Dancing with the Devil: A Breach of Trust

Yet again, the Golden Child of Wall St. is revealed as a fox in sheep’s clothing.
I was engaged in a debate about the role Goldman Sachs may have played in the downfall of Greece’s economy with a relative (through marriage) who migrated from Greece to the United States when she was 10. My research on the near collapse of the US financial market clearly points to the gradual deregulation and the unethical banking practices. There are a number of factors that contributed to the fiscal crisis, particularly the securitization of subprime Housing Loans, re-packaged and sold Globally as “A” rated paper. Regardless of the fact that the underlying debt was “C” rated, banks had the audacity to sell the mortgage-backed securities as “A” rated, low risk bonds. Of course, we can’t ignore the rampant Securities and Banking fraud, which generated hundreds of charges and investigations by the SEC against Banks and Hedge Funds.
I’ve written numerous articles about the Euro crisis. Like many economists, I believe the U.S. fiscal crisis precipitated the downward spiral of a number of EU members. This is mainly because of large quantities of foreign investment in U.S. Housing securities, which went sour. Much to my surprise, in the process of gathering data surrounding the global crisis, I learned that EU members; Greece, Italy, Spain and France, carried out non-transparent, accounting practices for over a decade. No doubt the high debt ratios hidden by accounting loop-holes would have eventually brought the weakest EU members to fiscal ruin at some point anyway.Although, our financial calamity accelerated the timeline of the reveal. America's financial troubles was the equivalent of lighter fluid, igniting the masked problems of the EU’s weakest links.

Apparently the Greek-American community seem to have a different slant on how Greece's economy found itself engulfed in a fiscal and political battle for stability. The lack of transparency and debt-to-revenue ratio was certainly taking its toll on the weakest EU members. This was made worse when changing leadership was blind-sighted by the urgency of country’s debt portfolio – particularly the derivative-structured debt owed to Goldman Sachs. When the housing market collapsed, interest rates increased, drastically increasing the debt service on the Goldman/Sardelis deal
My Greek-American in-law (who shall remain nameless), vehemently contends that Goldman Sachs is the monster that brought her beloved country to its knees. This is hardly the case, since Greece's debt was already 127% of its GDP by 2009. Also, by that time, Greece was seeking a bailout for over 300 billion Euros. Nevertheless, She was referring to a secret transaction between Goldman and the Managing Director of Public Debt Management Agency (Christoforos Sardelis), back in 2001, where a masked loan of $2.8 billion Euros was signed, sealed and delivered. Executed completely under the radar. The loan, which was thought to be earmarked for the preparation of hosting the 2004 Olympics, was later revealed not to be the case. Although I admit, the unholy alliance with Goldman was a financial set back, it was not the smoking gun.

The under-the-radar transaction executed by Sardelis and Goldman was a Currency Swap. Given the variable rate structure, there was mounting debt service, as interest rates increased, making it difficult for Greece to contain. I appears that Greece’s Debt Management Agency didn’t thoroughly analyze the deal to determine the long-term impact of this type of debt structure for Greece, given their compromised economy. A simple “what if” analysis would have helped them to analyze the impact of increasing interest rates. The Currency Swap transaction belongs to the derivative family, which are always complicated to quantify or analyze given the fluctuating market, currency and structure. These are highly risky transactions, and certainly not recommended for unstable municipalities suffering from high debt, declining GDP, and 25% unemployment.

The secret deal between Sardelis and Goldman could be classified as irresponsible given the size of the debt, and the fact that it was tied to fluctuating interest rates. The operative word being, “fluctuating”. Regardless of Sardelis’ good intentions, “it takes two to tango”. Therefore, Sardelis is equally at fault. My Greek-American in-law may be reluctant to accept it, but the blame has to be shared.

Since 2010, when I initially started writing about the Euro crisis, I learned that Sardelis was motivated by the Maastricht Treaty, requiring all EU members to show “improvement” in their public finances. This Goldman swap was a "dance with the devil" and simply a desperate attempt to “hide” the debt from the country’s books to comply with the Maastricht Treaty. These swaps were one of several techniques that European governments used to meet the terms of the treaty. There were certainly alternatives techniques available, so why did Goldman push this particular structure? Whatever the case, Sardelis was out of his element, and out smarted by his trusted Bankers. It was reported in the Wall St. journal that Goldman served up fictitious, historical exchange rates for the transaction, which earned them $760 million in U.S. fees.

