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MF Global Admits Diverting Customer Funds In Violation Of Law

The investment firm headed by former New Jersey Governor Jon Corzine has apparently admitted that it illegally diverted customer funds as its financial position was collapsing:

MF Global Holdings Ltd. acknowledged to federal regulators that money had been diverted out of customer accounts in violation of futures rules and law, according to a federal official.

The Wall Street brokerage, which filed for bankruptcy protection Monday, acknowledged the shortfall amid mounting questions from regulators as they went through the firm’s books while trying to facilitate a sale to Interactive Brokers Group Inc., the official said. Regulators still don’t know where the customer funds went, who directed the move or how widespread the practice was, the official said.

Regulators are still working to determine whether MF Global had a continuing problem with handling customer funds or if executives diverted funds as the company’s financial situation deteriorated and grew more desperate, the official said.

This is a potentially huge deal, with possible criminal charges for top executives depending on their level of knowledge of what was essentially fraud. Whether Corzine was involved in this or not is unclear, obviously, but one would assume he’ll be a primary target of investigators.

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. WR says:

    And no doubt he’ll walk away with a fine and a stern admonishment. Maybe they won’t even let him play in the big sandbox anymore, which will be a huge blow to this octogenarian billionaire.

    My vote: Put him in jail now. Put him and every other executive from this firm in jail now and hold them without bail until trial. Treat him like a black man accused of theft in Mississippi. Maybe that would make some of his fellow Wall Street crooks clean up their acts a little.

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  2. BigFire says:

    Corzine is on the short list to replace Geithner as Secretary of Treasury. He is now available, and his credential is impeccable: He was the head of Goldman Sachs during the Enron era. Senator & Governor of New Jersey, and now this. MF Global even has a clause in his employment contract in case he’s tap by Obama administration for a high level governmental position.

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  3. @WR:

    Innocent until proven guilty. But if the evidence for charges exists, then yes bring them.

    @BigFire:

    Whatever the outcome of this matter, I think it’s safe to say Corzine’s future in government is at an end. This would be political poison in a confirmation hearing.

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  4. WR says:

    @Doug Mataconis: “Innocent until proven guilty”

    Sure. But suspects are held pending trial all the time. And I’d say that a multi-billionaire with everything to lose is enough of a flight risk to hold without bail.

    Like or Dislike: Thumb up 1 Thumb down 0

  5. WR,

    The only purpose for pre-trial detention it to ensure attendance at trial, or at least it should be. In a case like this, you’d expect home confinement and an ankle bracelet like DSK got until that case fell apart

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  6. Ben says:

    @Doug Mataconis:

    Except that isn’t how it works for any felony defendant in the real world, unless you’re rich and famous. Any real felony defendant gets either no bail, or bail so high that it would bankrupt his entire family, and they rot in jail anyway.

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  7. @Ben:

    Yea it’s often the case that felony defendants who are poor and have no fixed ties to the community end up getting denied bail. They may simply be unable to afford to post a bond. But I don’t know what the answer is to that. It would be silly to have a system where we charge people with a serious crime and say “Remember to come back for trial, pretty please.” Bail is meant to ensure they return. Pre-trial detention w/o bail is used for flight risks, people with a record of violent felonies, or people accused of serious crimes like murder.

    It’s not perfect, I know.

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  8. john personna says:

    Leaving aside fraud, we have this huge bet placed by a treasury primary broker-dealer.

    As I said in the other thread, some of us are given more special treatment than others.

    Early word is that this will have little fallout in the US, but had they needed a bailout, they’d be the kind of wired-in company making subsidized profits and then enjoying socialized losses.

    They are the 1%

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  9. john personna says:

    (But hey, they weren’t doing any solar so it’s OK.)

    Like or Dislike: Thumb up 2 Thumb down 0

  10. A voice from another precinct says:

    @Doug Mataconis: We could use a rule that would apply bail proportional to the accused’s ability to pay…in this case, bail would be set at, oh, maybe $400 million and the justice system would have proportionality that it doesn’t have now.

    That would run counter to another maxim of American life–that rich people are entitled to better everything because of their wealth–but what the hay? It would give people who don’t normally get it the chance to have their own “it sure sucks to be you” moment. The karmic value alone might be worth it.

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