Will Maria Bartiromo Ask Jamie Dimon the BIG MF Question?

Maria Bartiromo is going to interview JPMorgan CEO Jamie Dimon today at 4:30PM ET on CNBC.

There are many indications that JPMorgan held up payment of hundreds of millions of dollars to MF Global, when JPM acted as agent on a transaction between Goldman Sachs and MF Global. If JPM did hold up hundreds of millions of dollars, this may be why MF Global clients still haven't been 100% compensated. Will Bartiromo ask Dimon about it?

Forbes Follows Up on EPJ Report on Suspicious MF Global Filing Practices

Following up on the report of EPJ's Bob English on suspicious filing practices surrounding MF Global documents, Francine McKenna comments at Forbes:

Instead of looking out for MF Global investors – and customers who are still waiting for their money – it looks like regulators and the bankruptcy trustees are busy suppressing information. Instead of full transparency, regulators and the trustees are holding onto crucial details that might tell us all who was asleep at the wheel when the broker/dealer and futures commission merchant (FCM) headed over the cliff.

Bob English, an independent trader and contributing editor to the blog, Economic Policy Journal, published a post this morning that raises serious questions about the Securities and Exchange Commission’s program of regulation for broker/dealers and, in particular, the agency’s role in keeping the truth from the public about what went wrong at MF Global.

McKenna continues:

PwC’s report to the SEC of internal control discrepancies for 2010, and there is one according to the filing index, is private. None of the auditor’s reports specific to the broker/dealer and FCM are available to the public on Edgar for 2011.

Is this just sloppy scanning? It’s no coincidence to me that auditor PricewaterhouseCoopers may also be playing a role in keeping uncomfortable or incriminating information from the public about its audit clients which include MF Global as well as Bank of America, JP Morgan, and Barclays. (See latest record fine against PwC for looking the other way at customer funds commingling at JP Morgan. They are also under investigation for similar sins at Barclays.) The largest audit firms routinely request confidential treatment of their reports and contract details such as engagement partners, whether as a vendor to the government or as a defendant in a contentious lawsuit.

There’s also a very strong interest on all sides of the MF Global mess in not leading anyone to third-parties such as bankers like JP Morgan, lawyers, and PwC, the auditors, too soon. Is there something in PwC’s secret audit reports and internal controls discrepancy reports for the broker/dealer for 2010 and perhaps 2011, that someone, anyone should have paid attention to earlier?

Here we are, more than two months after the forced liquidation of the MF Global broker dealer - it’s important to note this was no voluntary bankruptcy filing but a liquidation forced on MF Global by the Securities Investor Protection Corp – and the missing $1.2 billion of customer funds has not yet shown up...

When the trustees, the regulators, and the FBI finally stop looking under sofa cushions for the missing customer funds, they’ll have to start preparing lawsuits against third-parties to meet the huge shortfall including directors, JP Morgan, Jeffries, who underwrote the bond issue in August, and auditor PwC.

The Department of Justice will be forced to file criminal charges against someone.

What evidence will they base these lawsuits and criminal complaints on? Typically, a bankruptcy trustee hires a bankruptcy examiner to develop the theories and uncover the evidence used to hold executives, directors, bankers, underwriters, auditors and attorneys responsible for the failure of the firm and any fraud.

That hasn’t happened here. Why not?

EPJ Uncovers Suspicious Filing at the SEC with Regard to MF Global Documents

Some strange doings at the SEC, with regard to MF Global documents.

Documents that disappear, as noted by EPJ's own Bob English, then resurface with deviations from the normal "received stamp," pages that look to include copy with a different type and a new scribbling on a document that was specifically identified earlier by English. English summarizes:

The fact that the stamp says "REGISTRATIONS BRANCH" is also a deviation from the filing stamp that broker filings usually receive. Here is MF Global Inc.'s 2010 report, which contains the typical diamond shaped filing stamp (truncated at the top):

Finally, we hinted at the top that there are a few curious annotations in the replacement MF Global Inc. filing. Compared to the original filing, the replacement filing has text that is slightly smaller and more blurred. Also, the right margin is wider, which all suggests it is a photocopy. Thus, we are left to wonder whose hands this copy passed through before being scanned, and just who was interested in the first paragraph of the financial notes, which specifically addresses the definitions of the various MF Global entities:

And further, why would this person have scribbled below the sentence that specifically addresses the European repo-to-maturity trades that were transacted with an affiliate of the broker unit?