Attemps to Implement Austerity Measures Lead to Violent Protests.

By the time Spyros Papanicolaou took over the Public Debt Management Agency in 2005, the loan had ballooned to over 5 billion Euros. Given the role that Goldman played in the fiscal unraveling of the housing market, which sent trimmers across the globe, you would think that their CEO, Blankfein, would consider a forgiveness of some portion of the debt. Goldman and Papanicolaou did get around to restructuring the debt, but I’d be willing to bet there was no forgiveness of debt.

Goldman Sachs may soon be faced with a public image dilemma, but until then I supposed they’ll continue to carryout their Mission to squeeze clients for every possible dollar.

Back to Home Page?

K Reilly
The Cohn-Reilly Report
www.Facebook.com/Cohn.Reilly
________________________ RECOMENDATIONS

Also Check out: Socially responsible Investing site below:
SocialResponsibleInvest.com

-COMMENT HIGHLIGHTS-

________________Comment
Anonymous said......
You should never stop investigating, researching and analysing the market to be reactive and play the main role on your market. of the Yahoo community. , to all your fans. my web site: Internet Marketing Coach ________________Comment
Anonymous said......
I precisely needed to appreciate you once more. I am not sure what I would've made to happen in the absence of the entire concepts documented by you relating to my subject matter. Entirely was an absolute intimidating dilemma in my opinion, however , discovering this expert avenue you solved it made me to jump over joy. I am just happier for this work as well as hope you find out what an amazing job you have been carrying out teaching people today all through your site. More than likely you haven't met all of us. / F2/20/13

________________Comment
Anonymous said......
You should never stop investigating, researching and analysing the market to be reactive and play the main role on your market. of the Yahoo community. , to all your fans. / February 24, 2013
________________Comment
Anonymous said......
I tend not to leave many remarks, but i did a few searching and wound up here "Dancing with the Devil: A Breach of Trust".

And I actually do have 2 questions for you if it's allright. Could it be only me or does it give the impression like a few of the remarks look as if they are written by brain dead people? :-P And, if you are posting at additional online sites, I'd like to keep up with anything new you have to post. Could you make a list of the complete urls of all your shared pages like your twitter feed, Facebook page or linkedin profile?
________________Comment
Anonymous said......
Hi, I do believe this is an excellent web site. I stumbledupon it ;) I am going to return once again since i have bookmarked it. Money and freedom is the greatest way to change, may you be rich and continue to guide others.
Feel free to visit my page - justin bieber smoking weed
________________Comment
Anonymous said......
Excellent post. Keep posting such kind of information on your site. Im really impressed by it. Hello there, You have done a fantastic job. I will definitely digg it and for my part suggest to my friends. I am confident they'll be benefited from this web site. Here is my homepage ; anuncios clasificados gratis
________________Comment
Anonymous said......
Howdy! I know this is kinda off topic however I'd figured I'd ask. Would you be interested in trading links or maybe guest writing a blog post or vice-versa? My website discusses a lot of the same subjects as yours and I think we could greatly benefit from each other. If you happen to be interested feel free to send me an e-mail. I look forward to hearing from you! Wonderful blog by the way!- 2/21/13

Financial Fraud Strikes Again

Haven't we had enough of financial scandals? Of course not, here we go again. This time it is with a boutique futures trading broker - Peregrine Financial Group, also known as P.F.G.. On July 9, 2012, the National Futures Association (NFA) - the industry wide, self-regulatory organization for the U.S. futures industry, made an inquiry with U.S. Bank and learned that out of the $225 million in customer segregated funds that P.F.G. had reported to the NFA as being on deposit at the Bank just days earlier, only approximately $5 million was actually on deposit. The NFA also learned that, although P.F.G. submitted confirmations that U.S. Bank account balances as of February 2010 and March 2011, were reported to be approximately $207 million and $218 million, respectively, P.F.G.'s actual balances were less than $10 million for each one of these months.

On top of the reported financial fraud, a day earlier, the chairman and chief executive, Russell Wasendorf Sr., tried to commit suicide outside of the firm’s offices in Cedar Falls, Iowa .The Federal Bureau of Investigation is investigating the matter, according to a spokeswoman for the Omaha office, Sandy Breault. Ms. Breault indicated that the Chicago office of the agency might also get involved.

