When Jon Corzine became CEO of MF Global, he wanted to change a troubled brokerage firm (since 1997 there have been 80 regulatory actions against it) into a "mini-Goldman" investment bank. The history and collapse of that company are described in the report of the House Subcommittee on. . . Financial Services (November 15, 2012) which concluded that MF Global lacked internal controls which led to its collapse. On that basis, Corzine should have faced prosecution under Sarbanes-Oxley for signing off the company's financial records as accurate and true when they were not.
Corzine was instrumental in causing a $1.6 billion shortfall in customer funds. Some of these customers were farm co-operative that represented 35,000 farmers. The Subcommittee did not look at MF Global's accounting practices nor did it assess potential civil or criminal liability of employees, more's the pity.
The report illustrates just how a firm can still operate even though it has many known regulatory infractions and has leveraged its operations more than 35 to 1. MF Global floundered around for a long time trying to restore customer confidence and still stayed active long enough to do even more damage to its customers. In spite of its bad reputation, it even managed to obtain a primary dealer designation!
MF Global should have been put out of its misery long before its final collapse. That it would even seek primary dealer designation with such a rotten reputation speaks to the rottenness of the whole system of regulation and ratings. MF Global is not alone. A primary dealer like Goldman Sachs faces "litigation and regulatory action or investigation" on an on-going basis and no one blinks an eye.
It is not just MF Global that has a "flawed business model"--all the TBTF banks are flawed merely by having such an unwieldy size.
The report follows the actions of the CEO as he maneuvers and manipulates his firm so that his desires are accorded to without his having to answer to the risks involved. He got rid of employees who impeded his wishes. The report illustrates how self-deluded Corzine was by maintaining that his company was viable just as it was collapsing. Corzine lacked both integrity and leadership.
The Subcommittee recommends enacting legislation that imposes civil liability on officers and directors that sign financial statements and thus ignores Sarbanes-Oxley. Of course, Corzine has not yet faced any repercussions for his fraudulent actions.
What we learn from the Subcommittee recommendations is that regulatory bodies are weak; they overlap each other and confuse enforcement. Restructuring for a safe and honest financial system has a long way to go yet, five years after the financial meltdown.
MF Global shows that little has changed since 2008 to control and prosecute fraud in the financial system.
See the Subcommittee report here
GoldmanSachs666 Message Board
According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage". In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia