Market Matters Blog

Two years after MF Global declared bankruptcy, customers are on the verge of being made whole and regulatory agencies have taken steps to make the system safer (even though criticisms of CFTC's recent rule abound).

Yet Jon Corzine is still a free man. He's been charged in civil court, but no criminal actions have been filed. That's the point that, I think, angers most people who cleared trades through MF Global. Once prominent politician, many believe Corzine perjured himself in testimony before Congress in the months following MF Global's bankruptcy and violated the Commodity Exchange Act.

Congressional leaders have called on Attorney General Eric Holder to renew the criminal investigation of Corzine and widen the scope to possible perjury charges, based on a CFTC report that seems to directly contradict Corzine's statements that he did not know about or authorize the transfer of segregated customer funds.

The following few quotes are from the CFTC's report. It's a transcript of a recorded telephone conversation between Corzine and an MF Global employee.

"On the afternoon of October 27, Corzine spoke to Employee #1 on a recorded telephone line to strategize how they could use customer segregated funds to induce JPM to clear MF Global's trades more quickly:

Corzine: We have a money management account at Chase, if my memory serves me

Employee #1: Yeah, it's the JP Morgan Trust account, but that's cash seg for clients -- it has nothing to do with greasing our wheels for Chase to move.

Corzine: I understand but you put it in a tri-party, and then once the securities have started moving, then you move it back to the, um --this is the same thing we did last night, they left it in the tri-party, the seg money."

The other unresolved issue around MF Global: why aren't commodity accounts insured? Equities trading accounts are.

On CNBC earlier today, James Koutoulas, one of the founders of the Commodity Customer Coalition, summed up the situation incredibly well. He said that in the past two years, CFTC has taken enforcement action against 10 futures commission merchants (out of the 69 in existence) because of issues with how they handle segregated customer funds.

The CFTC's residual interest rule -- which it approved yesterday with a phase-in over five years -- disappointed many and raised concerns about the extra expenses for hedgers.

Koutoulas's said the CFTC passed a residual interest rule "that required customers to double down on this FCM system that doesn't have insurance and that 1 in 7 FCMs have been fined for misconduct just in the last 2 years. It's ludicrous, and there needs to be insurance for customers in the futures markets." (You can watch Koutoulas's clip here: http://cnb.cx/…)

The industry's been studying options for insurance, but it appears to be a costly proposition. But at least that conversation's going somewhere. Last year on MF Global's anniversary, I wrote about uncertainty and distrust in how the market works and is regulated. In the year ahead, I think the conversation's going to be on insurance, and on the simmering frustration with the Justice Department.

(ES/CZ)

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