Regulator: MF Global shifted millions last week (may have tried to avoid detection)

Yahoo ^ | 11/2/11 | Daniel Wagner - AP

[NormsRevenge]

WASHINGTON (AP) -- MF Global, Jon Corzine's embattled securities firm, moved millions in missing client funds last week and tried to avoid detection, a regulator said Wednesday.

MF apparently made "substantial transfers" of customer money after an on-site audit last week, said the regulator, CME Group Inc.

CME is a private company that oversees firms such as MF Global on behalf of federal regulators. It also operates exchanges where MF Global traded investments.

The money was moved in a way that "may have been designed to avoid detection," CME said in a statement.

MF Global filed for bankruptcy protection Monday after a disastrous bet on European debt. It was the eight-biggest U.S. bankruptcy and the first major Wall Street firm to fail because of bets on European debt.

CME's statement suggests that MF Global executives rushed hundreds of millions out of client accounts as the company slid toward bankruptcy last week. The company acknowledged that the money was missing early Monday morning.

...

MF Global's failure is the latest public setback for Corzine, who was head of Goldman Sachs and governor of New Jersey before joining the company. He had hoped to build MF Global from a brokerage into an investment bank.

Under Corzine's leadership, MF Global started making more trades for its own profit, a practice known as proprietary trading. Those bad trades triggered its worst-ever quarterly loss.

MF Global's credit was downgraded to junk status after it acknowledged the loss last week. Its stock plunged, and business partners required it to put up more money to guarantee its bets. The result was a cash crunch that forced MF Global into bankruptcy.

[NormsRevenge]

Key-man Corzine unlocks value for MF Global
International Business Times

NEW YORK, Aug 4 (IFR) - Since spinning off from Man Group plc in 2007, MF Global has had a tough time of it. But after reporting its first profitable quarter in a year and pricing a difficult bond offering, the broker-dealer looks on its way to better days, thanks in part to one key appointment last year.

Almost immediately after naming former New Jersey governor and Goldman Sachs chief Jon Corzine to be CEO in March 2010, MF Global started to show signs of improvement. Costs were cut and revenues were increased, bringing profits closer to hand.

This fact was not lost on potential bond investors, who -- before the key appointment -- had made it prohibitively expensive for MF Global to raise funds in the high-grade market.

To put investors at ease this time around MF Global took an unusual tack in marketing its US$325m offering of five-year notes on Tuesday. Twice bitten by failed attempts, the firm wasn't too shy to give investors what they wanted.

The bond agreement includes a key-man covenant. Should Corzine depart his executive post before July 1 2013 as the result of being appointed to a federal position by the President of the US, the interest rate on the notes will increase by one percentage point.

While that will only give investors another US$3.25m collectively, its inclusion in the filing made a difference. It's important to note that investors won't be compensated if the chief exits for any other reason. President Obama, investors are aware, is reportedly considering Corzine for Treasury Secretary.

[vbmoneyspender]

Corzine - a member of the party which must not be named.

[Steely Tom]

Corzine - a member of the party which must not be named.

Yup. A whole big story about a guy who was a Senator, a Governor, and a major financial backer of the party currently in power in the United States, and not a single, solitary mention of the name of that party in the entire article.

[saintgermaine]

For some strange reason, after reading this, what crossed my mind was the old adage “There is no honor amongst thieves” And we sure have been blessed with them.

[6SJ7]

President Obama, investors are aware, is reportedly considering Corzine for Treasury Secretary.

This, as of August. Wonder if Corzine can do an equally good job "unlocking" value for the US?

[steveab]

Corzine Walks with $12 million. Only in America can someone run a company into the ground, lose million of investor’s money and walk away with $12 million. What’s wrong with this picture. Why wasn’t Corzine money on the line?

[New Jersey Realist]

If Jon doesn’t go to jail, Obummer will hire him.

[Liz]

NOTE The MF Global theft has been upgraded to $1.5 BILLION —-double the original $700 million figure.

