The sale therefore represents an "attractive opportunity" in a market environment in which other means of liquidating the certificates are unlikely or would be subject to a "far greater liquidation haircut," Mr. Giddens said in court papers.

A hearing on the sale, which requires court approval, is slated for April 2 in U.S. Bankruptcy Court in Manhattan...

MBF Clearing Sued By CFTC For Failing to Segregate Customer Funds at JPM

MBF Clearing describes itself as:

"widely-recognized for our preeminent role within the global futures markets, and for being one of the Industry’s leading futures commission merchant (FCM). Our status in 2012 has changed from Clearing to Non Clearing FCM with a clearing relationship with FC Stone.

Our presence extends across all major exchange-traded futures markets, including energy, metals, soft commodities, currencies, interest rates, and equity-related indexes.

MBF provides the gateway to a wide menu of major market centers, and we play an integral role supporting the industry’s most demanding exchange-based traders, premiere hedge fund managers, financial institutions, and a select group of highly-sophisticated retail customers...

MBF Clearing Corp. is particularly well-known for supporting a significant number of professional floor traders, “upstairs” fund managers, and boutique trading firms, including The Fisher Proprietary Trading Group, an elite team of 75+ traders and quantitative analysts that are renowned for their prowess and their disciplined incorporation of the ACD Methodology, a quantitative approach to trading a wide variety of liquid markets."

I wonder if this is more a procedural error, and the money was in fact held safely in government securities on behalf of customers, who received the full benefit of their funds. Or was it some variant of illegal hypothecation in support of MBF's own proprietary trades.

If MBF had gone bust, could the monies may have been lost?  Were they pledged as collateral?  MF Global was certainly not benign at all in their misuse of customer funds, a nice way of saying it was theft, completely mispricing the risk for the customers and taking the differences for themselves.

In other words, MBF may indeed be 'sloppy,' but MF Global was certainly much more than that. It is nice to see that the CFTC is doing something.  I wonder how they found out?  A little help from their friends?

How is the lawsuit the CFTC filed against MF Global going?  Or have they even filed one?

We will have to wait and see.

Bloomberg
MBF Clearing Is Sued by CFTC Over Claims Customer Funds Weren’t Segregated
By Patricia Hurtado
March 13, 2012

MBF Clearing Corp. was sued by the Commodity Futures Trading Commission and accused of failing properly to segregate customer accounts from its own and of violating the Commodity Exchange Act.

MBF employees from September 2008 to March 2010 deposited $30 million to $60 million in customer funds into a U.S. government money market fund at JPMorgan Chase & Co. without properly segregating them, the CFTC alleged today in a complaint in federal court in New York.

The funds were not properly titled, and redemption provisions didn’t comply with CFTC regulations, the agency said. Nor was there proper documentation for the account, it said. MBF also allegedly failed to obtain customer segregation acknowledgement letters on two accounts holding funds for foreign customers from February 2007 to April 2010.

“MBF failed to diligently supervise its employees and agents,” the CFTC said in the complaint. “MBF did not have any written policies or procedures governing the opening and maintenance of customer segregated accounts.”

The firm was accused of failing to maintain sufficient funds in segregation on approximately 322 business days from Oct. 3, 2008, to March 26, 2010.

The CFTC asked for a court order barring MBF’s “unlawful acts and practices” and unspecified civil penalties.

Quinlan Murphy, a lawyer representing MBF Clearing Corp., didn’t immediately return a call seeking comment about the lawsuit.

New York-based MBF Clearing Corp. describes itself on its website as a purchaser and seller of commodities futures contracts and says it was founded in 1987.

The case is CFTC v. MBF Clearing Corp., 12-cv-1830, U.S. District Court, Southern District of New York (Manhattan).

MF Global: Mark Melin Interviews Haar And Koutoulas On What Really Happened

The MF Global story is being largely ignored by the mainstream media in the US, with a few notable exceptions like Forbes. Most of the stories that are carried merely parrot the cover story that the money just 'vaporized' and no one is to blame.

"I have been told by multiple members of the media that JPMorgan Chase has called them and stated that if their media outlet has me on television again, that JPMorgan Chase will pull their advertising from the offending network."

James Koutoulas

This soft censorship of the financial news by the visual and print media in the States is nothing new. I have spoken to a number of people who find themselves and their viewpoints shut out of the discussions on financial and economic issues in the US.  I have seen this happen repeatedly in the area of stock and metals market abuses and their reforms.

And far too many of the financial network programs have become little more than propaganda outlets and slickly produced infomercials for the monied interests in this climate of 'advocacy journalism.'

'The gallery in which the reporters sit has become a fourth estate of the realm.'

Lord Macaulay

When the mainstream media went corporate and consolidated, the important role of the Fourth Estate in balancing the power structure was silenced or converted into a perverse pantomime, a largely stage managed discussion and investigation of the news and issues of the day.

Here is an interview conducted by Mark Melin of Uncorrelated Investments, who represents a particular financial firm, Opalesque Investments. These days one must take the facts where one may find them.

In the first half he interviews Stanley Haar who discusses MF Global, and also the commodity markets in which he trades. He says that there was a concerted effort, a 'conspiracy if you will,' by JPM and Goldman Sachs to use their power and influence to structure the bankruptcy in an unusual way, twisting justice to favor their financial interests. If they are successful it will set a dangerous precedent in undermining the integrity of customer accounts and the entire US financial system.

In the second half he interviews James Koutoulas who formed the Commodity Customer Coalition which informally represents the interests of most of the 8000+ customers whose money was stolen.

"When bad men combine, the good must associate; else they will fall one by one, an unpitied sacrifice in a contemptible struggle."

Edmund Burke

"Gentleness is everywhere in daily life, a sign that faith rules through ordinary things: through cooking and small talk, through storytelling, making love, fishing, tending animals and sweet corn and flowers, through sports, music, and books, raising kids—all the places where the gravy soaks in and grace shines through.

