E-Mail Clues in Tracking MF Global Client Funds

A new name has surfaced in the disappearance of client funds at MF Global.

Federal authorities investigating the collapse of MF Global have uncovered e-mails that detail the transfers of money in the firm’s last days, including transfers that contained customer money, according to people close to the investigation, NYT is reporting.

One e-mail chain refers to the transfer of roughly $200 million that MF Global owed JPMorgan Chase on Oct. 28 — the firm’s last business day before it filed for bankruptcy. In that chain, a senior official in the firm’s Chicago office was told to make the transfer, said the people close to the investigation who requested anonymity because the inquiry was still open.

That official, Edith O’Brien, a treasurer at MF Global, is considered a “person of interest” in the investigation, said two of the people, who added that authorities expected to interview her in the coming days. It was not clear who had directed O’Brien, whose job was to oversee the customer money, to make the Oct. 28 transfer. The roughly $200 million that JPMorgan Chase received is said to be entirely customer money.

O’Brien has hired a prominent criminal defense lawyer, Reid H. Weingarten of Steptoe & Johnson,says NYT.

NYT reports that the transfer to JPMorgan was not the only questionable one. Investigators suspect that later on Oct. 28, MF Global continued using customer money to settle payments with trading partners and others, leading to the roughly $1 billion hole in customer cash.

Get a load of this (from NYT) my bold:

Ms. O’Brien is considered an expert of sorts on the protection of customer money at futures firms.

In the last year and a half, Ms. O’Brien has made several appearances before the Commodity Futures Trading Commission. On at least two occasions, she was a panelist at roundtable discussions held at the agency on the topic of safeguarding customer money, and also attended at least three meetings with agency officials, including one titled “Practicalities of Individual Customer Protection.”

Since MF Global’s collapse, Ms. O’Brien has been working for the trustee overseeing the liquidation of the firm’s brokerage unit, helping lawyers and accountants understand the firm’s operations.

The closer they get to the government created power center, the more they are likely to abuse the system.

Jon Corzine's Relationship with CFTC Chair Gary Gensler Probed

This is from Matt Taibbi, who could screw up a report of the Second Coming, even if it happened right in front of him, so with that caution, I report what he thinks he has:

Getting a lot of calls about Jon Corzine [of MF Global] and his relationship with Commodity Futures Trading Commission (CFTC) chairman Gary Gensler.

Both Corzine and Gensler worked at Goldman back in the day, and the word is that Corzine personally lobbied Gensler to delay the implementation of new rules that would have helped prevent Corzine from raiding his own clients' funds.

This whole issue smacks of the improper communications between other former Wall Street co-workers like Hank Paulson and Lloyd Blankfein. More and more, it appears that, as a matter of routine, federal regulators like Paulson (in 2008) and, later, Gensler reach out to old friends on Wall Street to negotiate/discuss the timing and the form of various policy changes, bailouts, and other regulatory matters.

Bottom line: If you create power centers (like the CFTC)the unscrupulous will attempt to influence the power centers. Bernie Madoff was close to the SEC and now this possible Corzine relationship with Gensler.

Even Taibbi seems to get the problem with power centers:

This is one of those issues where there's no point in calling for more regulations. No matter what laws we have, we can't have regulatory heads breezily chatting about their enforcement plans with former co-workers who have huge financial interests resting upon their decisions

BTW, Goldman recruited Gensler hard, when he was getting his MBA at Wharton. Back in 2009, I reported:

A friend who attended Wharton with Gensler tells me he was the smartest student in the class. When Goldman visited the campus the year Gensler graduated, Gensler was the only student that they wanted to talk to.

Obama to Nominate Goldman Sachs Man for CFTC

The Goldman octopus has captured control of another regulatory position.

Obama is expected to name Gary Gensler as the next chairman of the Commodity Futures Trading Commission, according to WSJ.

Gensler, a former assistant secretary for financial markets at the U.S. Treasury Department, used to work as a partner at Goldman Sachs.

Vitol At One Point Held 11% Of All Nymex Oil Contracts

A single energy conglomerate held 11 percent of all contracts on the New York Mercantile Exchange at one point last month, according to a story out of WaPo.

