A puzzling aspect has emerged in the coverage of the Commodity Futures Trading Commission’s (CFTC) charges in the MF Global debacle. Certain columns in major media sources are painting it as an issue over how far can a regulator go in assigning blame to a CEO for the misdeeds of staff.
It is a scholarly endeavor far removed from the facts of this particular case. I don’t understand how someone can decide to comment on a case without taking a look at the backstory.
We touched on this last week and saw another example yesterday in the New York Times’ Dealbook webpage. The column by Wayne State University Law Professor Peter J. Henning is comically titled, “Determining Corzine’s Role in the Demise of MF Global.”
I don’t think that Professor Henning meant this to be funny and an examination of, to what extent should the head of a firm be responsible for the misdeeds of subordinates is a legitimate area of study. However, this is not the case to use. Most of the 50,000 former customers of MF Global, many of whom were put out of business when they could not access their money that by law should have been segregated from MF Global proprietary capital, know Mr. Corzine’s role. As does the CFTC, the SIPA trustee for MF Global Inc., the trustee for MF Global Holdings as well as numerous Congressional committees examining the case.
Henning wrote, “The issue will be whether the CFTC can show that a chief executive should be held responsible for the conduct of an employee fairly well removed from his direct supervision.”
This statement seems to miss the part where the key $175 million transfer out of a segregated customer account to cover overdrafts at JPMorgan by Edith O’Brien was made “Per [Jon Corzine’s] direct instruction.”
That doesn’t seem so well removed to me. And Henning misses the key point of the case, which is that Corzine himself is the MF Global employee who lacked supervision.
The best recap I have seen regarding the CFTC charges was done By John Roe co-founder of the Commodity Customer Coalition. This is not a surprise because if there are any heroes in this debacle it is Roe and fellow CCC founder James Koutoulas. They pressured SIPC Trustee James Giddens to make more timely distributions of customer funds and aggressively advocated for the faithful adherence to Commodity Exchange Act (CEA) customer segregation rules when other industry insiders were silent.
Roe makes a strong case that crimes were committed. He points to areas in the recorded conversations of Corzine (and others) that seem to be at odds with his Congressional testimony. While lawyers will need to parse the semantics of specific statements, Corzine’s seeming incredulousness to the fact that funds were missing up against his aggressive advocating for using excess customer segregated funds and customer secure funds to meet margin needs in the final days of MF Global is clearly dishonest if not outright perjury.
The world of futures is often a mystery to people outside of it. Only when a case such as MF Global explodes on the scene does the larger media world take notice. When they get things wrong, those of us inside the industry tend to chuckle. But MF Global is not a laughing matter and it is important that folks understand what happened here. If the appropriate blame is not placed where it belongs then the industry itself will be held solely responsible.