Thursday, November 03, 2011

The Corzine Caper

Corzine and Obama - joined at the wrist?
Does this sound familiar? - A high risk "bet the company" culture, huge leverage, "smarter than you" corporate arrogance, regulators asleep at the switch, a"rock star" CEO cozying up to the President of the United States, questionable accounting, bankruptcy, investigations, and criminal prosecutions.

How about Enron, "Kenny-Boy" Lay, and the Bush administration?
How about MF Global, "Jonny" Corzine, and the Obama administration?

Most of the mainstream media coverage of the MF Global failure has focused on the leverage and the highly speculative bad business bets made by CEO Jon Corzine. But with the SEC and FBI looking under the covers, Dan Primack of Fortune Magazine goes where the NYT fears to tread:
Is Jon Corzine going to jail?
By Dan Primack November 2, 2011: 2:57 PM ET

This may just be the beginning of Jon Corzine's troubles.

Jon Corzine is unlikely to ever again work in finance, after overseeing this week's collapse of brokerage MF Global. But he may have much bigger things to worry about. Like going to jail.

Federal officials reportedly say that MF Global (MFGLQ) has admitted to transferring hundreds of millions of dollars of client money into company accounts, perhaps to cover investment losses. This is on top of Craig Donohue, CEO of the Chicago Mercantile Exchange, saying that MF Global wasn't "in compliance" with the CMOE's cash management regulations.

"The first thing you learn on the first day of your first financial job is that client money is not to be mixed with corporate money," says a source familiar with MF Global. "Nobody could have done this by accident."...

"If this was a former Republican senator and governor, the press would be all over it," argues a GOP-affiliated investment professional. "They'd be talking about how it is emblematic of corruption on Wall Street. But because it's a Democrat, everyone keeps focusing on bad investments rather than the possibility of fraud."
CNBC talks to Primack about his column:

Curiouser and curiouser. As mentioned in a comment on Tully's recent post:

Dipping into the client's funds to backstop the firm's heavily leveraged and high risk bets on European debt is about as serious as it gets. We're talking - Federal Felony / Criminal Fraud / Grand Theft / Go To Jail / Do Not Pass Go / Do Not Collect $200 / Throw Away The Key / - that kind of serious.

This is where the special relationship with the President and the related special provisions of the "Investment Grade" debt offerings from MF Global only two months ago get interesting:
"The futures broker sold $325 million of five-year unsecured notes, the company said today in a statement. The notes will pay an extra percentage point of interest if Corzine is named to a federal post and confirmed by the Senate before July 2013, New York-based MF Global said yesterday in a regulatory filing.

“That seems crazy,” said William Larkin, a fixed-income portfolio manager who oversees $500 million at Cabot Money Management Inc. in Salem, Massachusetts, and has 22 years of experience. “I’ve never heard of something like this.”...

A Democrat, Corzine is among the biggest fundraisers for President Barack Obama’s 2012 re-election campaign. He has been the subject of speculation about administration jobs such as Treasury secretary or White House economic adviser, said Christopher Allen, an analyst at Evercore Partners Inc. in New York...

Corzine’s employment contract is written with a view to future government service. It stipulates that he’ll be paid his $1.5 million retention bonus on a pro rata basis if he leaves to work for any “U.S. federal, state or local government” before March 31, 2014."
I wonder if Corzine's retention bonus and the bond interest kicker will be invoked if it turns out that Corzine's federal employment is working in the laundry of a Federal Prison?

Meh - probably not worth worrying about that "Investment Grade" Bond Interest kicker. These bonds (sold last August and having yet to pay a coupon) were trading at 40 cents to the dollar on Monday. BTW - Thank you S&P for another great call. In the same time frame that S&P was downgrading US Debt early this summer, they rated this MF Global bond offering "Investment Grade". U.S. Treasuries have increased in value since that rating. The MF Global bonds? Not so much.

The Bush Justice Department prosecuted and convicted Ken Lay. Let's see what happens to Corzine.

UPDATE: 11-5-11
Jon Corzine resigned, lawyered up, and as of today, the missing money is still missing.

1 comment:

Tully said...

It gets even better. News now is that Corzine intervened with the feds to try and get the regs about co-minging client funds suspended so that MF could use client money as collateral for their own debts. And that the CFTC was downright helpful in trying to diddle the regs.

Damn reality, always spoiling the narrative. Hope! Change!