The Commodity Futures Trading Commission (C.F.T.C.) is seeking a restraining order against P.F.G., to prevent the destruction of any information that may be needed in the course of the investigation. The C.F.T.C. is also asking a federal court to appoint a receiver for the firm and freeze its assets.

This feels a lot like a curtain call for MF Global, where $1.6 Billion is still missing. (refer to a prior article in this blog for more information about MF Global). Similarly in this case, as the complaint states: “P.F.G. and Wasendorf have used customer funds for purposes other than those intended by its customers, and consequently, have misappropriated these funds”. “The whereabouts of the funds is currently unknown".

Needless to say, the operations of the firm have been halted. Unfotunately, I am one the many victims. For two years, I was an active futures trader with the company which offered  proprietary trading platforms to small retail customers like myself with unique and robust features that were not available from other brokerage houses. Although it has been several years since I day traded, due to time constraints, I still kept a funded account with P.F.G.. I contacted the NFA today and registered my name as an account holder. I urge all others affected to do the same. It may not amount to much but at least it is better to take some kind of action and to make your voice heard.

Back to Home Page

C. Cohn
The Cohn-Reilly Report
www.Facebook.com/Cohn.Reilly

To Be or Not To Be: EU Shows signs of cracking

Twenty years ago, when the idea was circulating about a unified currency in Europe, it seemed like such a brilliant concept, based upon sound economic and political arguments. Today, it almost seems like an impossible dream. Landon Thomas of the New York Times asks in his article "Can they muster the will and resources to keep the euro zone from breaking apart?

As the world looks on, and markets take defensive positions, the Euro crisis unfolds like the climax of a mystery novel. Greece's dramatic elections - where the people ousted Sarkozy, opting for an unlikely candidate, François Holland. The outcome of the election was a clear sign that the people were not ready for the strict austerity measures needed to turn their economy around. Bailout alone was not going to save Greece, it was only expected to buy them time to pull their policies, and fiscal plan together. The political and civil unrest in Greece, gave little hope for a turnaround. Instead the notion of Greece leaving the European Union resurfaced with somber overtones of reality.

By the end of May, Spain had decided to pump 19 billion Euros into its struggling Lender, Bankia, SA, as a strategy to illustrate stability, and quell any notion that the crisis continues for its financial sector, in light of Greece's downward slide. This is a prop-up strategy that is effective in influencing perception, which is crucial in the realm of investors and financial markets. The US equivalent of $24 billion, was a rich injection that is twice the amount Spain spent in the recent past to straighten out the banking sector during US housing market collapse - causing a global rippling affect. Spain is swiftly reacting to mitigate a repeat of the fiscal mayhem stemming from billions of dollars lost in toxic mortgage-backed securities.

Meanwhile, two weeks ago, S&P downgraded Bankia, and several other Spanish Banks, causing worldwide concern. The rating agency made matters worse by painting a gloomy near-term forecast for the region, citing their belief that Spain is heading toward a double dip recession. S&P also noted that there was a reasonable expectation of an increase in troubled assets. On the heels of Frances downgrade, and Spain’s fiscal concerns, the question becomes, was this unified currency such a sound economic and political move in the first place. Friday, the DOW closed 300 points lower, illustrating investor sensitivity to the Euro Crisis - although, it should be noted that market anxiety was further stimulated by the soft jobs report.

Back to HomePage

Back to Home Page

K Reilly
The Cohn-Reilly Report
www.Facebook.com/Cohn.Reilly

BFF: Ballad of the Facebook Fiasco

Countless individual investors, and some intrigued "average Joes" thought that the Facebook IPO was going to be the atom bomb of Silicon Valley. The Golden Egg of the privately held tech companies, and its fearless leader, Zuckerberg, was sure to deliver. As the highly anticipated IPO jettisoned into history, as being the most anticipated offering of the millennium - I too thought FACEBOOK would be the IPO not to be missed. "get in now", I thought, "or you will regret it". Of course, I truly expected that the offering would be priced in the mid-teens, $13 or $15 per share. At the very least, it would be priced at a level commensurate with the "value", of a company that has no PRODUCT, who depends solely on Advertising. Advertising as a revenue source is not at all bad, but when you take into consideration that revenue growth on an ongoing basis would mean continued popularity, increased memberships and usage. Now, therein lays the rub. Allow me to offer MySpace into evidence, as how quickly a popular "hang out" can just as quickly shift into decline. MySpace, which was somewhat of a pioneer, is now valued at approximately $1 million, and struggling to stay relevant. That said, the pricing geniuses at Morgan Stanley had to be confusing FB stock with a commodity; you know... one of those limited resources that the world could not do without. How else would you explain a $38 opening price.