Even in a time of elephantine vanity and greed, one never has to look far to see the campfires of gentle people. Lacking any other purpose in life, it would be good enough to live for their sake."

Garrison Keillor, A Prairie Home Companion

And some of us are just ausrufer und moritatensänger, the street and café singers, telling the stories to the people that the well-connected do not wish to be heard. We remember the abused and the fallen, and warn of dangers yet to come.



People come to Le Café looking for a good time, and a way to save their money and make some more. These are all worthy efforts and practical considerations within their place. But your money is not the prize which is finally at stake, little brother. Money does not last. You are a soul with a body, and only the you which you possess has lasting value, a value that remains unless we debase it, or God forbid, surrender it to something unworthy.

"The France of 1939 was on the whole democratic, and almost every Frenchman sincerely called himself anti-Nazi, and believed himself proof against this kind of temptation. He had his good conscience as a democrat.

Hitler came, France capitulated, and today the 'anti-fascist intellectuals' of Paris suddenly discover that at bottom Nazism is not so bad as all that, that, on the whole, they had always desired something passably resembling it, and that after all, 'the Nazis are men like us, so let us work together.'

That is the danger that American democracy is exposed to, as were the others. She too believed and still believes that the Nazis are animals of an altogether different race from Americans. She too risks discovering some day that 'after all, they are men like us.' And it is quite true that they are men like us, in the sense that their sin is also in us, secretly."

Denis de Rougement, On the Devil and Politics

"For we wrestle not against flesh and blood, but against principalities and powers, against the rulers of the darkness of this world, against spiritual wickedness in high places." Eph 6:12


"He shows you how to become as gods. Then he laughs and jokes with you, and gets intimate with you; he takes your hand, and gets his fingers between yours, and grasps them, and then you are his."

John Henry Newman, The Times of Antichrist

James Koutoulas: An Open Letter To Jamie Dimon - Censorship of the MF Global Story

"Through my role as the co-founder of the Commodity Customer Coalition and pro bono counsel for some 8,000+ customers whose property it looks like your institution may be holding without their consent, I have loudly advocated for JPMorgan Chase to return this property.

In response to this, rather than doing the right thing, you closed all of my personal and corporate bank accounts and my personal credit card.

I have been told by multiple members of the media that JPMorgan Chase has called them and stated that if their media outlet has me on television again, that JPMorgan Chase will pull their advertising from the offending network."

James Koutoulas

James Koutoulas has published an open letter to Jamie Dimon of JP Morgan which I saw at a site called Prudens Speculari.

It has also been picked up by ZeroHedge. I imagine it may obtain some wider viewing on the internet, but little fair mention in the mainstream media.

It is a fairly stiff admonishment, and a sign of the times.

You may read it here.

It is what they call a 'hum-dinger.'

MF Global Trustee Freeh Asks Court to Pay MF Global Executive Bonuses

The entitlement of the financial class is the gift that keeps on giving.

And as for the customers? They are being asked to surrender their legal rights in order to receive partial payments.

Let them eat...er, is that even cake?

WSJ
MF Global Still Set to Pay Bonuses
By AARON LUCCHETTI and MIKE SPECTOR
March 9, 2012

Three top executives of MF Global Holdings Ltd. when it collapsed could get bonuses of as much as several hundred thousand dollars each under a plan by a trustee overseeing the securities firm's bankruptcy case, people familiar with the matter said.

Louis Freeh, the former Federal Bureau of Investigation director now in charge of unwinding what is left of the New York company, is expected to ask a bankruptcy-court judge as soon as this month to approve performance-related payouts for the chief operating officer, finance chief and general counsel at MF Global, these people said. All three executives kept their jobs after the company's Oct. 31 failure in order to help Mr. Freeh untangle the firm's assets and maximize payouts to creditors.

Under the expected pay plan, the three executives and as many as 20 other MF Global employees working for Mr. Freeh would get the bonuses only if they hit specified targets such as increasing the value of MF Global's estate for creditors (led by JP Morgan - Jesse) ...

Read the rest here.

MF Global Trustee Giddens Asks Customers To Release Legal Claims In Return For Their Money

It is hard to believe that the Trustee Giddens intends to ask customers to surrender their right to sue Jon Corzine and other parties in return for only a partial repayment of their stolen money. 

This could be a simple misunderstanding. This would be a bit much even by the outrageous double standards of this scandal.

Let's see how this is resolved.

Bloomberg
MF Global Customers Call Trustee’s Demands ‘Unwarranted’
By Linda Sandler
Mar 8, 2012

MF Global Inc. trustee asked futures customers to release claims on the defunct brokerage in return for money they are owed, demanding an “unwarranted” transfer of legal rights, a group of customers said.

The customers, including William Fleckenstein, Thomas Wacker and Summit Trust Co., said in a court filing yesterday that they were notifying the judge supervising the firm’s liquidation of their “concern” in case he wasn’t aware that trustee James Giddens had mailed his demands to some customers along with his determination of their claims. One of Giddens’s demands may require customers to release claims made in class- action lawsuits, they said.

“It may be interpreted to release claims being asserted in the numerous class action lawsuits filed by aggrieved customers,” the customers said in the filing. “It could also potentially be asserted as a bar to recovery by some or all of the defendants joined in these lawsuits, including claims in the suits against parties alleged to be responsible for the misappropriation of customer funds.”

MF Global futures customers including Fleckenstein, a Seattle money manager, have filed at least seven separate suits against Jon Corzine, the parent company’s former chief executive officer, over the alleged theft of their assets, according to filings in federal court in Manhattan. Giddens has said there is a gap of at least $1.6 billion between funds he can obtain and commodity customers’ claims.

Kent Jarrell, a Giddens spokesman, didn’t immediately respond to an e-mail seeking comment on yesterday’s filing. The futures customers will publish a detailed account of their objections to Giddens’s request later, they said in the filing in U.S. Bankruptcy Court in Manhattan...

