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Governor Corzine Case at MF Global Shows Sarbanes Oxley Failure

John Powers 18 January 2017 No Comment

Former Demcoratic New Jersey Governor and Senator, Jon Corzine has settled civil claims against him and his firm MF Global for misuse of customer funds.  Corzine will pay a $5 Million fine and be permanently banned from trading in Commodity Futures Trading Commission regulated products.  Corzine was not charged with criminal wrongdoing, and the five-year statute of limitations has run out on criminal charges for Wire and Financial Fraud.

Corzine has been a long time favorite of the Chicago Daily Observer, reporting a long string of free-passes to the political fundraiser and insider.  Most significantly, Corzine directed a strategy of using $1.6 Billion of customer money to fund his European Sovereign debt investment strategy, without the approval of his customers, including using Federal Reserve Wires to transfer money between banks accounts.

From Streetwise Professor

Corzine’s other defense is that MF Global’s failure was due in large part to its completely deficient accounting and control systems.  But that throws him into the Sarbanes-Oxley fire, for he signed off on the soundness of those systems.

Corzine tries to have it both ways. He wants off the hook for his incompetence in controlling customer money and he denied using customer money purposely to leverage and cover his investments.  Has to be one or the other, and both are illegal.  Either he knows about the mis-use of funds, or he should have.

batgirl

Jeff Carter at Points and Figures has also followed this issue for many years notes the damage that Corzine did to the industry and the ineffective nature of proposed regulatory fixes

It wasn’t a lack of rules that allowed Corzine to steal from customer accounts. It was a lack of ethics on the part of one person. Corzine stole the money to margin bad trades he made through his MF account. He invested in European bonds, chasing yield and seeking to make big proprietary profits for MF Global. Their earnings were under huge pressure because the operations of the company weren’t particularly efficient, and the yields on US Treasury debt are so low that they weren’t able to earn a projected return on excess deposits.

Corzine went on to be a fundraiser for Hillary Clinton, along with his wife, acting as a National Finance Council Co-Chair.  Gov. Corzine is still very much involved in US Politics, and has been reported to be forming new investment vechicles which bypass the stated ban.  Barring some extension of the statute of limitations, Corzines will not be incarcerated for his actions involving MF Global.

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Though somewhat complex to prove, stealing money from customers is illegal.  Wire fraud, also illegal, is simple to prove.  Someone at MF Global used the Federal wire system to transfer money illegally.  Per the Sarbannes-Oxley Act of 2002 (SOX), Corporate Executives, such as Jon Corzine, are held responsible when various crimes are committed at their firms.  It would be a real stretch to think that such a huge amount of money was being shifted around MF Global, without the knowledge of their executive team.

Given these blatantly abusive circumstances, SOX is ineffective in protecting customer assets, and useless against corporate fraud.  This legislation only has succeeded in killing the IPO market and stifling corporate finance.  Legitimate businesses are (rightly) fearful of taking the risk of being criminally charged for SOX violations, while massive frauds get off scot-free.

Here’s Governor Corzine, describing his compliance with SOX

As the chief executive officer of MF Global, I ultimately had overall responsibility for the firm. I did not, however, generally involve myself in the mechanics of the clearing and settlement of trades, or in the movement of cash and collateral. Nor was I an expert on the complicated rules and regulations governing the various different operating businesses that comprised MF Global. I had little expertise or experience in those operational aspects of the business.

This is the and University of Chicago MBA, former co-chairman of Goldman Sachs, a US Senator and Governor can plead ignorance of financial regulation, and get away with it.

President-elect Trump has been called on to dismantle many financial regulations.  In the case of Sarbannes Oxley stands out as a complete failure in preventing the abuse of customer deposits.  The fraud regulations are costly for compliance, redundant with other laws, and unenforced when it actually matters.  The repeal of Sarbannes Oxley should be a priority for the new President to restore confidence in our financial systems.

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John Powers is a founder of the Chicago Daily Observer

Yvonne Craig (as Batgirl) and  Jon Corzine both are from the Taylorville, Illinois area

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