When a new popular issue is priced in the teens, it has no place to go but up. Sure it would fluctuate during the course of the day, but normally it would wind up quite a bit higher than the initial price. On the other hand, if you come into the market at $38, you are already at a premium, there is no place to go but down. Of course the speculation as to why the issue was priced so high, created underlying tension and uncertainty. By the end of the following day, reports of unethical matters surrounding the handling of the new issue began to surface. What a Fiasco this turned out to be! A sad, and bitter reality hit as news broke of possible insider trading. It is alleged that the lead bankers handling the FACEBOOK account at Morgan Stanley had tipped off their clients with confidential information. This information was in essence a warning not to purchase the stock at the opening price. Was this a setup, designed specifically to make million on the short sale of Facebook shares. An article in Business Insider reported that Morgan Stanley provided a select few classified information about FACEBOOK's weaker than expected forecast. Within 48 hours, news circulated of an SEC and FINRA investigation into what really happened. Whatever the case, Finance Reform obviously didn't go far enough.

Selective dissemination of "material" information concerning a cut in forecast estimates for the company would cause institutions to lose interest, which generated investor uncertainty among the small investors who weren't privy to this insider information. From the savvy individual investors, down to the average Joes jumping in to get a piece of the Facebook pie, this scandal put investors at an unfair disadvantage. The whole matter created a unprecedented IPO fiasco, leading to untold losses, and a decline of market confidence, which we could have done with out.

Adding insult to injury, Nasdaq had a fair share of technical problems which only added to the mayhem. Thousands of trades were stuck in limbo for individual investors. This may actually be a blessing, giving them the opportunity to either pick up shares at a steep discount, or back out completely. Ultimately, FB shares ended up about 30% lower than its initial price, with occasional ticks upward and downward. We're not likely to see stability in this stock price until the dark cloud of confusion is lifted, legally or otherwise.

My plans to purchase a hand full of shares immediately fizzled when I heard the price. A conversation with a few hopelessly optimistic friends convinced me that I should go ahead and pick up a couple shares just to be a part of the historic IPO. I never expected it would become the Fiasco of the decade.

Back to HomePage

K Reilly
The Cohn-Reilly Report
www.Facebook.com/Cohn.Reilly

Goldman Sachs: Filing for Moral Bankruptcy

The investment Banking community was stunned by the hard hitting statements made by Goldman’s former executive, Greg Smith. Smith's scathing, but heartfelt remarks, published in the OpEd section of the New York Times, was the topic of lively debates and criticism around the globe this week.
After reading Smith’s behind-closed-doors account of what’s really going on at Goldman, it would seem that Wall Street’s gold plated, celebrated investment bank of 143 years has somehow lost its core values on which they built their brand of “Trust” and “Integrity”. Goldman Sachs was once an awe inspiring investment bank, whose brain trust is referred to as “the best and the brightest”, but they have certainly suffered from a leadership deficiency. Strong leadership or the lack thereof, is the basis of the rise and fall of many businesses – regardless of their size. It is the “leadership” of Steve Jobs who, upon returning to Apple, was able to bring the company from the brink and take it to quintessential plateau, far beyond anyone’s imagination. That’s leadership.

Mr. Smith’s commentary might have easily been dismissed as a disgruntled employee, were it not for the fact that he was a highly regarded executive director, who has spent over a decade of his career there. From my perspective, Smith gains credibility for his tone, and the manner in which he described the pride he felt being a part of Goldman, and praised the company that once was. He was convincing because of his effort to be constructive in his criticism - disclosing examples of the troubling shift away from providing investment advice in the best interest of the client. Rather than simply throw destructive daggers and below-the-belt punches that serve only to damage the company, his rant was respectful but unyielding. Smith had the power to do a lot more damage than he did. Keep in mind, never once did he accuse Goldman of fraudulent practices.
Mr. Smith’s piece focused on Morals, Ethics and Integrity, which was summarily lacking, apparently much like the leadership. Smiths cited his leaving the company because he could no longer stomach the Goldman that has emerged. The shift in focus from Client-centered investment services to, revenue-driven “elephant hunting” (Smith, 2012) has eroded the company’s code of ethics to the bare bones. Having developed an unnatural preoccupation with taking every allowable advantage of the client, Goldman Sachs is left morally bankrupt.

