Jon Corzine, Other MF Global Executives, Unlikely To Face Criminal Charges

Jon Corzine appears to be about to get a 'Get Out Of Jail Free" card.

It’s been quite awhile since we’ve heard anything about MF Global, the investment firm headed by former New Jersey Senator and Governor Jon Corzine that filed for bankruptcy protection last October after a collapse that resulted in the loss of billions of dollars of client funds that were diverted to cover risky internal trades. In November we had learned that Corzine apparently used influence to hold of SEC investigations of the company and we also learned that Corzine may have  had knowledge that client funds were being diverted to lend to a European affiliate that was failing due to a host of risky trades. Meanwhile, the lost client funds ending up totaling more than a billion dollars, and Corzine admitted he had no idea where that money had gone. Now, after a months-long investigation, it appears that nobody associated with the company will be facing criminal charges:

A criminal investigation into the collapse of the brokerage firm MF Global and the disappearance of about $1 billion in customer money is now heading into its final stage without charges expected against any top executives.

After 10 months of stitching together evidence on the firm’s demise, criminal investigators are concluding that chaos and porous risk controls at the firm, rather than fraud, allowed the money to disappear, according to people involved in the case.

The hurdles to building a criminal case were always high with MF Global, which filed for bankruptcy in October after a huge bet on European debt unnerved the market. But a lack of charges in the largest Wall Street blowup since 2008 is likely to fuel frustration with the government’s struggle to charge financial executives. Just a few individuals — none of them top Wall Street players — have been prosecuted for the risky acts that led to recent failures and billions of dollars in losses.

(…)

While the government’s findings would remove the darkest cloud looming over Mr. Corzine — the threat of criminal charges — the former Goldman Sachs chief is not yet in the clear. A bankruptcy trustee on Wednesday joined customers’ lawsuits against Mr. Corzine, and regulators are still considering civil enforcement actions, which could cost him millions of dollars or ban him from working on Wall Street.

Apparently, Corzine has maintained the stance that he had no idea what was being done with client funds, and while that’s certainly possible it certainly doesn’t seem believable, especially if he was lobbying the SEC to hold off investigations that would have uncovered what was going on while it was going on and possibly prevented the loss of a billion dollars of client money that never should have been diverted in the first place. However, if Federal authorities can’t prove that Corzine new what was going on, it would be impossible for them to bring charges against him.

Not everyone is buying it, though, especially not Jeffrey Carter at Points & Figures:

Second, ou could be totally cynical and say Corzine had enough money and political power to avoid prosecution where Russell Wasendorf didn’t. One poor sap tried to kill himself and will spend a lot of time in the pokey while the other will go off and start a hedge fund. It’s a political year, and Obama couldn’t afford yet another black eye by having one of his cronies go off to jail in an orange jumpsuit. Besides, if Corzine stays out of jail, just think of all the money he could raise. You think he is the only one in the grey area of finance? If you can buy your way out of jail with money and influence, there is a huge untapped market for political donations.

Third is the idea that prosecutors looked at all the evidence and decided that the case was too tough to prosecute. Convicting someone means, “beyond a reasonable doubt” and they may have felt that Corzine could have created enough reasonable doubt in the jury room to walk. I am betting on the third version.

After speaking with CCC lawyer James Koutoulas, and other pro traders I have no doubt that money was stolen from customer segregated funds. There is just too much smoking gun evidence. Anyone with experience in the industry would be able to sift through the legal machinations and malarky to understand the deception involved. If this were adjudicated in an Arbitration or Probable Cause Committee at an exchange, I am relatively confident that Corzine would be found guilty based on the circumstantial facts that I know.

That’s the way I see it as well, and I’m not the professional trader that Carter is. It seems implausible that an “obsessive trader” like Corzine, who apparently has spent the ten months or so since MF Global collapsed using his family’s wealth to trade in the market, would be unaware of what his own company was doing, the risks it was taking, and what had to be done to cover those risks when the deal started collapsing. Since the whole trade was so darn complicated, though, it’s likely difficult for anyone to prove exactly what happened. I’m sure there will be some MF Global patsy that will end up taking the fall, Carter points to the company’s Treasurer as the likely fall guy, but that won’t answer the question of what happened to a billion dollars and why client funds that were supposed to be sacrosanct were diverted to cover an internal deal that had  collapsed.

Don’t worry about Jon Corzine, though, he’ll be just fine. The New York Times says he’s thinking of starting up a Hedge Fun. Care to invest in it? Personally, I’m going to pass.

H/T: Ed Morrissey

FILED UNDER: Economics and Business, Law and the Courts, ,
Doug Mataconis
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. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Bill says:

    Par for the course. Another financial crook getting off scot free. Our justice system and politicians have been bought off. I mean it. Banks foreclose using fraudulent documents or foreclose on military members who are deployed overseas in violation of federal law, and not one single person or company has been prosecuted for the latter when the proof of guilt is totally damning. As I said earlier- Our justice system and politicians have been paid off.

