Joe Nocera in today’s NYT rails about the lack of prosecution in the MFG case:

Yet, a few weeks ago, Azam Ahmed and Ben Protess, who have done a remarkable job covering the MF Global bankruptcy for The Times, wrote an article suggesting that prosecutors were having trouble putting together a criminal case against anyone at MF Global. So far, wrote Ahmed and Protess, they’d been “unable to find a smoking gun.” In fact, they continued, “a number of federal prosecutors have expressed doubts” that MF Global “intentionally misused customer money.”

Apparently, the current theory is that it was all just a big accident, the chaos of those final days causing the firm’s executives to tap into customer funds without realizing it . . .

A failure to prosecute anyone at MF Global would be, if anything, even worse. It would mean that executives at a broker-dealer can indeed steal customer money and get away with it — so long as it was “unintentional.” And it would only deepen the cynicism so many people feel about government.

I’ll say what Joe didn’t: The prosecutors need to cut a deal with one of the small fish in order to catch a big (or bigger) fish. Perhaps with MFG’s Treasurer or Comptroller. If it were me, I’d let the Defense bar know that we have 3 potential immunity deals that go to the first takers (with several hi profile exceptions).

This is just like prosecuting drug dealers — you pick up the dime bag seller, roll them to the mid-level guy, repeat. Keep doing that until you reach as close to the top as you can get.

Works for pot, crack, robo-signing, and segregated account theft . . .


(Is MF Global Getting a Free Pass?)
NYT, March 12, 2012

Category: Legal, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

34 Responses to “MF Global’s Free Pass?”

  1. Francois says:

    Here’s a shortcut: invoke SarbOx and voila!

  2. willtruth says:

    If it were me, I’d let the Defense bar know that we have 3 potential immunity deals that go to the first takers (with several hi profile exceptions).

    Absolutely right on point!

  3. carleric says:

    It seems that as long as you hold campaign fund raisers for the administration currently in power you get a free pass….it is just pitiful

  4. Petey Wheatstraw says:

    is anyone really surprised that this continues in a country ruled by dictat instead of law?

    What were you expecting? Justice?

  5. PDS says:

    Why stop at the Treasurer and Comptrollor BR?…..why not go for the CEO?….if this were Iceland where they prosecuted the banksters and the politicians for their failures to supervise…..the CEO of MF would be in docket

  6. Petey Wheatstraw says:

    “Former News International chief executive Rebekah Brooks has been arrested as part of the police inquiry into allegations of phone hacking . . .

    . . . Police said one woman and five men were held on suspicion of conspiracy to pervert the course of justice . . .”

    My god, we look absolutely stupid and ubiquitously corrupt by comparison.

  7. Lord says:

    Their external accountants should be able to identify the party as they and their insurers would be poised to the take the hit themselves otherwise.

  8. obsvr-1 says:

    Since fraud seems to be legal because of the “I didn’t mean to do it” escape, we should make malfeasance a crime punishable by disgorgement of ill-gotten (er, accidental) gains and jail time (er, accidental isolation).

  9. Pantmaker says:

    Barry no response needed but….you are such an Ent…*wink*

  10. glengarry says:

    Didn’t a lot of the problem stem from MF pledging customer assets as collateral for it’s trades? Isn’t there a case that at that time, MF converted customer property for its own uses? Was that specifically allowed in MF’s customer contracts? I don’t know but I doubt that, for example, customers who purchased gold bars were ok with MF using those bars as collateral. Please forgive my ignorance of the facts.

  11. Ridge Runner says:

    If other enterprises holding themselves out as reliable fiduciaries in the markets where MF Global operated want to avoid a general exit of client funds from their management to the customers’ varying versions of “Bank of Sealy” and “Bank of Mason” (storing wealth under a mattress or in a jar buried in the back yard) they will see to it that the top management of this criminal enterprise do hard time and have their personal wealth clawed back to distribute to the customers whose assets were stolen.

    Otherwise, neither they, nor the threadbare regulatory laws their industry trade group lobbyists drafted in back rooms for kept legislators to enact, nor the clueless or ‘owned’ regulators responsible for enforcing those laws, deserve a mustard seed’s worth of trust as guardians of customer funds.

  12. Sechel says:

    Based on the hearings and Michael Stockman’s testimony, it seems this was a small group of people doing everything, maybe not all that different from Madoff’s operation. I agree they do need to squeeze harder, and also use more tools, such as ‘sarbanes oxley’ where they don’t have to prove intent so much.
    The fact that bonuses were suggested in the liquidation, means the people in charge , “don’t get it”

  13. Rick Caird says:

    I still believe this is all about protecting Corzine. If no one is prosecuted, Corzine cannot be prosecuted. The damage done to the markets and the industry is inconsequential compared to the political necessity of saving Corzine. Francois is right: Sarbanes – Oxley should be in play, here.