Let us all be reminded of the Senate hearings, and the SEC investigations of 2010 and 2011, which resulted in fines and a multi-million dollar settlement. Meanwhile, the public has barely had a chance to digest the law suits that have come from international companies claiming Goldman mislead them about the rouge mortgage-backed securities they purchased from Goldman, without so much as a warning.
The firm’s Chief Executive Lloyd Blankfein and Chief Operating Officer Gary Cohn issued a statement more than 24 hours after the OpEd sent global shockwaves throughout the investment community. As expected, they were essentially denying the allegations made by Smith. Unfortunately, it was too little, and about $2.2 billion too late, as the value of the company took a dramatic hit after Smith's public resignation letter went viral. The stock recovered all but $800 million in value the following day, due to investor excitement about positive economic statements from the Federal Reserve, and stronger than expected retail data. Still, intangible losses are mounting where trust, good will, and brand are concerned. For this reason, many question the wisdon behind the delayed reaction from Goldman. It's too early to tell what the fall out will be, and Goldman's overall Damage Control Strategy is yet to be seen.

Back to Home Page

K Reilly
The Cohn-Reilly Report
www.Facebook.com/Cohn.Reilly

________________________ RECOMENDATIONS

Also Check out: Socially responsible Investing site below:
SocialResponsibleInvest.com

-COMMENT HIGHLIGHTS-

________________Comment
K. Anonymous said......
Normally I do not read article on blogs, however I wish to say that this write-up very forced me to check out and do it! Your writing style has been amazed me. Thanks, quite nice post. My web site ... www.drgrzesiak.pl - July 30, 2013

________________Comment
Anonymous said......
I always spent my half an hour to read this webpage's articles all the time along with a cup of coffee.
Take a look at my web site ... need money for bills
________________Comment
Anonymous said......
Yes! Finally something about i want my ex back. My blog post : secretstogetherback.com - November 5, 2012
________________Comment
Anonymous said......
I almost never leave remarks, however I browsed some of the responses here "Goldman Sachs: Filing for Moral Bankruptcy". I actually do have a few questions for you if you tend not to mind. Is it simply me or does it look like some of these remarks appear like they are coming from brain dead folks? :-P And, if you are writing at other online sites, I'd like to keep up with anything fresh you have to post. Could you post a list of every one of all your social pages like your Facebook page, twitter feed, or linkedin profile? - December 29, 2012
________________Comment
Anonymous said......
I will right away take hold of your rss as I can not find your email subscription link or newsletter service. Do you've any? Kindly let me recognize so that I may subscribe. Thanks. Feel free to surf my web-site Cordyline Electric Pink 175Cm - February 13, 2013 ________________Comment
Anonymous said......

Great article Katherine! The Goldman crew only needed 10 BILLION dollars (place pinky to corner of mouth)to stay afloat after the greatest heist on the planet by these guys: http://projects.propublica.org/bailout/list
It only took Goldman (Gold,man!)a couple of years to repay 10 Billion dollars... what does that tell me about how easy money comes to them?
At least one of them is admitting being morally bankrupt! It's about time!
We should have done what Iceland did instead of screwing over the people.
Now what?
http://projects.propublica.org/bailout/entities/237-goldman-sachs
Chris G / Mar 18, 2012 05:17 PM

________________Comment
K. Reilly said......

Hey Chris G., thanks for your comment. I also checked out the propublica.org link, which I enjoyed scanning through. Sorry for the delayed response. :)