MF Global: What Happened to the Money - 'This Is Not a Boat Accident'

Money does not just 'vaporize' or go missing because of sloppy bookkeeping.  The crony capitalists and their friends would have you think that it was just an accident, or some unfortunate act of God for which no one can be held responsible.   Like the financial crisis in the world caused by massive fraud at the big Banks for which no one has been held accountable.

The facts suggest that the customer money at MF Global was stolen, twice.

First, it was stolen by the management of MF Global, who brazenly used it to cover their own gambling losses.

Then it was stolen by the recipients of the stolen money, probably the Banks and powerful financiers, who knew that MF Global was going under, and did not want to take the losses on their own unsecured claims.

So the system was twisted to hide the involvement of powerful figures with strong ties to the political system and multinational corporations operating out of New York and the City of London.

As Richard Dreyfuss said in the movie, Jaws, "Well, this is not a boat accident."

And until the people do something, say something, to stop it, this kind of wanton theft will almost certainly happen again.

CNN
Farmer faces planting season with seeds of distrust
By Wayne Drash
March 4, 2012

...Tofteland held the farm together after his father was killed, survived drought and the great flood of 1993. Then, commodity prices sank in the mid-1990s. And like most farmers, he has seen too many friends die young.

Such are the hazards of life on a farm.

But all that Tofteland has worked for was nearly lost in one fell swoop last October. This time, it wasn't a crisis brought on by tragedy or Mother Nature. It was the work of Wall Street and commodity power players in Chicago, a scandal that has become known simply as MF Global.

Tofteland had $253,000 in an account with the brokerage firm, money he planned to use to cover his farm's operating loan. As MF Global went bankrupt last fall, customers' segregated accounts were raided in clear violation of exchange rules. When the dust settled, more than 38,000 MF Global customers -- including thousands of farmers, ranchers and grain operators who used the firm to hold money for transactions on the futures market -- were out more than $1.2 billion.

On a recent February day, Tofteland points to the stirrups hanging in his barn. They've been there since the 1930s, when the first tractor arrived. Nearby, his fields stretch nearly to the horizon.

His seed bill last year was $230,000; fertilizer cost $150,000. In addition to his own land, he farms acreage he rents at a cost of $450,000. He has another $1 million tied up in equipment, plus four full-time employees. "We're talking big numbers, and you're taking all these risks," he says. "And you can get hailed out, droughted out, flooded out at any time."

That's why the MF Global scandal hurt so much: a financial tsunami that nearly wiped everything away. Tofteland had come to rely on the futures market. So eroded is his trust in the system, he hasn't used it since.

He notes he can track a hog from his farm to somebody's table. Yet somehow, he ponders, authorities haven't fully tracked the missing $1.2 billion, or who was behind it.

"It's either ignorance or fraud," he says. "Money doesn't vaporize. If my account is empty, somebody else's is full."

Tofteland opens the door to one of his four hog barns. More than 250 piglets scamper in pens in the climate-controlled barn. The smell is so wretched it takes every ounce of strength for a newcomer not to vomit. The analogy is inescapable: What stinks worse, a hog barn or ...?

Tofteland doesn't even pause to think. "I would say MF Global. Our money was stolen and nobody is being held accountable..."

Read the rest here.

In a cover up like this it is never the initial act, but almost always the subsequent actions to hide the truth, that festers, and can bring down corrupt organizations.

James Koutoulas: MF Global Financial Collapse And the Shadow Banking System

Here is James Koutoulas of Typhoon Capital Management, and the founder of the Commodity Customer Coalition, discussing what happened with MF Global on Russia Today. As an aside, I would be more than pleased to present an informative interview with Mr. Koutoulas on US or British television, but there do not appear to be any.

What could be alarming is that the conditions that led to the loss of customers' funds at MF Global have not been corrected, and it could be happening again at some other firm even now. We just may not realize it because the losses have not yet been publicly disclosed.

As in the case of MF Global, the insiders and powerful customers learn about the impending loss first, and take steps to secure their accounts before the collapse and downfall occurs.

Gold Daily and Silver Weekly Charts - Bear Raid Marks First Notice Day For Comex Silver

The silver shorts have their backs up against the wall. And that makes them dangerous.

Intraday commentary here.

It looks like there will not be a criminal case in the MF Global theft of customer funds, but they could face a fine of up to $140,000.  

The viral moral hazard unleashed by TARP continues to multiply and reverberate through US financial markets to their detriment.   It has a marked dampening effect on market participants, and encourages unethical behaviour and a spirit of lawlessness.  In that sense MF Global is just one symptom among many of a major set of policy errors committed by the Fed, the Congress, and the last two administrations at least. 

"In economic theory, moral hazard is a tendency to take undue risks because the costs are not borne by the party taking the risk. The term defines a situation where the behavior of one party may change to the detriment of another after a transaction has taken place...Economists explain moral hazard as a special case of information asymmetry, a situation in which one party in a transaction has more information than another. In particular, moral hazard may occur if a party that is insulated from risk has more information about its actions and intentions than the party paying for the negative consequences of the risk. More broadly, moral hazard occurs when the party with more information about its actions or intentions has a tendency or incentive to behave inappropriately from the perspective of the party with less information."

From a practical standpoint, I guess this clears the way for Corzine to be the next Treasury Secretary, a fitting replacement for Geithner the amoral technocrat.

Hide your women, children, IRA's and 401k's.   The economic hitmen are coming to town.

NYT: No Criminal Case, But MF Global May Possibly Face a Fine of Up To $140,000

As Janet Tavakoli said the other day, the media coverage of this scandal has been a comedic lightweight fly by that no one in the know could possibly take seriously.

And as Chris Whalen said, we always have known where the money ended up. And that is a big part of the problem. Corzine is Too Big to Jail and the Banks are Too Big To Fail.

Perfect illustration of the credibility trap that is destroying the economy.

Now the elite New York Times chimes in with its own version of the mysteriously vaporizing, blameless money meme. Maybe someone should look in Judge Crater's pockets, or Jimmy Hoffa's wallet.

Et tu, Gray Lady?

As I said, I have now given up all hope of justice being done in this case. But I think obtaining some of the stolen customer money back from the banks and MF Global Holdings is still possible.

We're not in Kansas anymore, Toto. Smells more like 1920's Chicago.

What we need are The Untouchables, honest public servants not compromised in the web of a credibility trap.

NYT
Doubtful Signs of a Criminal Case Against MF Global
By AZAM AHMED and BEN PROTESS
February 28, 2012, 8:45 pm

Federal authorities are struggling to find evidence to support a criminal case stemming from the collapse of MF Global, even after a federal grand jury in Chicago has issued subpoenas.

Investigators, unable to find a smoking gun amid thousands of e-mails and documents, increasingly suspect that chaos and poor risk control systems prompted the disappearance of more than $1 billion in customer money, according to several people involved in the case.   (Are these the emails that the lawyer for the Creditors in the bankrputcy case had sole possession of for months?  Vaporization by honest sloppiness - Jesse)

When the money first went missing, prosecutors in New York and Chicago scrambled to stake a claim. Now, four months later, both Preet S. Bharara, the United States attorney in Manhattan, and Patrick J. Fitzgerald, his counterpart in Chicago, are shying away from leading the case, one of those people involved in the case said.

Indeed, a number of federal prosecutors have expressed doubts to others involved in the case that anyone at MF Global — including the firm’s chief executive, Jon S. Corzine, and back-office employees in Chicago — intentionally misused customer money, said people involved in the case who were not authorized to speak publicly about the investigation.

The subpoenas by the grand jury in Chicago were disclosed by the CME Group, MF Global’s chief regulator, in a securities filing on Tuesday. But the grand jury, according to the person involved in the case, has yet to hear any evidence on the case — a sign that the investigation has yet to bear fruit.

Still, it is early in the investigation, and regulators and others have yet to finish plowing through the mountain of documentation they recently received from the company. (And what investigative principle suggests the wisdom of allowing the company to go over the evidence first before handing it over to the investigators? - Jesse)  In addition, authorities have yet to interview key witnesses — including a person who is believed to have transferred client funds in the firm’s final days.

The inability to bring a criminal case would certainly disappoint thousands of clients, including farmers, traders and hedge fund managers, who are still without access to at least a third of their money.

The government is still hopeful it can file a civil suit against the company, people close to the case said, though doing so against a bankrupt firm with a long line of creditors could be seen as more symbolic than substantive.

Such a case would most likely center on the firm’s failure to safeguard client money, a cardinal sin in the world of futures firms. The penalty for improperly dipping into customer money is a roughly $140,000 fine, equal to about a thousandth of the overall shortfall that clients are enduring....

Read the rest here.

Tavakoli: The Great MF Global Comedy Cover Up

Powerful interests are involved. Too Big To Fail and Too Connected To Jail.

This brief piece by noted financial analyst and author Janet Tavakoli is the sharp edge of her incisive wit.

The coverage of MF Global by the financial print media has been laughable, with the notable exception of Forbes. MF Global was the eighth largest bankruptcy in the US, with thousands of customers victimized by theft, and yet one hardly ever hears about it.

I have had a few conversations with people knowledgeable about Fedwire, the most reliable system for wire transfers in the states for large transfers between financial entities, and the one that MF Global might have used. After all, they were one of the Fed's own Primary Dealers. If so, is the Fed withholding information about the transfers? The problems in finding out who received certain transfers in excess of $100 million left the people I discussed this with incredulous.

"The Fedwire Services are the premier electronic payments and securities transfer services that banks, businesses and government agencies rely on for mission-critical same-day transactions. When it absolutely matters, trust Fedwire Services to deliver transactions with certainty and finality."

I wonder which mainstream news media program will finally interview someone informed and honest on the MF Global story, and bring this injustice to the awareness of the public. I have heard that they will attempt to drag this investigation out until after the national elections in November, but if it comes out before that it will be wrapped up in a "don't ask don't tell admit no guilt" settlement.

"Our government...teaches the whole people by its example. If the government becomes the lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy."

Louis D. Brandeis

Someone like the maverick Jon Stewart might break ranks from the corporate allegiance and political partisanship of the major television outlets. Corzine is a powerful figure in the Democratic funding machine, and JPM is the biggest kid on the Street.

And where better to discuss the protection of the US public trust from well-connected financial predators than on Comedy Central, which is fast becoming the premier news outlet in post-corporate America.

Huffington Post
MF Global: Crime, Comedy and the Cover-Up
By Janet Tavakoli
2/28/2012 5:37 am

MF Global's October 2011 bankruptcy was the eighth largest bankruptcy by assets in the United States. James Giddens, the bankruptcy trustee, issued a press release on February 6 stating that his investigation found that money from customer accounts that was supposed to be segregated was improperly used to fund MF Global's daily activities. Improper transfers of customer money occurred regularly in amounts under $50 million before MF Global's bankruptcy. MF Global wasn't caught, because it put the money back before customers knew it was missing.

On January 30, 2012 the Wall Street Journal did a hilariously bad job of reporting when its front page article stated that a "person close to the investigation" said that as a result of chaotic trading in the week before MF Global's October 31 bankruptcy, customers' money "vaporized." Money doesn't vaporize. It's true that tracing money transfers can be tedious, but that's why we call it work.

As for the Wall Street Journal's article, the editor should have made it vaporize. I was having breakfast with several traders at Chicago's East Bank Club. One trader read the passage aloud. The entire table burst out laughing. Then he got up and ceremoniously threw the paper in the trash. The entire table applauded.

Fox Business News had people in stitches when it reported that federal investigators are saying that this wasn't criminal, it's just a matter of sloppy bookkeeping.

The habitual filching of customers' funds -- even if the funds are later replaced -- goes way beyond sloppy bookkeeping. It goes way beyond bad judgment. Just because MF Global got away with it for a long time before it blew up in its face doesn't mean one can call it sloppy bookkeeping and have any reasonable person believe it. If federal investigators and law enforcement people want to make public statements like this, one should investigate corruption in their ranks. They seem to be providing undeserved excuses as a trial balloon to see if it will fly. Nice try, but it's not working.

According to the bankruptcy trustee, money was repeatedly filched from customers' accounts. That goes way beyond sloppy bookkeeping.

Senior officials of the Chicago Mercantile Exchange and of MF Global's regulator, the U.S. Commodity Futures Trading Commission (CFTC), have already testified to Congress their belief that MF Global violated regulations -- it broke the law -- because using customers funds, money that was supposed to be in segregated accounts, to pay off MF Global's creditors or to use that money to fund MF Global's day-to-day operations is not permitted.

MF Global CEO Jon Corzine, a former head of Goldman Sachs, signed off on statements that said his internal controls were adequate. After Enron, the Sarbanes Oxley Act was meant to assure Americans that officers that signed such statements would be held accountable for their accuracy....

Read the rest here.

Feds Key In on $325 Million Wire Transfer Made in Last Hours of MF Global

I wonder if this newly released MF Global information is some of the data that the creditor team has been examining and only recently released to Federal investigators.

It was surprising to hear that JPM as a creditor gets to decide how and when customers can have information about their MF Global accounts as reported here.

The truth may come out some day, but will be heavily coated in sugar. They will try to drag this out until the public loses interest and becomes distracted by something else.

A last minute wire transfer of a large cash amount, not to mention a transfer almost certainly involving customer money, would be an automatic clawback in any bankruptcy I have ever heard about. I saw a trial balloon floated out a week or so ago that put forward the theory that the money would not be returned because it was protected by a 2005 bankruptcy law regarding the sanctity of 'commercial paper' payments.

That rationale might work in a friendly court, but would establish an unbelievable precedent about the ability of banks and insiders to seize funds from the carcass of any failing enterprise ahead of other creditors.

Keep in mind that customers who had requested their money DAYS before the 31st were sent checks instead of the customary wire transfers which they had requested, and those checks were not honored. And I have heard of at least one instance where a customer's wire tranfer was reversed a day later by the banks, which I had thought was not even possible.

This looks like a fraudulent conveyance, and possibly a conspiracy of theft of customer money amongst financial insiders as MF Global slid into bankruptcy.

The more I hear about this, the more outrageous it gets.

Dealbook
Investigators Scrutinize MF Global Wire Transfers
By AZAM AHMED and BEN PROTESS
February 26, 2012, 9:07 pm

Federal investigators examining the final days at MF Global and how customer money went missing are poring over scores of wire transfers in and out of the brokerage firm, including the possible movement of $325 million that may have belonged to customers, according to people briefed on the matter.

The suspicious transfer, which until now has not been made public, was first discovered in the early hours of Oct. 31, the day the firm filed for bankruptcy. Initially, the firm attributed a shortfall of more than $1 billion in customer money to an “accounting error,” records show. But after hours of searching, executives acknowledged to regulators in the firm’s offices in Chicago that the shortfall was real — and may have been caused in part by the $325 million transfer, said one of the people briefed on the matter.

It remains unclear where that money went, or even if it belonged to customers. (Did they lose the receipt?  LOL - Jesse)  But it is one of many significant wire transfers that federal authorities — including the Commodity Futures Trading Commission and the Federal Bureau of Investigation — have spent months reviewing to piece together MF Global’s final days.


Investigators have also reviewed another transfer, of $220 million on Oct. 31, which represented a last-ditch attempt to patch the hole discovered in the customer accounts.

Once the firm disclosed the shortfall to officials from the C.F.T.C. and the CME Group, the giant exchange that also regulated the firm, MF Global shifted $220 million in customer money from the securities side of the business to its commodities brokerage unit, where the shortfall in client cash was discovered earlier.

Ultimately, the final attempt came up short. Just hours after the transfer, the firm filed for Chapter 11 bankruptcy...

Read the rest here.

MF Global Turns Into Battle For Scraps Between Hedge Funds and Customers

"Some of the likely litigation targets are MF Global's main trading partners, its primary banker JPMorganChase, and clearinghouses that processed last minute trades for MF Global as it spiraled towards bankruptcy. Another possibility is MF Global's own United Kingdom affiliate, where about $700 million in customer money is tied up.

But recovering any funds won't be easy.

'In terms of resources, the worst counterparty in the world to go up against in court is the government,' said one bankruptcy lawyer, who asked not to be named due to relationships with firms that have a stake in the outcome of potential litigation. 'The next is JP Morgan.'"

In a brokerage bankruptcy the customers have priority over other creditors including bondholders, who in this case include some hedge funds. The CFTC is on record for this in the case of MF Global. But the CFTC seems to be a relatively toothless regulator these days. They have been sitting on a silver market manipulation case for over three years for example, and cannot even begin to say 'peep' about it, except to occasionally make lame excuses for what everyone knows has been happening.

In an almost amazing bit of behind closed doors switcheroo, the regulators at the SEC and the court agreed to treat MF like a Chapter 11 bankruptcy rather than a Chapter 7. As the article points out, there are two trustees, Giddens, a career corporate lawyer who is nominally representing the customers, and Freeh, a former member of the Clinton Administration who is representing the interests of the creditors like JPM.

As an interesting sideshow, Louis Freeh had exclusive possession of the MF Global emails and other evidence, and refused to share it with government agencies until his attorneys had an opportunity to sift through them, and 'find no evidence of wrongdoing.'

Customers of the other big brokers that went bust, like Lehman for example, did not have this sort of problem. They were made whole on their accounts.