  2. Tsar Nicholas says:

    Criminal fraud is easy to charge, but real f’n tough to prove, so the presumed lack of charges against Corzine from a pure legal standpoint are not all that surprising much less shocking. That said, however, you’d have to be as naive as a babe in the woods not to connect the obvious political dots. Speaking of which, the Tammany Hall element of Corzine’s style of money machine Democrat politics nearly is too much irony to endure. Of course the Democrat mass media won’t be able even to grasp the irony, however.

  3. Moosebreath says:

    “Jon Corzine appears to be about to get a ‘Get Out Of Jail Free” card.”

    It’s called being a member of the 1%.

  4. wr says:

    Doug’s right. If only there was a group of people who were trying to call attention to the fact that we have completely different standards of justice for the rich and for everyone else.

    Oh, but not those people. They remind us of people Doug didn’t like in college, so clearly they can’t be right about anything.

  5. @Tsar Nicholas:

    Then go for criminal negligence. Even if he didn’t know what’s going on, he had a fiduciary duty and should have known.

  6. Peacewood says:

    @Stormy Dragon: I imagine proving knowledge of something would be equally difficult in court — else the prosecutors would have been all over it.

  7. Woody says:

    This story, combined with AG Holder weaseling out of prosecuting Goldman Sachs for fraud (or contempt of Congress, for that matter) is of a piece with what Doug wrote about yesterday – the Progressive Insurance story that featured the insurance company’s lawyers assisting the defense.

    Our institutions have become firmly corrupted, a bit like our tax rates. There is an effective rate, which are imposed on upper middle-to-low income people with a few benefits; and a divine rate, filled with exotic exceptions, forgiveness programs, and wondrous loopholes for the top percent.

    Connected? The Treasury will fine your firm (which never admits guilt) pennies. Not connected? Recissions for you, bub.

    I enjoyed Goodfellas, but I never believed it should be a model for society.

  8. Dave Schuler says:

    Under Sarbanes-Oxley, legislation that Corzine championed, claiming that he didn’t know what was happening is a path foreclosed to him.

    If you wanted proof positive that Sarb-Ox is primarily a club that can be used to beat companies and individuals that aren’t politically connected with, you’ve got it here.

  9. @Woody:

    There is nothing remotely corrupt about what happened in the Progressive matter. As I explained in my numerous comments to that post.

  10. anjin-san says:

    If a kid in the ghetto steals $50, let’s lock him up and throw away the key. Corzine is probably busy planning a trip to Tuscany.

  11. The Q says:

    “That said, however, you’d have to be as naive as a babe in the woods not to connect the obvious political dots…..’

    “Obama’s former campaign funders on Wall Street turn against him” LA Times

    “Wall Street turning cold shoulder to Obama” WSJ

    “Goldman Sachs Leads Split With Obama, as GE Jilts Him Too” Bloomberg News

    To paraphrase Matt Damon in Good Will Hunting, “How about them dots”…..

    Some people just won’t grasp the irony…..

  12. Scott says:

    @Tsar Nicholas: It doesn’t matter whether you’re a Democrat or a Republican if you have money. Money is a political party of its own.

  13. Rafer Janders says:

    Doug, based on your own self-imposed standard yesterday of “Is it legal under Ohio law? If so, then who am I to tell Ohio how to run their elections?”, I have to ask:

    Is what MF Global did not criminal under federal law? If so, then who are you to tell the SEC and DOJ how to run their investigations?

  14. If client funds were diverted that’s fraud, if Corzine’s guilty then he should be charged. The problem here seems to be an inability to prove what happened, not that the activity in question might be legal

  15. rudderpedals says:

    Had MF Global’s bankruptcy been filed as a broker chapter 7 liquidation the customer losses would have been much less but MFG’s big creditors would have had to cough up $100+ million preference payments to make it up. Yves Smith points to this interesting post from a regulator/critic.

    Little guy 0
    1%ers 1

  16. george says:

    @Moosebreath:

    “Jon Corzine appears to be about to get a ‘Get Out Of Jail Free” card.”

    It’s called being a member of the 1%.

    Actually most of the 1% would be charged and thrown away for this. You mean being a member of the 0.001%.

  17. Rafer Janders says:

    @Doug Mataconis:

    Yes, but again gettting back to the Voter ID discussion yesterday, you said then “After a two week long trial, Judge Simpson found no evidence of discrimination.”

    So here, after a 10 month long investigation, the DOJ and SEC found no evidence of criminality.

    It’s unclear to me why you find the one trial judge’s finding dispositive in a way you do not for the findings of a legion of expert investigators and prosecutors.

  18. Just Me says:

    Guess it helps to be a wealthy democrat when funds go missing from your company.

    It definitely pays to be rich when you want to commit a crime.

  19. Dean says:

    In November we had learned that Corzine apparently used influence to hold of SEC investigations of the company and we also learned that Corzine may have had knowledge that client funds were being diverted to lend to a European affiliate that was failing due to a host of risky trades. Meanwhile, the lost client funds ending up totaling more than a billion dollars, and Corzine admitted he had no idea where that money had gone. Now, after a months-long investigation, it appears that nobody associated with the company will be facing criminal charges.

    So, Corzine “used influence” to hold off (sic) SEC investigations, he may have known of the illegal co-mingling of funds, MF Global had losses totaling more than a billion dollars and the DOJ can’t charge anyone with a crime?

    Is the DOJ really that incompentent? This should be a near-open and shut case. Same way with Goldman Sachs. If nothing else keep the pressure on to keep the lawyers from MF so busy it costs them millions of dollars in legal costs.

    Otherwise, I think it’s time to replace the AG.

  20. Jenos Idanian #13 says:

    Slight correction: That should be “Major Obama bundler, advisor, and rumored one-time candidate for Secretary of the Treasury Jon Corzine not to be prosecuted under law he co-authored as a Senator.”

    Of course Corzine isn’t going to get prosecuted under Sarbanes-Oxley law. For one, there’d be a conflict of interest — I’d want to see him called as an expert witness as to how the law’s co-author saw MF Global’s CEO’s conduct. But more importantly, he’s too close (personally, financially, and politically) to too many important people — Geithner, Holder, and Obama. There’s no way they’re going to let Jon get treated like… well, the criminal he is.

  21. Jenos Idanian #13 says:

    @Dean: Is the DOJ really that incompentent?

    Normally, I’d dismiss that statement as hyperbole. However, under Holder, that’s actually a fairly plausible defense for them…

  22. Rob in CT says:

    One set of rules for most of us. An entirely different set for those high enough up the totem pole.

    If it wasn’t for the fact that *every* damned investigation into financial malfeasance ends up this way (“mistakes were made, but nobody actually broke the law”) I might be willing to extend some benefit of the doubt to the “10-month investigation.” As things stand, no. I simply don’t believe it. Corzine is a crook, and he’s being let off. Simple as that.

  23. Jenos Idanian #13 says:

    Good lord, it gets even more blatant:

    In the most telling indication yet that the MF Global investigation is winding down, federal authorities are seeking to interview the former chief of the firm, Jon S. Corzine, next month, according to the people involved in the case. Authorities hope that Mr. Corzine, who is expected to accept the invitation, will shed light on the actions of other employees at MF Global.

    Ten months of investigating, and they’re only now trying to interview Corzine?

    Obama and Holder and Geithner really earned all that money Corzine bundled.

  24. Rob in CT says:

    If I actually thought voting Team Red would change that in any way, Jenos, I’d consider it (loathesome as I find their ideology). But there is absolutely no reason to believe that. None.

    I can and will vote in primaries and try to pick the less corrupt candidate whenever possible (which is to say whenever it’s not a case of “possible corrupt vs. total kook”). Best I can do at this point. I suggest the same for everyone, Republican and Democrat alike.

  25. The Q says:

    Not only are there two sets of standards, one for the economic royalists and the other for the deadbeats of the middle class, but apparently on this blog, there is another subset of standards.

    1.) for democrats who happen to be scoundrels and get the scathing diatribes written about them by the usual wingnut faction here.

    And

    2.) the complete abeyance by above mentioned wingnuts of any condemnation of the corrupt congress for failing to close huge loopholes and more strict regulation.

  26. wr says:

    @Jenos Idanian #13: Hey, stupid,

    The reason they’re “only trying to interview Corzine now” is because the way these investigations work, they start at the bottom collecting information and work their way up. In fact, it’s considered evidence that they’re not going after Corzine that they’re willing to interview him now.

    I think Corzine should be thrown in jail, along with half of Goldman Sachs and the guys laundering money for Iran.

    But the fact that there are crooks on Wall Street doesn’t make you any less ignorant about, well, everything in the world, you sanctimonious, tedious twit.

    In fact, I’d say jail is too good for Corzine. He should be locked in a cell with you for twenty years. That would be proper punishment.

  27. @Peacewood:

    Hence the criminal negligence charge. Negligence doesn’t require proving that he DID know something, only that he SHOULD have known something and that he was breaching a legal duty by not knowing.

  28. bandit says:

    At least Eric Holder stays bought.

  29. 11B40 says:

    Greetings:

    What this immorality play needs is a visit from the Ghost of Scooter Libby.

  30. walt moffett says:

    the civil suits should be entertaining

  31. Eric Florack says:

    Being a Democrat means immunity from consequences of your criminal acts.

    Scooter Libby is so far, unavailable for comment.

  32. Eric Florack says:

    @11B40: Saw yr comment after posting my own.
    Good show.