The Price of Deception: Settlement for Mortagage Underwriters Finalized

The Price of Deception: Settlement for Mortagage Underwriters Finalized
The big 5 mortgage services are forced to finally face music. In the past several months banks and underwriters were preparing to sign off on the highly anticipated settlement. As Attorney Generals nationwaide descended upon Washington to iron out the details of the settlement last month, industry analyst were left to speculate. We've reported about the widespread abuses in the mortgage industry, which culminated in thousands of forclosures being thrown out of court or temporarily halted. The housing industry which is the last of the economic indicators to show signs of a turnaround, is believed to be the catalyst for the financial callapse of 2008. As the rest of the financial markets began a massive melt-down, the foreclose rate was an an average of 45% nationwide by 2009. The Obama administration tried its best to stop the bleeding with several homeowner assistance programs, but it appeared the abuses had taken its toll on the market. It simply had to run its course.
It was later realized that many of the mortgage documents were not filled out properly, (leaving a questions as to what loan provider was attached to which property). This prompted intensified scrutiny, leading to a long over due investigation. During the investigation a freeze was placed on all foreclosures allowing homeowners to stay put for while until the matter was thoroughly reviewed. The implosion of the housing market slowly revealed a myriad of issues that involved abuse, fraud and deception, causing massive declines in property values. The term upside-down mortgages was commonly used to describe the steep depreciation property values that sank below the underlying mortagage owed. Later, the proliferation of foreclosures uncovered the ROBO signing scandal (mentioned above) involving, forged signatures and flawed paperwork which precipitated unfounded evictions. Imagine the devastation of homeowners being forced out of their homes, only to find it was due to erroneous paperwork.

An effort to correct the abusive behavior illustrated by the mortgage lenders and banks has finally come to a head. The "pow wow" of federal officials and attorney generals from all 50 states resulted in an outline of the terms of the settlement. Mortgage Servicers were bracing for a multi-billion dollar hit, which was announced yesterday (February.9th). The settlement is said to be a painful $25 billion in penalties and fines. News had circulated in December that there are a few sticking points in the deal, which was met with disapproval from a few of the Attorney Generals, namely Eric Schneiderman of New York.
The Obama Aministration was pushing to have the deal signed and sealed before the State of the Union Address, but that was a long shot. Surprisingly, he made no mention of it in his speech. Industry analysts and experts correctly speculated that fines would be around $25 billion, but were unclear as to the specifics of the homeowner assistance programs. I've been anxious to see the details of the settlement doe myself. Some aspects of the settlement will include limited aid from banks to overwhelmed homeowners, by reducing their loan principle. We can expect to see structured Principle Forgiveness programs, which will apply to a small number of mortgages that are wholely-owned by the banks, while Bank refinancings will be another form of aid to home owners.
The housing market woes of the past three years have eroded bank share prices and caused immeasurable blows to their reputation and goodwill. Trust and confidence of the public in Banks may be a thing of the past.


Back to Home Page

K Reilly
The Cohn-Reilly Report
www.Facebook.com/Cohn.Reilly

Crimes & Misdemeanors: FBI Closes in on Large Wall St. Funds

The FBI has arrested key members of a ring woking out of several states, including New York. Similar to the Galleon Group, these guys traded information concerning publicly traded companies in an apparent conspiracy to commit insider trading fraud. This ring was so productive, they were able to generate financial gains that rival the Galleon Hedge fund, who's founder recently received an 11 year sentence for insider trading. One of the hedge funds involved, Level Global Investors, raked in over $50 million in gains alone. The court documents state that a ring of traders and analysts, who formed an insider trading club, swapped information that resulted in over $60 millions in illegal profits.

As the voices of "Occupy Wall Street" draw attention to the stark imbalances of the privileged 1%, the fraud saga continues. According to the , Wall Street Journal the government has already prosecuted 63 people on charges of insider trading, yielding 56 guilty pleas or convictions. This marks an unprecedented number of cases procsecuted concerning insider trading in a three year period. Judging by this unrelenting onslought of crimes and Misdemeanors, it would appear that the Finance Reform Act is about as valuable as wall paper. That is not to demean the efforts of law makers or the Obama Administration, its merely a commentary on the industry's commitment to an "any means necessary" approach to capitalism. The only consolation is that the Feds and the SEC seem to be paying closer attention to the activities and trade patterns of hedge funds and other financial institutions that engage in trading. There's fresh optimism about the economic forecast, as job reports and other market indicators send a strong message of recovery. Neverthless, with the reluctance traders, money managers and banks to change their habits to avoid a repeat of a financial collapse, sends another message altogether: They still don't get it, and its likely that they never will.

