22 March 2012

Did the SEC Facilitate the Fraud at MF Global?

I did not treat this particular issue of the MF Global scandal sufficiently when I first became aware of it thinking, perhaps foolishly, that additional facts and information from the financial press and the investigation would be forthcoming.

That does not appear to be the case. So here is the story that suggests that the SEC had been providing MF Global special treatment to mask its financial difficulties while it floated a large bond offering. They betrayed their sworn duty to make the information public, and to act to protect the average account holder by promoting transparency and the symmetrical disclosure of information to maintain the confidence in the system, and quite likely out of a deference to power and influence.

We have seen many examples of the Fed hiding information and stonewalling legitimate disclosure of key financial information to 'protect the system.' The problem is that this merely serves to allow powerful insiders to game the system, and guarantee the system's decline, while reform withers.

Professional investors, through their own sources and resources, became aware of the MF Global problems and began to flee the firm, leaving the small independent investors 'holding the bag' as it were. It is not likely that JPM was unaware of this.

We have seen other instances of this sort of thing, such as the SEC whistleblower who lost his position when attempting to act on strong evidence of insider trading by one of the TBTF titans.

The Street has had it in for Jon Corzine ever since he betrayed them and profited from the Fed enforced LTCM rescue when he was the head of Goldman Sachs. And MF Global appears to have been the payback.

A dirty business, but as I have said, it is not likely that justice will ever be done. Mr. Corzine may not even be banned from dealing again in the financial markets.

I just would like to see people made aware of this, so they might protect themselves from these rapacious sociopaths and their enablers. And of course, to see the monies stolen from the innocent account holders returned.

MF Global is one of the most outrageous scandals in recent financial history, involving one of the principal donors and fund raisers to the Democratic presidential incumbent.

And yet it receives no mention in the debates or from the Republican candidates, and very little mention in the press except for the repetition of spin and slogans and disinformation. Are they planning to use this as an 'October Surprise' or perhaps as a sophisticated form of Wall Street blackmail? Or is just the foolish groupthink that possesses insular groups of powerful insiders when the system that provides their status and extravagant privilege is threatened?

And at least from the outside looking in the 'investigation' has the appearance of a very professional damage control and public relations campaign with all the trappings.

The warning for investors from MF Global is that The Financial Markets Have Not Been Fixed, and therefore the money you have in the markets is not safe.

By ManagedFutures

Why was release of critical disclosure apparently delayed? Why were time stamps suspiciously altered?

Critical documents related to MF Global’s financial condition appear to have been delayed for release by the Securities and Exchange Commission (SEC) at an important time just before a MF Global floated a bond offering to professional investors.

While possibly a coincidence, approximately the same time the documents in question were finally made public, MF Global professional account holders were beginning to flee the company, leading to an eventual liquidity crisis and the firm’s bankruptcy.

The document in question is MF Global’s Annual Audited Report on Form X-17-A-5. What is critical about this report is that it contained information regarding of MF Global’s risky sovereign debt trades, including some subtle, yet important, details that were not available anywhere else. Had professional investors had this information weeks after the May 31, 2011 initial filing date, as is said to be typically the case with such documents, they may have avoided purchasing what ultimately became near worthless MF Global bonds...

To further highlight special treatment, Mr. English points out that the document was held by the SEC concurrent with negotiations that FINRA and the SEC were having with MF Global over foreign sovereign debt exposure, which has now been widely reported after the fact. “It appears as though someone at the SEC may have been holding the document while negotiating with Mr. Corzine over his sovereign debt exposure,” Mr. English speculated, noting that between the May Filing date and September release date FINRA and SEC negotiated with MF Global and finally demanded an increase of capitalization to support Corzin’s sovereign debt trade. He notes that the documents were de-indexed from the SEC database and then reposted–unusual activity given that a sampling of smaller brokerage firms found no instances of missing or amended audits. “Astute industry participants may have been watching for the Annual Audited report of the broker unit,” noted Mr. English. “That report did not surface until September at the earliest. This is clearly out of the norm with respect to how the SEC usually scans and publicly posts these reports...”

When the Annual Audit Report in question was finally released weeks later, knowledgeable professional investors were said to start fleeing the FCM. Contrary to initial reports, this was not a “run on the bank” because these were futures accounts under the auspices of the Commodity Futures Trading Commission (CFTC). This widely assumed investor protection is critical because then the liquidation falls under the auspice of the Commodities Exchange Act (CEA), which assumes a “segregated account priority above all else” legal protection in the case of a bankruptcy through a liquidation process.

Special Privilege Provided Mr. Corzine

The document tampering raises serious questions about the relationship between the SEC and Mr. Corzine, painting a picture of special treatment the firm may have received, according to industry consultant, Elaine Knuth.

“This is really an important story because it goes beyond the SEC messy handling of filings. A filing delay before the bond offering, and during ongoing meetings between the SEC and MF Global, points to coziness, resulting in regulatory failure,” noted Ms. Knuth, who also contributes to the blog at www.MFGFacts.com. “It shows regulators favoring and protecting Wall Street investment bank interests over investor protections...”

Read the rest here.