The Autopsy Of MF Global

NYT:

It’s apparent from Mr. Giddens’s report that as MF Global’s financial woes deepened last summer and fall, protecting customer assets was among the least of Mr. Corzine’s priorities. Mr. Corzine testified to Congress that he never knowingly asked anyone to break the law, and nothing in the report explicitly contradicts that. At the same time, he made demands for cash that appear to have left employees no alternative but to divert customer assets.

None of this would have been possible if regulators actually required firms like MF Global to keep customer funds safe. Instead, the commodities commission allows firms to use an alternative method for calculating customer funds in foreign accounts that vastly understates what belongs to customers. Cash, for example, doesn’t count. The difference between what MF Global actually owed its customers and what it needed to segregate under the alternative method was calculated at the firm on a daily basis and often exceeded $1 billion. Although MF Global reported only the alternative calculation to regulators, it prepared its own segregation report every day that showed the true extent of its liabilities. MF Global, like most brokerage firms, also kept a surplus in the segregated funds to make sure that it never ran short. This was available to the firm for other purposes, although in practice it was rarely used. But as the European debt crisis escalated last summer and demands for greater liquidity intensified, the firm proposed to tap the surplus and borrow funds overnight from segregated customer accounts, which prompted a worried response from Ms. Serwinski, according to the report. “Client assets may be put at risk even if for overnight,” she warned, and then asked whether, in the event of “financial crisis,” there was any guarantee that the firm would be able to repay its customers.

The answer, clearly, was no.  Corzine and others should be prosecuted. I don't understand how creditors got margin money, but customers got screwed.  What a bunch of crooks.