Mackie Messer, otherwise known as JP Morgan or simply 'The Morgue,' held an unsecured credit line with MF Global for $1.2 billion, but they managed to snatch the funds in the last week of their operations it appears, and lawyered up on various fronts to make sure they hang on to it.

As Chris Whalen said, we know who has the money, we've always known where it was. The question is how willing and able the system is to make them give it back.

Equal protection under the law is apparently just a theoretical objective these days. It seems to mean that everyone is free to hire as much legal power and political influence as they can afford and then let the stronger party win. And the poor and the rich are both permitted to sleep under bridges in cardboard boxes if they wish. That's only fair.

One can only imagine if anyone will be prosecuted, and at most, some lieutenants may settle up while admitting no guilt.

Battle lines forming between MF Global customers, hedge funds
By Nick Brown and Katya Wachtel
Fri Feb 24, 2012 2:36pm EST

(Reuters) - The MF Global saga could soon become a legal battle between hedge funds and the futures brokerage's shortchanged customers, with more than a billion dollars at stake.

As the investigation into the collapse of the Jon Corzine-led brokerage moves into more of a regulatory whodunnit than a criminal case, the guessing game centers on who the two court-appointed trustees overseeing MF Global's liquidation will sue to recoup money owed to customers of MF's broker-dealer unit and creditors of its parent.

Those decisions are not easy ones, legal experts say, and they could end up pitting hedge funds like David Tepper's Appaloosa Management and Paul Singer's Elliott Management - who own MF Global bonds - against brokerage customers trying to recover an estimated $1.6 billion shortfall in their accounts.

It's likely that James Giddens, the trustee in charge of recovering customer funds, and Louis Freeh, the trustee in charge of recovering money for parent creditors, will dispute the ownership of certain assets, said attorney Chris Ward, vice chair of Polsinelli Shughart's bankruptcy practice, who is not involved in the case.

A more complex battle could arise from the fact that both customers and bondholders claim priority for payouts from MF Global's general estate...

Read the rest here.

The fog of cover up has been wafting heavily over this entire scandal since the first week. I doubt very much that the real truth will ever be fully disclosed. I just hope that the customers, who are surely victims of a corrupt financial system, are able to recover their money.

“Thou shalt not be a victim, thou shalt not be a perpetrator, but, above all, thou shalt not be a bystander."

You may wish to keep this aphorism in mind with regard to your financial transactions going forward, whether you are in the US, Canada, Asia, or Europe.

Why Inequality Matters: Saving Capitalist Society from Obsessive Greed and Lawlessness

I think this is about as good a statement of the problem facing the US economic system today.

The 'checks and balances' and 'equal protection under the law' of the Constitution has been trampled upon by the monied interests. The obsessions of the few will not permit them to relent on their quest for all the marbles, even to a Pyrrhic victory.

In addition to the massive mortgage and foreclosure frauds, I can think of no better recent example than the looting of the customer accounts at MF Global, the manipulation of justice, and the subsequent cover up, because it is so senseless.

And if it destroys the futures markets in the process, as the members of the Futures Association fear, then so what?

We won, didn't we?

Why can't the Bank give back the customer money which they accepted in the last week of business?  A billion dollars is small change, especially as they are sitting on a pile of unearned loot taken by fraud from the public already, and the price to be paid in the long run for it may be great. 

Why don't serial killers ever quit?  Because it is a matter of principle to them, the principle of pride, the pride of all those masters of the universe who consider themselves to be above all the rest, supra-human, the best.  To give it back would be to admit that they are equal after all, merely human, and subject to the laws of the people.   And the will to power that fills the hole in their being will not allow it.  They need, and that need must be fulfilled, no matter what.  What I must forego diminishes me. And to bend my knee to anything or anyone is a blasphemy against my self.

"Do what thou wilt shall be the whole of the law."

Aleister Crowley

Have we not proved we were smarter, better, different from all the rest, these creatures whom we use and despise? And if these sub-humans prove to be troublesome, we will disparage them, silence them, beat them, corral them, and even burn them.

We are the gods of this age, the great angel of the morning, sitting on a wreckage of devices, gaping in the light.

ND2.0
Why Inequality Matters: The Housing Crisis, The Justice System & Capitalism
By Bruce Judson
February 20th, 2012

Extreme economic inequality is among the most destructive forces in a society. As inequality grows, it undermines the effective functioning of the economy, the basic tenets of capitalism, and the foundations of democracy.

Unfortunately, the housing crisis and now the housing settlement increasingly look like an example of how this mechanism works.

One of the central characteristics of highly unequal societies is that two sets of laws develop: One set for the rich and powerful and one set for everyone else. The more unequal societies become, the more easily they accept the unacceptable, and with each unrebuked violation, the powerful actors at the top of the society gain an ever greater sense of entitlement and an ever greater sense that the laws that govern everyone else don’t apply to them. As a result, their behavior becomes increasingly egregious.

In contrast, sustainable capitalism requires that all participants in a contract or bargain believe their interests will be enforced equally by the courts: Capitalism requires that Lady Justice wear a blindfold. When powerful players are permitted to alter established rules at will, capitalism ultimately collapses. Contracts and the idea of a fair bargain become meaningless as less powerful parties to an agreement know their rights will not be enforced.

Over time, citizens lose faith in government and their own ability to thrive in what becomes a corrupt economy. This uncertainty leads the small businesses, which are so often cited as important to our economy, to shy away from new activities that might put them at the risk of unequal treatment...

Read the rest here.

Barry Ritholtz Has the Main Theme Right, But Gets a Few Specifics Wrong About MF Global

For the record, I am an admirer of Barry Ritholtz, and have been so for quite a long time. He is smart, honest, and what the old folks used to call a mensch.

In a recent piece titled MF Global Reveals You Are a Bank Counter-Party he makes a very strong case that financial institutions that trade for their own accounts place everyone who has money with their firm at counter-party risk.

