Then there is the cost of administering this entire mess. There was a negative reaction when Giddens announced in June 2012 that he had already racked up $17 million in fees. Then he claimed the money would not come from customer funds — but I could not obtain a straight answer from Gidden’s spokesman as to where the funds are coming from. They are coming from, in his words, the “general estate.” In plain English that means someone who had an account at MF Global will foot the rather sizable bills from Giddens and Freeh.
If you think this is just a fight between a bunch of wealthy folks, think again. Big hedge funds had accounts at MF Global, in addition to billionaire Carl Icahn and large corporations such as Coca-Cola. But there were 38,000 accounts in total, 25,000 of whose holders have made bankruptcy claims.
In fact, over 87,000 farmers were affected by the bankruptcy. Many of them were invested in accounts for farm co-ops, using commodities futures to hedge the risk of their crops’ going bad in a given year. The farmers who long have protected themselves with these commodities accounts now have a significant distrust of the system, and many were short of funds for the next planting season.
It seems likely that MF Global’s perfidy chilled the commodities market. Trading on the futures market was down 8.9 percent in the first six months of 2012 compared with the first six months of 2011. Options trading was down 11.5 percent for the same period. The Chicago Board of Trade’s net income declined 17 percent in the same period. Professor Tenenbaum attributes the drop to a “lack of trust” that has developed in the wake of the scandal.
Hopes of pursuing criminal charges hinge on the case against Edie O’Brien, MF Global’s assistant treasurer under Corzine. Her attorney, Reid Weingarten, is one of Eric Holder’s closest friends and represented the now–attorney general in the hearing held to review the pardon of Marc Rich. Further, Holder and Weingarten co-founded a D.C. nonprofit, and Weingarten’s son was hired by the Department of Justice after Holder became attorney general. O’Brien invoked the Fifth Amendment in March and has insisted on immunity from prosecution if she is to provide any information on what happened in October 2011.
So where does the situation stand today? Commodities customers have gotten back 80 to 85 percent of their funds with a commitment to bring that to 93 percent in the near future. Corzine has stated his intention to start a hedge fund, where at least if he loses such money again, his investors will have authorized him to do so. Tenenbaum says that “this is not over from an illegality point of view.” But one can surmise that Corzine feels pretty safe as the little guys still struggle to get back the money they never dreamed would be touched.
Right now, smart investors would bet on Corzine’s never being charged with a crime.
— Bruce Bialosky, a former presidential appointee and weekly columnist, is a CPA in active practice.