Back to Home Page

K. Reilly
The Cohn-Reilly Report
www.Facebook.com/Cohn.Reilly

Corzine's Blind Ambition: In case of Emergency, Break Glass

MF Global Files for Bankruptcy, Corzine resigns and turns down a $12 million severance pay. Wall Street analysts already knew how over-loaded the company was with Euro debt, so it was not a surprise outcome, by any means. However, as the story began to unfold and the facts surrounding the collapse started to unravel, suspicion grew about the probability of foul play. There were more questions than answers, and that's always a red flag. Once customer funds were discovered missing, and an SEC investigation revealed that a large sum of money was transferred into an account overseas, just two days before MF Global filed for bankruptcy, it was clear that something was terribly wrong here.

For the second time in December, Jon Corzine, former head of the now defunct MF Global, met with the senate to further explain his involvement with the missing customer funds. This time, he was accompanied by two MF Global executives, COO, Bradley Abelow and CFO, Henri Steenkamp, who also claimed to know nothing about the money. I find this very curious, since most brokerage firms have policies in place that limit check writing and transfer-of-money authority to upper management, with additional authorization from the CFO, or Treasurer in his or her absence. The Senate hearing did not turn up anything that would satisfy investigators or investors. Nevertheless frustrated Farmers (primary investors in land commodities) were able to voice their disdain for MF Global, and one in particular was quoted as saying "What they call 'unlawful comingling' on Wall Street is called 'stealing' back on Main Street,"

Jon Corzine admitted that there was a "break glass" contingency plan in place, but did not disclose the details of the emergency plan. After questions intensified, he denied that raiding the customer funds was one of the recommendations in the emergency plan. According to Corzine, he did not know what happened to the money, and proclaims that he did not direct anyone to misuse customer funds. Corzine tried his best to convince the Senate Agricultural Committee that he did not "intend" to break any rules concerning the handling of customer funds, with respect to keeping customer funds segregated from the firm's money. This is reference to the requirement of all commodities and futures trading firms to segregate customer funds from company money. According to the CMEgroup.com, (Watchdog for Commodities and Futures Industry) segregating the funds protects investors in the event of defaults or bankruptcy. This regulation has a major advantage for investors, because when a company files for bankruptcy (as in the case of MF Global) , investors are last on the list, behind creditors, to see any of their money - particularly because it's next to impossible to identify how much of the company's assets belongs to the customers. Segregated funds facilitate the process of identifying which accounts belong to investors, thus investors will be able to recoup their funds without much delay. Apparently the "Segregation of Funds" regulation was not practiced at MF Global. Corzine went so far as to explain that perhaps an employee misinterpreted his instructions in an effort to try to save the company. The former CEO conveyed to the Senate subcommittee that he was not aware of any problem with segregated funds until October 30th, the day before they filed for bankruptcy.

In a new twist to this already redundant story of fraud, greed and entitlement, the Federal Authorities investigating the collapse of MF Global are now turning their attention toward one of the Wall Street watchdogs. Since MF Global was a Commodities brokerage firm, their primary regulator should have been the CME Group. The Commodities Futures and Exchange Commission is leading the investigation to examine CME's conduct before MF Global filed for bankruptcy protection. If the CME Group is the commodities regulator safeguarding customer’s money, what were they doing instead?

The downfall of MF Global (and Corzine’s career) is yet another display of Wall Street greed and deception. The bottom line is, Corzine should be held accountable regardless of whether or not he "directed" anyone to move funds. In his effort to exonerate an employee, he painted a vivid picture of the company culture. The firm's inattention to compliance, without regard for their customers" protection is inexcusable. As I've stated previously in an article concerning Corzine and MF Global, the fact that he turned down the severance pay is almost an admission of guilt for some aspect of the company's downfall. I’ll continue watching this case closely to see where the investigation of the CME Group and the search for the missing $1.2 billion leads. Fortunately, the Wall Street Journal reported that the judge overseeing the bankruptcy case has approved $4.1 billion to be returned to the customers, of which $2.2 billion in frozen customer accounts will be released.

Cohn-Reilly Report posted an article about the obvious under story of misguided ambitions of Jon Corzine, prior to the reports of mission funds. Corzine’s blind Ambition

Back to Home Page

K. Reilly
The Cohn-Reilly Report
www.Facebook.com/Cohn.Reilly