Here is the original:

Interestingly, we included only two excerpts from the MF Global Inc. financial notes in our November 9 article, and the sentence above the handwritten scribble constitutes one, the other being this:

These annotations, combined with the three month delay in scanning, along with the atypical filing stamp all suggest that the 2011 MF Global Inc. report has been receiving special attention at the SEC. Yet, the public record reveals very little of this file tampering, and would likely have gone unnoticed had MF Global not been so high profile. Indeed, the deleted filings of JP Morgan Securities, Goldman Sachs & Co., Banc of America and Newedge USA have gone unnoticed for years.

The full report by English is here.

Does Jamie Dimon's JPMorgan Chase Have the MF Money that Belongs to Lind-Waldock Customers?

Most Lind-Waldock  customers have still not been made whole as a result of  the bankruptcy of MF Global and the likley improper removal of cash funds and other assets from Lind Waldock by parent MF Global.

It now appears that MF used the banksters at JP MorganChase and Goldman Sachs to complete some, or all, of the possibly illegal transfers. It is not clear whether JPM or GS knew the source of the assets that were involved. But Reuters is reporting the following:

MF Global unloaded hundreds of millions of dollars' worth of securities to Goldman Sachs in the days leading up to its collapse, according to two former MF Global employees with direct knowledge of the transactions. But it did not immediately receive payment from its clearing firm and lender, JPMorgan Chase & Co, one of the sources said.

The sale of securities to Goldman occurred on October 27, just days before MF Global Holdings Ltd filed for bankruptcy on October 31, the ex-employees said. One of the employees said the transaction was cleared with JPMorgan Chase.

At the same time MF Global, which was run by former Goldman Sachs head Jon Corzine, was selling securities to Goldman to raise badly needed cash, the futures firm was also drawing down a $1.2 billion revolving line of credit it had with JPMorgan, according to one of the former MF Global employees.

JPMorgan spokeswoman Mary Sedarat said the bank did not withhold money because of the line of credit. She declined further comment on details of the transactions.

JPMorgan has fought aggressively in bankruptcy court to protect its interests, and received a lien on some of MF Global's assets in exchange for granting the firm $8 million to fund its bankruptcy costs. The lien puts JPMorgan's interests ahead of MF Global customers who have not yet received an estimated $900 million worth of money from their accounts, which remain frozen as regulators search for missing funds.

The hastily crafted transactions and the seeming inability of MF Global to recoup some of the money in the sale to Goldman may start to explain why so much money remains unaccounted for at the futures firm.

It is unclear what type of assets Goldman bought from MF Global, but the securities were worth hundreds of millions of dollars, the former employees said. The sources spoke on the condition of anonymity.

So here's the likely scenario. MF sells assets to GS. The transaction is cleared through JPM. At the same time, MF is drawing down on its billion dollar plus line of credit with JPM. At some point, JPM gets nervous about the credit drawdown by MF and decides to hold cash due MF from GS, to protect the against the money just lent out via the credit line.(Cash which MF would have used to pay to MF's Lind-Waldock customers )

Immediately following the bankruptcy, just in case JPM is forced to pay the cash due MF, JPM then uses its high priced lawyers to get a lien on some MF assets ahead of MF customers, before anyone else figures out what is going on.

Sweet. And that's how Jamie Dimon rolls.

(htJosephCotter)

Caught Red Handed (on the Eve of Christmas) The SEC Big MF Scrub

Wow, we don't take days off here at EPJ, and for good reason. The real sneaky stuff usually happens when everyone else is out partying.

EPJ's Bob English has caught a big scrub of key MF Global filings with the SEC, which has apparently occurred in recent weeks/days.

Got that? MF Global is under investigation for the co-mingling of client funds and some one is scrubbing SEC filed documents from the internet.

Bob English has the full story, here.

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.

Corzine Served with Papers while on Capitol Hill

Former MF Global chief Jon Corzine was served with papers on behalf of Sapere CTA Fund, during a break from a House panel hearing. CNBC's Kayla Tausche has details.

The papers, according to Tausche, were served based on Sapere CTA, having $95 million in assets with presumably a subsidiary of MF Global in addition to $125 million in Treasury bills.

Is Your Money Safe at Merrill Lynch and Fidelity?

The MF Global debacle has clearly shaken people up. Despite devoting one major post to the safety of investment accounts, I continue to receive email questions about the safety of specific firms including Merrill Lynch and Fidelity.

As a follow up to my initial post, here are a few thoughts.

Is your money safe at Merrill Lynch and Fidelity? Most likely, yes.

BUT, I would have said the same thing about the commodity brokerage firm Lind-Walldack, which was owned by MF Global and where client accounts are now frozen.

