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- Superior Biotechnology Leads to Superior Drugs
- The Delusion of Regulating Risk
- Talk of a Greek Exit Gets Louder
- Doug Casey on Taxes and Freedom, Part II
- Is Facebook the Rusty Hinge of the Stock Market?
- Fitch Downgrades Japan
- Doug Casey on Taxes and Freedom
- Greeks Run on Banks as Euro-Confidence Wanes
- To the Class of 2012
Frontline On MF Global’s Six Billion Dollar Bet
While the sur-realities of just what Corzine and the rest of the MF Global ‘traders’ did has been extensively discussed here and elsewhere, PBS’ Frontline provides the most succinct (and relatively in-depth) documentary on just what occurred from how the corrupt CEO lobbied regulators who had the power to stop his risky bets to the endgame realization of the missing customer money. A narrative, not just of “a bet that went bad”, but “a Wall Street morality tale“. Must watch!
The story of Jon Corzine, the former head of Goldman Sachs and political power broker, who took over MF Global in the spring of 2010 with oversize ambition and a passion for risk. But after a massive bet on European debt turned sour, the firm lay in ruins, with more than a billion dollars of customer funds missing.
Watch Six Billion Dollar Bet on PBS. See more from FRONTLINE.
Watch Six Billion Dollar Bet on PBS. See more from FRONTLINE.
The “Corzine-Dimon Syndrome”
On its best days, the American judicial process is a blindfolded Lady Justice — prosecuting the truly guilty and exonerating the truly innocent. On its worst days, it is a Water Wiggle — whirling around unpredictably, without any apparent connection to guilt, innocence, Constitutionality or the proportionality of alleged crimes to one another.
On good days, guilty parties go to prison; innocent parties do not. On very good days, innocent parties do not even have to go to the trouble of hiring a lawyer and showing up in court. Law enforcement agencies correctly decide to spare them the burden (and potential agony) of proving their innocence before a judge or jury.
On bad days, the exact opposite occurs. Innocent parties go to prison, while guilty parties do not. On very bad days, guilty parties do not even have to go to the trouble of hiring a lawyer and showing up in court. Law enforcement agencies incorrectly decide to withhold charges and spare guilty parties the burden (and potential agony) of defending their guilt before a judge or jury.
Once you string enough bad days together, you get a Water Wiggle — a “system” of law enforcement that investigates and prosecutes alleged crimes capriciously, unfairly and disproportionately. You get a system, for example, that:
1) Prosecutes Hall of Fame pitcher, Roger Clemens, for injecting performance-enhancing drugs into his own body, but does not prosecute a single investment banking executive for fraudulently injecting mortgage-backed securities into the US financial system.
2) Tasers-to-death a Mexican national for sneaking into the US to find work, but provides billion-dollar bailouts to finance company executives whose extreme incompetence causes thousands of individuals to lose their jobs. (Bring us your tired, huddled masses so that we can beat them to death).
3) Threatens to shut down porn film studios for failure to comply with “condom laws,” but turns a blind eye to Wall Street’s serial financial rape of the US taxpayer.
4) Fires a 5-year employee of Wells Fargo for shoplifting when she was a teenager, but does not bother to prosecute M.F. Global’s former CEO, Jon Corzine, for allowing (or causing) $1.6 billion of client funds to disappear from the firm he controlled.
In other words, once you string enough bad days together, you get a “system” that punishes minor crimes and rewards major crimes…consistently. You get a system that punishes entrepreneurial initiative by rewarding cronyism.
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Caught Between MF Global And The Tax Man
There is still significant money missing from MF Global customers’ futures accounts. The bankruptcy trustee sent MF Global customers 2011 Form 1099-Bs showing their realized and unrealized trading gains and losses from Section 1256 contracts. (Note: The cost-basis reporting crisis does not extend to futures. Taxpayers and tax preparers can rely on Form 1099-Bs for futures, whereas they cannot for securities 1099-Bs.)
MF Global’s bankruptcy trustee James W. Giddens added this note to the Form 1099-Bs: “Although you may not have recovered the entire value of your MFGI account in the SIPA Proceeding (bankruptcy process), your Form 1099 reflects all transactions credited to your MFGI account during 2011. You should consult your tax advisor to determine whether you may claim a deduction or loss for income tax purposes as a result of your not having recovered the full amount of your account.”
Giddens doesn’t say which year the loss may be taken. It’s the consensus of our CPAs and tax attorneys — and the consensus of others we have seen on the Internet — that a MF Global deposit loss recognition event most likely occurs after 2011.
