By Matthew Goldstein
There was plenty of theatrics Thursday when Jon Corzine returned to his old stomping ground–Capitol Hill–to offer an apology and a mild defense for the events that led to the collapse of MF Global. But in the end little light was shed on just what happened during those final days of October, as Corzine’s firm spiraled towards bankruptcy and hundreds of millions dollars of supposedly protected customer money went missing.
Corzine said many times he didn’t know what happened to the money and was shocked as anyone to find out the money was gone. But there is one thing Corzine said that will prove to be the most critical part of his testimony and that’s his assertion that he never intended to do anything wrong. Or more precisely, he never intended to have customer money maintained in segregated accounts transferred to the firm’s own bank accounts.
As anyone who has been following the MF Global saga now knows, the one inviolate rule of the futures industry is that a firm cannot commingle its money with its customers, or take customer money in a segregated account to pay the firm’s bills or debts.
Yet it increasingly looks like customer money was moved and commingled with the firm’s own money. But the challenge for investigators from the FBI to determine is whether the commingling was an accident–the result of gross negligence by harried and frantic employees of MF Global. Or was the money moved in a deliberate and desperate attempt to the keep the ship afloat.
It’s an important distinction because gross negligence–no matter how bad that might be–would likely only expose those at MF Global to potential civil liability. That’s bad and could results in stiff fines and bans from the futures business for individuals, but probably no jail time.