LAUGH BREAK Reports say client monies were illegally transferred out of MF Global accounts in a manner “that evaded detection”………....watta relief, nice to know Corzine and cronies did telegraph their illegal activities. LOL.

There’s so many ways Wall Street thieves sneak money from clients—WS knows how to make money disappear faster than a cream puff at a Weight Watcher weigh-in.

L/E should checkout three corporations Corzine registered in Delaware—known as a super-secret financial haven—more secretive than Switzerland.

Corzine also traveled to Israel several times as governor—many observers wondered why, since there was no official reason for JC to be there. Israel is the only place in the world where one can debark, go to a bank with a suitcase full of cash, and no one asks where it came from or if taxes were paid on it.

Madoff musta had a neat way to steal clients’ money—-the NYC Lipstick Building housing his Ponzi operation was owned by Israel. Monies might be laundered through pumped up lease rates and other bldg fees to the owners, that were then transferred to Israeli banks.

Madoff also made a nice campaign contribution to Corzine.

[AD from SpringBay]

So, if someone works at this firm does that mean they are an MF’er? That would make Corzine one of the biggest MF’ers in the country.

[mewzilla]

Wow. But the Feebies are investigating. Everyone feel better now?

[Liz]

LOL——yup, I, myself, am breathing a sigh of relief——those Feebs really know how to investigate cases of fraud. LOL.

[mewzilla]

What I’d like to know: What did the admin, regulators, and ratings agencies know and when did they know it. Oh, and the Fed. Must not forget the Fed.

[Liz]

Five minutes with MF Global’s books-—and I’ll tell the feds in exquisite detail exactly where the missing money is.

[Condor51]

'series', I hope he's taken to the Mat by the Feds and spends a veeery long time in prison. He'll make Bubba and Tyrone a good 'wife'. They'll pass him around to their Lifer friends for any favors owed (snicker).

['Fitz' should be brought in to prosecute the sleaze-ball. He'll go after Corzine until he makes him cry for mercy.]

[CutePuppy]

Henry "Hank" Paulson, undoubtedly, saved Goldman Sachs when he wrested control from then CEO John Corzine in 1999. Corzine lost the power struggle and left GS just before it issued IPO and went public. Corzine made more than $400M from the GS public offering.

MF Global Holdings Ltd. (NYSE: MF) has sales of $2.2B and has more than 2,800 employees.
Commissions represent 65%, Earned Interest is 25% of sales.
Top competitors are Goldman Sachs, Newedge, R.J. O'Brien, Citigroup, JPMorgan, Morgan Stanley.

In 2007 MF Global was spun off from Man Group, UK hedge fund manager first established as a commodities (sugar and coffee) trading and brokerage firm in 1783. Man Group remained MF Global's largest shareholder (about 20%) until 2009, when it sold its remaining interest in the company. Currently, eight institutional investors own a majority of MF Global's shares, holding more than 5% each; FMR (Fidelity Management and Research) is the largest shareholder, at more than 10%.

MF Global brokerage provides trade execution, clearing and settlement services for cash, equity, derivatives, commodities, and fixed-income products on more than 70 exchanges and over the counter. MF also makes markets for fixed-income instruments and conducts equity research. Clients include institutional and individual investors, corporations, professional traders, hedge funds, and asset managers. MFGH handles nearly five million contracts per day, on average. MF Global has more than ten offices in North America, Europe, Asia and Australia.

Due to current economic downturn, the company saw a reduction in trading volume, and was also directly affected by lower interest rates and smaller spreads in the commodities and foreign exchange markets.

Kevin Davis stepped down from MF Global in 2008 after serving 10 years as CEO. He was succeeded on an interim basis by president Bernard Dan, who held the position for a little over a year before announcing his retirement. Jon Corzine, the former governor of New Jersey (and before that, the CEO of Goldman Sachs) replaced Dan in 2010.

As part of Corzine's effort to diversify and reshape MF Global from brokerage into investment and trading areas, the company arranged to buy Washington Research Group, which tracks US policy-making, to enhance its trading and research operations.