The blow up of MF Global is not an unusual event. Many hedge funds have blown up in recent years (e.g. Long Term Capital Managemnet), and brokerage firms have blown up (e.g. Lehman Brothers), but it is rare for supposedly segregated funds do be involved in such blow ups.

In the case of hedge funds, they usually don't own brokerage firms. In the case, of brokerage firms, they usually don't dip into segregated funds because that is a major violation (read: jail time). You need someone pretty desperate and not thinking very clearly do so.

Francine McKenna reports at Forbes:

The CME conducted an audit of segregated funds on October 24. According to several published accounts, this review was completed that same day. At that time, the CME says, “MF Global was in compliance with its segregation requirements.”...On October 27, Thursday, as a result of the earnings call, Moody’s reduced MF Global two more steps to Ba2 and put it under review for more possible cuts. Bloomberg reported that the company had exhausted all of its credit lines the night before.

This is most likely when the real desperation kicked in. Bankruptcy should have been filed right then, but instead, a decision was likely made to use client segregated assets to meet margin calls, insanely hoping that markets would turnaround in a day or two and the assets would be put back in client accounts without any clients aware of the major violation that had occurred, or perhaps hope it would buy time to sell the firm.

McKenna describes a very strong plausible theory on how the thinking would have gone down, if Corzine was hoping to sell the firm:

I’ve given those who executed the “nuclear option” to save MF Global the benefit of the doubt. I believe those executives used all available legitimate means to raise cash first, including trying to sell proprietary assets, as CNBC reported, and exhausting existing credit lines. When margin calls on the repurchase agreements and account closure demands from strategically important clients – not the bread and butter individual traders and smaller investors and money managers who got rubber checks – kept coming, they hit the wall.

Why do I believe MF Global executives transferred customer assets not cash to “house” accounts? Because missing cash would be noticed immediately. Their clients were still trading and clearing and cash was required to settle. Securities such as U.S. Treasury Bills, blue-chip equities such as CME Group stock held by many exchange members, and physical assets such as gold, warehouse receipts, and other certificates of title are less active. They would not be missed Thursday through Monday.

What did MF Global do once these assets were moved to a “house” account? I believe they pledged the customer assets as collateral for a short term loan...Corzine planned to sell the company not file bankruptcy.

There was no time to monetize the assets by selling them outright. That would have made replacing them quickly, in kind, much more difficult. A privately arranged line of credit, secured by a basket of assets discounted by up to 50% due to the risk of default and the firm’s desperation, could be unwound as soon as a deal to sell the firm was struck. All the assets could go back into the customer accounts and no one would be the wiser.

Any firm willing to lend $300-400 million for a week or so against approximately $700 million of customer assets was certainly wise enough to require recourse to those assets in the event of a bankruptcy. Some of the assets, like CME stock, were sure to drop in value if the bankruptcy occurred.

When MF Global filed for bankruptcy midday on Monday October 31, 2011, the lender owned the customer assets.

My guess is the pledged assets were immediately liquidated.

In other words, this was a situation that developed over a very short-term period that an outside accounting firm would have little chance of catching.

Could this type of thing happen at Fidelity or Merrill Lynch?  Very unlikely. Fidelity is an entirely different operation with no leveraged hedge fund activities that I am aware of. Merrill Lynch is owned by Bank of America, a bank that seemingly is considered TBTF by the government, This probably also means Merrill.

That said, we live in very unusual economic times. It's hard to see how Fidelity or Merrill would get themselves into such a desperate financial situation with desperate man at the top making very desperate decisions , but it can't be ruled out. The best thing, as I pointed out in my first post on this topic, is to diversify your assets over many different firms, and where possible take delivery of certificates, gold and cash.

Corzine: I Don't Know Where MF Money Is

Jon Corzine, the former U.S. senator, New Jersey governor and Senior Partner of Goldman Sachs, who presided over the collapse of the commodities brokerage MF Global, says he cannot explain what happened to “many hundreds of millions of dollars” that the firm was holding for customers.

Developing....


UPDATE 1

In testimony prepared for delivery to Congress this morning, Corzine says he was “stunned” to learn shortly before the firm sought bankruptcy protection that MF Global could not account for the money.

“I simply do not know where the money is, or why the accounts have not been reconciled to date,” the former MF Global chief executive says, according to the testimony.

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.

HOT: MF Global Employee Links Clinton to the Bankrupt Firm

A former MF Global employee accused former president Bill Clinton of collecting $50,000 per month through his Teneo advisory firm in the months before the brokerage careened towards its Halloween filing for Chapter 11 bankruptcy, reports Human Events.