He uses this to reinforce his opinion, with which I heartily agree, that when private speculation becomes mingled with public funds and government guarantees, a moral hazard results that quite often leads, some might say almost inevitably, to fraud, the mispricing of risk, and bailouts.

"The esteemed former Fed Chairman, Paul Volcker, introduced a very simple regulatory concept that bears his name: The Volcker Rule. It was part of the Dodd-Frank regulatory reforms passed after the financial crisis of 2008-09.

There has been enormous pushback against what should be a simple piece of prophylactic rules on proprietary trading by depository banks (see this Jamie Dimon commentary as an example). Why? The profits of speculation goes to banks, driving bonuses and compensation; but the ultimate risk of loss lay with the FDIC and taxpayer. If the banks blow up, someone else besides the banker pays."

But in making his case, that the MF Global situation proves this rule even though they were not a bank, he characterizes some of the things regarding the MF Global scandal in a way that could be misconstrued, and has been misconstrued in that way by some of the main stream financial media.

Here is what Barry said:

"Recall the basic facts of MFG: Management engaged in leveraged speculations with monies — whether it was their own or clients became irrelevant as the losses were so great as to wipe out much more capital than the bank actually had. Billions in losses meant MFG was insolvent and was wound down. On the winning sides of those trades were folks like JPM and George Soros. It is neither their duty nor obligation to verify whose money is on the other side of the trade — the clearing firms make sure the trade settles.

Those trade settlements are the only possible outcome. Why? Imagine a burglar robs a house of cash, goes to a casino and loses the money playing Roulette. The Casino settles that bet, it clears — and the burgled homeowner can never recover the money. Exchanges work the same way. They simply cannot validate the capital sources of every transaction. In the case of MFG, he money wasn’t even burgled — it was simply entrusted (sic) to an entity that became so insolvent thru excess speculation that even money in “Segregated accounts” was highly compromised." (emphasis mine)

There are at least three things that are wrong with that version of the story.   I had to struggle a bit to  understand what Barry was really saying. More on that later.

First, it was NOT irrelevant whether MF Global was using customer money or their own to finance their trades. That is a matter of regulatory law as recently expressed in Rule 190, and the CFTC has made it very clear that brokerage firms cannot use customer funds in whatever manner they please despite the presumption of regulatory creep that is a favorite ploy amongst the Wall Street wiseguys.

What Barry implies is that this is a nicety, and I would say it most certainly is not. To use customer funds in this manner is a violation of fiduciary trust, known in lesser circles as stealing.   MF Global thought they could take the money and put it back with no one being the wiser, but they were caught up in the discovery of events.   This is not much different than taking company money to pay your private debts, and then failing to return them before the loss is discovered.

There is a difference between a creditor and shareholder in a financial institution like a brokerage and a customer, who has their own private assets on deposit, with specific protections outlined by the exchange and government regulators.   Just because someone is not indicted does not make a thing legal or morally acceptable.  

Using Barry's casino analogy, Soros may have been a player at the tables, albeit a highly informed one,  but JPM had a hand in running the money which was financing the casino action as well as playing at the tables, was advancing MF money, and was then leaning on them for payment while MF Global was taking the funds from the customers' safe deposit boxes at the hotel.

Second, the manner in which the bankruptcy is being handled is a grave injustice. In this case a Chapter 7 bankruptcy was appropriate, and not a Chapter 11 which is not appropriate for a brokerage like MF Global.   That was a tortured interpretation promoted by the powerful creditors led by JPM.

And as the CFTC stated, the customers whose account assets were stolen have a superior claim to the remaining assets, including clawbacks from recipients of funds in the last weeks of business.  This does not even speak to the possibiility of a fraudulent conveyance that favored a few relative insiders.

The customers ought not to be in same situation as all the other parties involved in this scandal.   I believe quite strongly that if JPM was not one of the major creditors, and had not taken such an aggressive stance with the bankruptcy and the regulators at the SEC, this situation would have turned out quite differently as it had done in the past with other failed brokerages.

Thirdly, to characterize JPM as 'just another customer' on the other side of the trade with the clearing organization between them is to utterly ignore and misrepresent JPM's role as MF Global's bank. JPM demanded and received collateral for their credit line of $1.2 billion in the last week before the bankruptcy. They contributed to the bankruptcy of the firm as they delaying payments of asset sales that MF Global had engaged in to raise cash. 

And one can only speculate on the depth of their knowledge on the size and nature of MF Global's trades.   If we are to accept that things like segregated accounts mean nothing then why would we believe in confidentiality of customer positions and their finances?

To say that JPM had no fiduciary responsibility to determine the source of the funds, when they knew beforehand that the company was in serious trouble, is quite incorrect.   They even covered that with a figleaf memo.

JPM has lawyered up in this case, and as Chris Whalen suggests is sitting on the money along with a few other entities.

"But please, to our friends in the Big Media, could we stop saying that we don't know the location of the missing $1.6 billion of client funds from MF Global? The money is safe and sound at JPM and other counterparties. As with Goldman Sachs et al and American International Group, the banks have been bailed out at the cost of somebody else. And the various agencies of the federal government are complicit in the fraud...

The effort by former New Jersey governor and MF Global CEO Jon Corzine to save his firm by stealing customer funds seems to warrant further discussion, yet instead we have silence...

So why is it that the Large Media have such trouble reporting this story? The fact seems to be that the political powers that be in Washington are protecting JPM CEO Jamie Dimon from a possible career ending kind of stumble with respect to MF Global."

Chris Whalen, Institutional Risk Analyst

To say that the customer money was 'not burgled' but rather was 'highly compromsied' may be the current fashion of thinking about taking customer money on Wall Street, but it stinks like the fog of propaganda that has spewed forth from Wall Street and their media friends since last October.

The MF Global money was not vaporized, it is not missing, and it was not 'highly compromised.'

It was stolen, and not once but twice.