  14. John Adamson says:

    The country is essentially becoming lawless.

    Now some anonymous panel can produce a finding that “gives the right” for the President to order the murder an American citizen on American soil without charge or due process. The Attorney General defends this and the FBI Director says he’s not sure about it – he’ll have to ask his legal department if a rub-out order is legal.

    The “mainstream” media doesn’t go berserk over this. They just do the “nothing to see here – move along” thing. The Congress passed the “law”. Who is left to check lawless power?

    We have the forms of law – but increasingly are losing the substance.

  15. AHodge says:

    im with this
    the one thing im not clear on
    there have been relaxations you could drive a truck through on investing customer “cash”
    and i hear maybe they ALLOWED to invest that in “sovereigns” including greece
    and say Zimbabwe?
    might it be that? dont know who gets the profits, but they might treat the customer position like money market fixed and keep gains and losses, then hard to find?
    nobodies talking and nobodies askin?

  16. Expat says:

    Your premise is wrong. You assume that the government wants prosecutions.
    Do you remember all your Con Law, Crim Law, Torts, and Procedures from Law School?
    Yes? Well, there you go. That’s your problem right there.

    p.s. I did not go to law school so what I wrote about subject matter is vague recollections from My Cousin Vinny, The Firm, and Legally Blond.

  17. b_thunder says:

    I don’t think it’s a matter of building a case as much as a matter of not wanting to build a case against the “untouchables.”
    Some people, especially on Wall St. and with the ties to D.C., are simply “more equal than others.”
    Did anyone prosecute Goldman execs? What about mega-bank mortgage fraud?

    As long ah Holder is the AG and Geithner is @ the Treasury – don’t expect things to change. Obama made a deal with the “devil” – he won’t prosecute Wall St, and they won’t f*&^k with is reelection. Latest polls show that he made a wrong bet. Perhaps in 4 years, after Romney finishes what GW Bush has started, someone other than the RepubliCrats will finally have a real shot in the general elections.

  18. gremlin says:

    I think you just wrote the next version of “the wire”, we need to keep the banksters way down in the hole:

    tom waits version

  19. JimmyDean says:

    Amazing, this is sad. Good cannon fodder for RIAs and Independents though.
    Also, did you see this? Seems like the investors equivalent of SOPA/PIPA…..

  20. Ed618 says:

    We would be seeing a variant of this headline every day if either the media were fair, or Corzine and Obama were republicans:

    Former Governor and US Senator, Major Supporter of the President, is CEO of Billion Dollar Scandal

  21. [...] MF Global execs getting a “free pass.”  (Big Picture, [...]

  22. rd says:

    1. Tapping segregated funds for prop trading
    2. Advertising completely segregated funds
    3. Sarbanes-Oxley accounting sign-offs.

    In the end, at least one of these must be prosecutable as the absence of one or both of the others opens a gaping wide hole pointing to the third.

    An under-reported fact in the MF Global shenanigans was that in the last minute flurry when “nobody was keeping track”, JP Morgan suddenly popped up with a sign-off request that segregated customer accounts were not being tapped. This was not signed at MF Global. Shortly after that, MF Global was put into Ch 11 instead of Ch 7 bankruptcy.

    It is clear that some outside entities suspected that cutomer money was being handed to them and then tried to do their best to ensure that they could keep it. How could they suspect this to the point of taking the unusual steps of requesitng sign-offs and lobbying for Ch 11 bankruptcy without high level executives at MF Global also suspecting or knowing what they had done?

  23. bear_in_mind says:

    Barry, you’re approach (mirroring that of Prof. Bill Black) is exactly right. Prosecute and squeeze the underlings for information which leads to the persons who ultimately approved, and gained from, these decisions. I suspect the crowd is correct, however, in assessing the lack of will by various law enforcement agencies to aggressively enforce the law and pursue prosecutions.

  24. hammerandtong2001 says:

    Let us speak frankly now…

    As noted above the custodian and banker for MF Global, JP Morgan, sent a letter of confirmation to MF Global, Chicago addressed to and received by Edith O’Brien, a Treasurer there. The letter sought to confirm that a wire transfer of $325 million posted by MF Global to cover margin calls, did NOT include customer funds.

    Edith O’Brien refused to sign the letter. Despite redrafting by MF Global counsel, to make the wording more acceptable. Subsequently, Ms. O’Brien has offered to tell everything she knows is she is immunized from any prosecution. Her offer has not been accepted by prosecutors or the FBI.

    Do you believe Ms. O’Brien had the authority to transfer $325 million without oversight? I do not.

    Who would have the authority to transfer that amount of money at MF Global? I would guess there would be about 10 people who could make that call and execute that wire.