Teneo was hired by MF Global’s former CEO Jon S. Corzine to improve his image and to enhance his connections with Clinton’s political family, said the employee, who asked that his name be withheld because he feared retribution, according to HE.

The Teneo contract with MF Global lasted at least five months, the souce said. “The board cancelled it after Corzine resigned.”

The source, who is no longer associated with MF Global, said Teneo is a dual-track company with one side devoted to merchant and investment banking and the other side set up to provide image and strategy consulting services.

Clinton is the chairman of the company’s advisory board, reports HE. His duties and compensation have not been released. The other member of the board is former British prime minister Tony Blair.

Two of the three founding partners are very close to the former president and his wife, Secretary of State Hillary R. Clinton. They are Douglas J. Band, who is the former president’s counselor and has served on his personal staff since 1995 and Declan Kelly, who earned the “Hillraiser” status in the secretary’s 2008 run for president for bundling more than $100,000 for the campaign.

Another prominent member of the Clinton political family is Tom Shea. Shea is a senior vice president for Teneo Strategy and served as Corzine’s chief of staff, when Corzine was the governor of New Jersey.

The collapse of MF Global has caused financial pain for many, including customers at the commodities trading, Lind-Walldock. LW is owned by MF and indications are that Corzine directed the use of LW segregated cash to back up losing MF Global trading positions. Customer accounts at LW have been frozen since the bankruptcy of MF.


Developing....

EPJ's Bob English is conducting further research.

UPDATE 1: More from HE: Teneo landed its first major client June 1, when the Rockefeller Foundation gave Teneo a $3,447,150, six-month contract to help plan the foundation’s 2013 centennial.

Is Your Money Safe at Your Brokerage Firm?

Ann Barnhardt of Barnhardt Capital Management last week advised clients that her firm was liquidating all customer brokerage and options accounts as a result of the Chicago Mercantile Exchange response to the collapse of MF Global. In a series of letters published on her web site, Barnhardt states that the system “is no longer functioning with integrity and is suicidally risk-laden”. She wrote in part:

BCM HAS CEASED OPERATIONS 

Dear Clients, Industry Colleagues and Friends of Barnhardt Capital Management,

It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator.

The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.

The futures markets are very highly-leveraged and thus require an exceptionally firm base upon which to function. That base was the sacrosanct segregation of customer funds from clearing firm capital, with additional emergency financial backing provided by the exchanges themselves. Up until a few weeks ago, that base existed, and had worked flawlessly. Firms came and went, with some imploding in spectacular fashion. Whenever a firm failure happened, the customer funds were intact and the exchanges would step in to backstop everything and keep customers 100% liquid – even as their clearing firm collapsed and was quickly replaced by another firm within the system.

Everything changed just a few short weeks ago. A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.

I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg

Who is Laurie Ruth Ferber and What the Hell is She Up To?

Laurie Ruth Ferber is just what elitists look for in a lawyer, someone who can talk technical details to get what a firm needs. EPJ's Bob English has done some detailed research on Ferber, a gal who sure knows how to end up around trouble.

Bob writes:

Laurie Ferber is [general counsel of recently collapsed] MF Global...and was previously a managing director of Goldman Sachs and general counsel of  Drexel Burnham Lambert [which also collapsed]. More recently, she co-authored the December 2, 2011 letter to the CFTC arguing against many of the contemplated changes to CFTC Rule 1.25, which governs the investment of customer segregated funds. Yes, the same funds that have gone missing to the tune of over $500 million, which has given the excuse for Trustee Giddens, working billing at $891 per hour, to freeze ALL customer cash..billions of dollars spread over 50,000 active accounts. Wehighlighted this letter in our previous expose of MF Global's shady dealings here.

Want more? Bob continues:

 It seems Ms. Ferber almost single-handedly made commodities an asset class when she obtained this secret exemption letter from the CFTC, which did not surface until 2008. The letter was written to her by Jean Webb, CFTC Secretary, when Ms. Ferber was General Counsel of J. Aaron & Company, owned by Goldman Sachs. It granted an exemption to speculative position limits in commodities based on the hedging activities related to the Goldman Sachs Commodities Index. Matt Taibbi wrote about this here, but got his facts wrong, confusing the recipient (Ferber) with the sender (Webb).

Below is an excerpt from a post we wrote last year about how the GSCI was unexpectedly rebalanced in the summer of 2006 right as Paulson came into the Bush administration. It was the energy component that was substantially revised downward, which led to immediate forced selling and lower gas prices into the election. From this filing, we know Ferber sat on the GSCI Policy Committee at the time. She would have been the energy expert.

Bob's full report is here.