Corzine was considered essential for MF success and its ability to attract clients and funds. When the rumors surfaced recently about his possible appointment by Obama to the post of Treasury Secretary, replacing Tim Geithner, the firm had to come up with a scheme to create an inexpensive key-man insurance with the specific clause guaranteeing his stay with the firm.

Corzine seems to have been trying to rehabilitate himself and prove that he can build another "mini" Goldman Sachs. It was his drive to aggressively remake MF brokerage business into investment / trading firm that directly led to excessive leverage and quick demise of centuries-old brokerage firm.

He should have known better. In 1998 Corzine was a part of the expert group that was summoned to help develop a response and the strategy to deal with massive leveraged trade losses by the hedge fund Long Term Capital Management (LTCM) and unwind the interest rate and currency derivatives trades and the firm itself. LTCM had made highly leveraged (50:1 - 100:1, by some accounts) bets on currencies, particularly Russian ruble, that went bad during financial "Asian contagion" in 1997-1998.

Yet the generally safe "repo-to-maturity", trades that MF was executing for its own account, turned sour on both solvency risk (potential of default on its massive bet on some Eurobonds, just like AIGFP underwriting CDSs) and on liquidity risk (need for collateral, which MF didn't have because it made much more money through excessive leverage, just like LTCM).

Corzine got hoisted on his own petard. He got caught simultaneously in AIGFP and LTCM mistakes.

From What happened at MF Global - Reuters blog, 2011 November 01, by Felix Salmon

MF Global made a massive leveraged bet on European debt, and then it died. That seems to be the conventional wisdom at this point, but it's a bit oversimplified. A more accurate story would be to say that MF Global got involved in a complex liquidity-management trade, and that it didn't have risk managers with the power or ability to cap the trade before it got too big.

Izabella Kaminska has the wonky details of MF Global's repo-to-maturity trade. It's not easy to follow, but here's the general gist. MF Global buys a bunch of European debt. The bank's explanation of the trade says that the purchases were “entered into repurchase and reverse repurchase transactions to maturity, which are accounted for as sales”. This is the repo-to-maturity trade. In order to understand what that means, you first need to understand that banks like MF Global used to do nearly all their borrowing on an unsecured basis. But in recent years, that's changed: nowadays, if you want to borrow billions of dollars for what MF Global calls “client facilitation and principal activities”, then you're going to need to put up collateral. ..... < snip >

..... There were two risks with this trade. The first risk was that the European sovereigns would default, and that MF Global then wouldn't have the resources to pay back in full the money it had borrowed. That was a solvency risk, but MF Global had a hedge there -- a $1.3 billion short position in French government bonds.

And then there was the liquidity risk. As the MF Global slide notes, “MF Global retains obligation to post margin”. If the people lending money to MF Global started getting worried, they could require MF Global to put up more money.

And that seems to be exactly what happened. ..... < snip >

From long, but fascinating article:
Did accounting help sink Corzine's MF Global? - Reuters blog, by Bethany McLean, 2011 November 01

On Monday morning, MF Global, the global brokerage for commodities and derivatives, filed for bankruptcy. The firm's roots go back over two centuries, but in less than two years under CEO Jon Corzine, whose stellar resume includes serving as the chairman of Goldman Sachs, as New Jersey's U.S. Senator, and as New Jersey's governor, MF Global collapsed, after buying an enormous amount of European sovereign debt. The instant wisdom is that he made a big bet as part of his plan to transform MF Global into a firm like Goldman Sachs, which executes trades on behalf of its clients, and also puts its own money at stake. Although the size of the wager has received a great deal of scrutiny, the accounting and the disclosure surrounding it have not–and may have played a role in the firm's demise.

At the root of MF Global's current predicament was a simple problem: the profits in its core business had declined rapidly. That core business was straightforward, even pedestrian; what the firm calls in filings a “significant portion" of total revenue came from the interest it generated by investing the cash clients had in their accounts in higher yielding assets and capturing the spread between that return and what was paid out to clients. As interest rates declined sharply in recent years, so did MF Global's net interest income, from $1.8 billion in its fiscal 2007 second quarter to just $113 million four years later. MF Global's stock, which sold for over $30 a share in late 2007, couldn't climb above $10 by 2009.