The Commodity Futures Trading Commission made an unusual request last month for data from Vitol Group, a private Swiss energy company that regulators thought was helping industrial firms get the oil they needed.

The commission discovered, however, that the Vitol would be better described as a speculator for its own account , trading oil contracts to turn profits rather than assisting companies that actually needed oil delivered for their operations.

The commission investigation showed Vitol was one of the most active traders of oil on Nymex as prices reached record levels.

By June 6, Vitol had amassed contracts equal to 57.7 million barrels of oil, about three times the amount the United States consumes daily. On that day, the price for a barrel of oil spiked $11 to settle at $138.54, per barrel, valuing Vitol's oil holding at nearly $8 billion.

Interestingly, the CFTC issued a statement in response to the WaPo story saying:

To date, the CFTC has found that supply and demand fundamentals offer the best
explanation for the systematic rise in oil prices. Regardless of their classification . . . the CFTC's market surveillance group scrutinizes daily the positions of all large traders, both commercial and non-commercial, to guard against market manipulation.

Hmm, the CFTC may actually have staff members that understand how markets work and that the chance Vitol "controls" the oil market is slim to none.

CFTC Gets In The Act...

... with a "show trial," um, "show enforcement action". The CFTC has charged a Netherlands-based trading firm with manipulating the muti-billion dollar oil markets. These guys were so good at it that the CFTC says they actually made a million dollars.

Manipulating a billon dollar market and making just one million dollars, oh yeah.

Here are the details on this goofy charge:

CFTC has charged Optiver, a Netherlands-based global proprietary trading fund, two of its subsidiaries and three employees, with manipulation and attempted manipulation of crude oil, heating oil and gasoline futures contracts listed on the New York Mercantile Exchange in March 2007.

The regulator has filed the civil enforcement action in the U.S. District Court for the Southern District of New York against Optiver Holding BV and two subsidiaries -- Optiver US, LLC, a Chicago-based corporation, and Optiver VOF, a Dutch company.

The complaint also named defendants Christopher Dowson, head trader of Optiver; Randal Meijer, head of trading and supervisor of Optiver and Optiver VOF; and Bastiaan van Kempen, chief executive officer of Optiver.

The complaint charged all defendants with 19 separate instances of attempted manipulation involving the energy futures contracts on 11 days in March 2007.

In at least five of those 19 attempts, the defendants successfully manipulated certain energy futures contracts, causing artificial prices, CFTC alleged.

"Although this alleged energy trading scheme lasted only several days in March 2007, even short-term distortions of prices will not be tolerated by the Commission," said CFTC Acting Chairman Walt Lukken.

The defendants used a scheme known as "banging" or "marking" the close, which refers to the practice of acquiring a substantial position leading up to the closing period, followed by offsetting the position before the end of the close of trading in an attempt to manipulate prices, according to the CFTC complaint.

On March 19, 2007, van Kempen told an Optiver trader: "You should milk it for right now because you never know how long it's going to last," according to CFTC.

In a separate conversation, Dowson said that with 1,000 gasoline contracts, one could "really bully" the market. Meijer added that "you can bully around more with more."

The complaint also charged Optiver and van Kempen with concealing the scheme and making false statements in response to an inquiry from the Nymex.

Here's where it really gets good:

Acting Enforcement Director Stephen Jay Obie said at a news conference on Thursday that "these [Optiver's] manipulations had an impact on the market. At this point, we're not in a position to quantify the impact on the market."

"This is not a politically motivated case," Obie said. "What we're going after are manipulators of our markets. We pursue all manipulators."

Not sure of the impact? Let me put it this way, it had about as much impact as this CFTC enforcement action will have on the price of oil: None.

Not political? Obie held a press conference for this goofy charge!

If I had a dime for every trader who tried to close his stock, commodity, whatever, up on the day, I would be an American Oligarch before Randal Quarles.

Actually, van Kempen on tape pretty much says they are just taking advantage of a very strong market that won't last: "You should milk it for right now because you never know how long it's going to last."

No manipulation here. These dudes were just surfing the Federal Reserve money printing, inflation creating, Big Wave. Case dismissed!