I understand what Barry is really saying. In today's environment the protections that investors and depositors think that they have is thin stuff indeed. People think that they are safeguarded by regulation and legal statements, and they think they have equal protection under the law, as compared to the corporate leviathans and political insiders like Jon Corzine.

But they do not. These fine guidelines about Chinese walls and segregated accounts are merely a fiction these days. And so we must cut to the source of the danger, and separate the risky speculation that had been the domain of hedge funds and investment banks from ordinary customer funds and government guarantees designed to maintain confidence in the public.

There is definitely merit in that end as I have said. But it is not proper to begin to accept the lawlessness on Wall Street as the 'new normal' and to overlook what has been done, and the laws that are in place even if they are unevenly enforced under this Administration.

Who is to say that Wall Street will not steal customer money and embezzle depositors funds even if Glass-Steagall is reinstated?  If there are no investigations and prosecutions for such a blatant theft as this, how can anything or anyone ever be safe?

The customer money has not vaporized, is not missing, and was not highly compromised.  It was stolen.  Twice.  They would like to go for three.  

The fog of verbal niceties and legal maneuvers to excuse it is still underway.  And the world sees.

"God has numbered the days of your reign and brings it to an end. Your possessions will be divided, and given away to others. You have been weighed on the scales, and found wanting."

Chris Whalen: JPM and the Banks Have the MF Global Money And the Status Quo Is Protecting Them

"But please, to our friends in the Big Media, could we stop saying that we don't know the location of the missing $1.6 billion of client funds from MF Global? The money is safe and sound at JPM and other counterparties. As with Goldman Sachs et al and American International Group, the banks have been bailed out at the cost of somebody else. And the various agencies of the federal government are complicit in the fraud...

The effort by former New Jersey governor and MF Global CEO Jon Corzine to save his firm by stealing customer funds seems to warrant further discussion, yet instead we have silence...

So why is it that the Large Media have such trouble reporting this story? The fact seems to be that the political powers that be in Washington are protecting JPM CEO Jamie Dimon from a possible career ending kind of stumble with respect to MF Global."

Chris Whalen, Institutional Risk Analyst

Chris Whalen at The Institutional Risk Analyst lays out the entire MF Global scandal in a few plain words, taking the Wall Street demimonde to task in the process.

It is nice to see that someone who occasionally appears on the mainstream media can tell the truth on this. Usually one has to look for sources overseas, small cafes, and the occasional economic maverick to hear what really happened.

But in quiet whispers, the Street knows the truth, that the money was stolen, not once but twice.   And even these hard cases are shocked.  The first time by MF Global and from the very top, and then afterwards in the courts and the regulatory bodies that used the bankruptcy to take the funds from the customers and give them to the creditors.

And it does stink to high heaven. But the clean up men are giving the evidence a thorough scrubbing while justice waits, Chicago-style.

It has placed a chill on those trading in the US markets. Even they are frightened of such lawlessness. They can't help but wonder, who's next?   And how far will they go?

Please distribute this as widely as possible.

"Where is the lost customer money? At JP Morgan Chase and other banks, or course. See, "How JP Morgan and George Soros Ended Up with MF Global Customer Money", www.clearingandsettlement.com.

So why is it that the Large Media have such trouble reporting this story? The fact seems to be that the political powers that be in Washington are protecting JPM CEO Jamie Dimon from a possible career ending kind of stumble with respect to MF Global. By stuffing the commodity customers of the broker dealer via an equity bankruptcy resolution supervised dutifully by SIPIC, JPM and Soros apparently get to benefit at the expense of the commodity customers of MF Global. This situation stinks to high heaven and everyone on the Street we've spoken to about the matter knows it. As the article above notes:

"Rather than being treated as a bankruptcy of a commodities brokerage firm under sub-chapter IV of the Chapter 7 bankruptcy law, MF Global was treated as an equities firm (sub-chapter III) for the purposes of its bankruptcy, and this is why the MF Global customer money in so-called segregated accounts "disappeared".

The effort by former New Jersey governor and MF Global CEO Jon Corzine to save his firm by stealing customer funds seems to warrant further discussion, yet instead we have silence.

Here's a question: When is Corzine going to be indicted for securities fraud and other high crimes and misdemenors? The answer seemingly is that the Obama Justice Department is afraid to go there. Thus the fraud at MF Global continues and Washington does nothing to inconvenience the banksters as customer funds are expropriated.

But please, to our friends in the Big Media, could we stop saying that we don't know the location of the missing $1.6 billion of client funds from MF Global? The money is safe and sound at JPM and other counterparties. As with Goldman Sachs et al and American International Group, the banks have been bailed out at the cost of somebody else. And the various agencies of the federal government are complicit in the fraud."

Chris Whalen, The Institutional Risk Analyst

"But where says some is the king of America? I’ll tell you Friend, he reigns above, and doth not make havoc of mankind like the Royal Brute of Britain. Yet that we may not appear to be defective even in earthly honors, let a day be solemnly set apart for proclaiming the charter...that in America the law is king. For as in absolute governments the king is law, so in free countries the law ought to be king; and there ought to be no other."

Thomas Paine, Common Sense


"And remember, where you have a concentration of power in a few hands, all too frequently men with the mentality of gangsters get control. History has proven that."

Lord Acton

Drei Groschen Oper - Die Moritat von Mackie Messer  English translation.

MF Global: Francine McKenna of re: The Auditors Gives a Plausible Explanation

Francine McKenna is an ex-auditor from Price, Waterhouse Coopers.

McKenna has a blog called re: The Auditors, and also writes for Forbes.

MF Global is a slowly boiling scandal. It is always the cover up that brings the most damage, rather than the initial criminal acts that are committed by a few.

She provides a very plausible description of what really happened at MF Global, and I find it to be entirely consistent with my own thoughts and extensive reading on the subject.

She does not address the actual cause of the MF Global bankuptcy but that is another matter.

It is a dirty business. And Francine is a highly credible source.

This will start viewing at 13:00 to hear McKenna's thoughts.