Enter Corzine in the spring of 2010, who had just lost his job as New Jersey's governor to Chris Christie. He was brought in by his old pal and former Goldman partner Chris Flowers, whose firm had invested in MF Global. Fairly quickly, Corzine accumulated a massive net long sovereign debt position that eventually totaled $6.3 billion, or five times the company's tangible common equity as of the end of its fiscal second quarter. I'm told Corzine's move was highly controversial within the firm. But no one overruled him, maybe because after all, he was Jon Corzine. In a mark of just how much Corzine mattered to the market, in early August, MF Global filed a preliminary prospectus for a bond deal, in which the firm promised to pay investors an extra 1% if Corzine was appointed to a “federal position by the President of the United States" and left MF Global.

Buying European sovereign debt may not have been just a bet that the bonds of Italy, Spain, Belgium, Portugal and Ireland would prove attractive. An additional allure may have been the way MF Global paid for the purchases, and thereby, the way the accounting worked. MF Global financed these purchases, as its filings note, using something called “repo-to-maturity." That means the bonds themselves were used as the collateral for a loan, and MF Global earned the spread between the rate on the bonds, and the rate it paid its repo counterparty, presumably another Wall Street firm. The bonds matured on the same day the financing did.

The key part is that for accounting purposes, MF Global's filings say the transaction was treated as a sale. ..... < snip >

[stephenjohnbanker]

” Corzine also traveled to Israel several times as governor—many observers wondered why, since there was no official reason for JC to be there. Israel is the only place in the world where one can debark, go to a bank with a suitcase full of cash, and no one asks where it came from or if taxes were paid on it.

Madoff musta had a neat way to steal clients’ money—-the NYC Lipstick Building housing his Ponzi operation was owned by Israel. Monies might be laundered through pumped up lease rates and other bldg fees to the owners, that were then transferred to Israeli banks.”

Liz, you never cease to amaze me with your financial “ street brains “

Thanks for the info.

[Liz]

........in the spring of 2010, Corzine had just lost reelection despite massive help from Obama/Biden----who campaigned in NJ several times----the Obama WH was put at JC's disposal. Obama starred in JC ads that ran constantly on on costly NY media---secret rallies were held to marshall the illegal vote and a "Peruvian Pac" endorsed Corzio. Corzio bragged he had 20,000 union people on the ground to get out the vote in a dominant Dem-registered state and spent some $60 Million of his own money on the race.

================================================

Corzine was brought in to head MF Global by his W/S crony and ex-Goldman partner Chris Flowers (Flowers' firm had invested in MF Global).

More on Corzine/Flowers: Flowers oversaw Gov/Sen Corzine's "blind trust" (belly laugh is appropriate here). US Sen Corzine used his federal office to vote in a tax break for a Japanese bank in which he was invested----Flowers was the one that negotiated the bank deal. "Financial genius" Corzio told inquiring reporters that "he had no idea" the bill benefited him.

(waiting for hysterical laughter to die down)

===========================================

As Governor, Corzio appointed G/S buddy, Brad Abelow, as state Treasurer----the two controlled ALL NJ assets. Other WS types were appointed to key govt jobs.

Corz/Abelow then formed an investment vehicle----later saying they had no idea it was illegal for govt officials to do so.

During Corzio's watch, billions of state assets disappeared and several state money pots went bankrupt, with no explanation as to why---the $82 billion state pension fund dropped some 25% (that they know of).

[musicman]

Just A Reminder
Please Don't Forget
To Donate To FR
This Quarter

Sponsoring FReepers are contributing
$10 Each time a New Monthly Donor signs up!
Get more bang for your FR buck!
Click Here To Sign Up Now!

[stephenjohnbanker]

” -Flowers was the one that negotiated the bank deal. “Financial genius” Corzio told inquiring reporters that “he had no idea” the bill benefited him.

(waiting for hysterical laughter to die down) “

Sounds like Pelosi and the “Visa” stock : )