Tax law for writing off deposit losses
The loss is not determined and the trustee still hopes to recover the entire amount (or much more) of missing customer monies. Certainly, they should, as these monies were taken inappropriately and as I pointed out in my Dec. 9 Forbes blog “How To Pay Back MF Global Customers 100%,” why can’t those last-minute transactions to pay counterparties with customer funds be reversed, and the monies recovered? I still believe that not doing this recovery is illegal and wrong. But, this has no effect on my discusson of tax posture.
Tax law for deposit impairment, casualty or theft loss or capital losses all require a known loss and a realization event of that loss. Missing MF Global monies are being recovered slowly and some hold out hope for full or significant recovery. Although the bankruptcy and liquidation happened Oct. 31, 2011 and some courts ruled in early December 2011 on certain matters, the missing money file remains open and that is telling for tax purposes.
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Recent: Jon Corzine, MF Global
(Bloomberg) — Bill Fleckenstein, president of Fleckenstein Capital Inc. and a futures customer of MF Global Holding Ltd.’s brokerage unit, talks about the prospects of getting back the money he is owed and the legal liability of former MF Global Chief Executive Officer Jon Corzine over a transfer of funds from a customer account. Fleckenstein speaks with on Bloomberg Television’s “InBusiness With Margaret Brennan.”
(Bloomberg) — James Koutoulas, chief executive officer of Typhon Capital Management and president of the Commodity Customer Coalition, and Douglas Burns, a former federal prosecutor, talk about an internal e-mail from MF Global Holdings Ltd. employee Edith O’Brien linking former CEO Jon Corzine to the transfer of funds from a customer account to meet an overdraft with JPMorgan Chase & Co. The Commodity Customer Coalition was formed out of the liquidation of MF’s brokerage. Burns and Koutoulas speak with Erik Schatzker and Stephanie Ruhle on Bloomberg Television’s.
Criminal Defense Attorney Marc Fernich on CNN’s Erin Burnett OutFront talking about Jon Corzine, the former chief executive of MF Global new email about missing funds.
Media Runs Defense For Corzine After MF Global Revelation
Email: Corzine directly ordered transfer of stolen customer funds
The media has predictably leapt to former MF Global head John Corzine’s defense following the revelation that $200 million dollars in customer funds was stolen, “per JC’s direct instructions,” by regurgitating the talking point that Corzine was unaware of the fact that the money was taken from clients.
A memo released by the House Financial Services subcommittee contradicts Corzine’s claim, made under oath before Congress, in which the former New Jersey governor claimed, “I did not instruct anyone to lend customer funds to anyone.”
$200 million dollars in customer funds, part of a $1.6 billion in client money that disappeared, was sent to MF Global’s account with JP Morgan by direct order of Corzine, the email reveals.
“The memo released Friday details an email by Edith O’Brien, an assistant treasurer at MF Global, saying the transfer last October 28 “per JC’s direct instructions” would cover an overdraft in the London account of JPMorgan Chase. “JC” stood for Corzine,” reports Politico.
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Corzine Corzined – Congressional Panel Finds Former MF Global CEO Ordered JPM Fund Transfer
MF’s Corzine Ordered Funds Moved to JP Morgan, Memo Says
Jon S. Corzine, MF Global Holding Ltd. (MFGLQ)’s chief executive officer, gave “direct instructions” to transfer $200 million from a customer fund account to meet an overdraft in a brokerage account with JPMorgan Chase & Co. (JPM), according to a memo written by congressional investigators.
Edith O’Brien, a treasurer for the firm, said in an e-mail quoted in the memo that the transfer was “Per JC’s direct instructions,” according to a copy of the memo obtained by Bloomberg News. The e-mail, dated Oct. 28, was sent three days before the company collapsed, the memo says. The memo does not indicate whether that phrase was the full text of the e-mail or an excerpt.
O’Brien’s internal e-mail was sent as the New York-based broker found intraday credit lines limited by JPMorgan, the firm’s clearing bank as well as one of its custodian banks for segregated customer funds, according to the memo, which was prepared for a March 28 House Financial Services subcommittee hearing on the firm’s collapse. O’Brien is scheduled to testify at the hearing after being subpoenaed this week.
“Over the course of that week, MF Global’s financial position deteriorated, but the firm represented to its regulators and self-regulatory organizations that its customers’ segregated funds were safe,” said the memo, written by Financial Services Committee staff and sent to lawmakers.
Steven Goldberg, a spokesman for Corzine, said in a statement that Corzine “never gave any instruction to misuse customer funds and never intended anyone at MF Global to misuse customer funds.”
