Corzine’s Crime of the Century
How a top Obama bundler broke a never-broken law of commodities trading.

John Corzine


Stanley Haar, owner of Haar Capital Management and one of the people who has been pressing this matter legally, says that could not be true. Haar, an experienced commodities investor, and his clients had over $10 million in accounts with MF Global when the funds were taken (and, in fact, had had his accounts with REFCO before it was acquired by MF Global in bankruptcy). Corzine knew what was being done or “he was willingly blind,” Haar says, which still leaves Corzine legally responsible. MF Global had been scrambling for weeks to generate liquidity and had been placed under restriction by both J. P. Morgan and the Chicago Board of Trade (CME), Haar explains. Thus, according to him, “it would have been preposterous for Corzine to believe that hundreds of millions of dollars in company cash had suddenly been found.”

Haar’s conclusion is reinforced by the House subcommittee report, which found that J. P. Morgan’s chief risk officer, Barry Zubrow, personally called Corzine for assurance that the funds being transferred to clear the overdraft were not from customer accounts. Further, Zubrow sent a letter, to be signed by MF Global official Edie O’Brien on behalf of Corzine and MF Global, asserting that the transfers of funds complied with CFTC customer-protection rules. That letter was revised twice but never signed. At the time the CFTC, the SEC, and CME all had staff on the premises of MF Global offices in New York and Chicago, but MF Global went ahead with the illegal transaction anyway. The CME had ordered MF Global to get permission from the customers for any funds transferred from segregated accounts, but no such permission was sought.

Haar explains that the case is clear: Corzine and the firm, at minimum, “willfully neglected” their obligations when they ignored the signature request from J. P. Morgan and transferred the funds.

But this is Jon Corzine, former governor, former U. S. senator, buddy to the rich and famous — and a leading bundler for President Obama’s reelection campaign. By the first quarter of 2012, he had raised over $500,000 for the campaign. On May 14, 2012, Representative Michael Grimm (R., N.Y.) sent a letter co-signed by 63 other House members asking for a special counsel to be appointed because of the administration’s obvious conflict of interest. After review of the matter, Attorney General Eric Holder could not find anything to pursue with regard to criminal charges, and the administration never acted on the request for a special counsel.

The members of the Commodity Consumer Coalition whose money was missing had to rely on the subcommittee report, which, though it detailed illegal acts, did not call for pursuing criminal charges. When asked why the subcommittee conclusions did not call for charges, the spokesperson for the subcommittee, Heather Vaughan, insisted that that was not the mission of the committee, as it lacks the power to bring charges. When it was pointed out that Congress has oversight on the relevant agencies and could pressure them to pursue criminal charges, Vaughan said that the subcommittee was not doing that, either. The group recommended changing the laws so that indictments would be brought against parties who behave this way in the future, but their work let Corzine, O’Brien, et al. off the hook.

The cheated customers now have to go about getting their money back through a complicated legal process. The CFTC would normally handle a situation such as this, but it has never managed the recovery of misallocated money before, and its chairman had to recuse himself because he once worked for Corzine at Goldman Sachs. Instead, the bankruptcy court appointed two trustees: former FBI director Louis Freeh to represent MF Global, and James Giddens for the Securities Investors Protection Corporation (SIPC) to represent the customers. Giddens, an experienced bankruptcy attorney with Hughes, Hubbard and Reed, has no experience with commodities trading. At the time of the bankruptcy, MF Global had 100 securities accounts worth about $100 million in total and 38,000 commodities accounts worth $6.4 billion — yet the customers’ trustee has no experience in the field.

CCC and other observers also questioned the court’s decision to allow the company to be split into two separate entities, one of them a holding company that is allowed to continue operating under Chapter 11 bankruptcy. Regulators, led by the CFTC, should have insisted on seizure and liquidation of the firm by a receiver, which would have given priority to the commodity customers over the other claimants. CCC also highlights the customers’ lack of representation at the bankruptcy hearings: No one from the CFTC was there.

For now, the two trustees are battling it out over whatever funds are available. Giddenss’s spokesman tells me that “the trustee takes seriously his duty to treat commodities customers, securities customers, and general creditors equitably.” Yet what is equitable in this matter is certainly open to debate — the commodities-account holders contend they have the highest priority for any funds, since their accounts should never have been touched to begin with and the other claimants should be repaid after they receive full payment.