  25. contrabandista13 says:

    Here’s a little tid-bid of reality for ya’ll…

    “…We now have an extraordinary situation that reveals the impunity with which political elites commit the most egregious crimes, as well as the special privileges to which they explicitly believe they — and they alone — are entitled….”

    Best regards,


  26. klhoughton says:

    Anyone who deals with any hedge fund that uses JPMorganChase for S&C should be shot.

    Any investor whose funds are being used by a firm using JPMC for S&C should pull their funds and securities immediately.

    No need for immunity at that point (though it’s still not a bad idea as writ), since even Jamie Dimon isn’t stupid enough to steal $1.2B and lose several $100B in asset holdings in perpetuity in the process.

    But since the financial firms won’t police themselves, the way they did in November of 1963, and investors are proving themselves Really Stupid, I’ll support the Three Immunities recommendation.

  27. Francois says:

    “Works for pot, crack, robo-signing, and segregated account theft . . . ”

    Works for pot, (check!) crack,(check!) robo-signing, (huh?) and segregated account theft . . . (HUH??)

  28. dsawy says:

    C’mon. Does no one have the common sense to see why MFG won’t be prosecuted?

    Does everyone think that Corzine being tied closely to the Obama administration and the lack of legal inquiry is mere coincidence?

  29. rd says:


    Edith O’Brien is too low on the totem pole to get an immunity offer in the modern age. She is the one they want to hang so that they can say they found the culprit and they don’t have to go higher up the food chain.

  30. cmeTICK says:

    @ rd who posted on March 13th, 2012 at 1:43 pm

    rd, my trade partner suspects he knows who you are. I’m not convinced one can judge from your post, but if so, please, I beg you, loudly broadcast your insight to the channel we discussed. I’m convinced mid-tier MF back-office employees know where evidence lies, but most are in their late 30′s-mid 40′s looking to continue on in their career with minimal turbulence. You can still anonymously drop clues that will help authorities. This is an egregious precedent, we need to help prevent this from molding as a historical print.

    Please, MF tribe, I know you actively follow the relevant blogs. Don’t be afraid of stepping out of the comfort zone. Others will follow and help build the base.

  31. scottinnj says:

    Maybe we should see how this is done in China?

    Headline: “Death Penalty Does Not Hold Answer to Corruption”

    “If corruption of over 500,000 ($79,048) yuan is punishable by death, no official will dare to do that anymore,” said Zhao Runtian, secretary of the Heze city committee of the CPC, Shandong Province, and a deputy to the National People’s Congress, on Monday.

  32. jack-knife says:

    The dot-connecting regarding Corzine’s apparent untouchability is spot-on, I think. DSAWY put it succinctly:

    C’mon. Does no one have the common sense to see why MFG won’t be prosecuted? Does everyone think that Corzine being tied closely to the Obama administration and the lack of legal inquiry is mere coincidence?

    But I would go a step further: NO ONE in either Washington DC or NY wants Corzine in the dock. Think beyond Obama.

    Corzine is GS royalty. Lloyd B. inherited a game already in progress. The firm was making hits for Treasury and the NY Fed (aka, JPM) long before LB. GS and JPM has had the donkey pictures on most of congress for nearly thirty years, as its attorneys did mandatory tours in the agencies that regulated them. (A little ‘public service’, you know, ‘to give back.’)

    No one wants Corzine under oath for any reason, ever. (A pre-negotiated settlement is in the offing if the story doesn’t fade. But nothing more, and no court appearance except to drop the gavel on it.)

    No US congressman wants a former senator in the dock, particularly one with the combination to the safe at GS. And his getting away with it helps them feel safe.

    So really No One wants Corzine touched. Neither the Executive, nor the executive branch regulatory, nor the Congress. The Judiciary doesn’t matter: it can’t apply the law if no one brings a charge. (Can you hear the sigh of relief?) That makes it unanimous.

    OK: so what’s the over/under on Edith O’Brien’s indictment? Her auto accident? Her suicide? Her Breitbart attack?

  33. DeDude says:

    If you write laws such that in order to get a conviction you have to prove not only that a fraud was committed, but that the person who committed the fraud actually intended to commit fraud – then there will never be any convictions. And that is exactly how the lobbyist writing these laws intended it to be. On Wall Street you can commit fraud and as long as nobody has bullet proof evidence that you intended to commit fraud – you can get away with it. Now on Main Street the rules are totally different, so you regular folks don’t start getting any ideas!

  34. rd says:


    I assure you that I have nothing to do with MF Global at all. I don’t even trade in futures markets. I am just keeping track of publicly available information since this one is so simple, so egregious, and so blatant (the equivalent of not bothering to wear masks when they held up the bank in front of the video cameras because they know the cops and judges are in their pockets). I view it as an absolutely critical proseecution that needs to be made on some grounds. Otherwise, I fear that our civilization is effectively doomed to look more like Putin’s Russia than a Western democracy.