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.

Warren Buffett Pressing Hard to Get Current Derivatives Contracts Exempt from Financial Reform Bill

As I continue to state, the big problem with creating new financial regulations is that it creates power centers where the big boys can play to create legislation that is to their advantage.

None other than Warren Buffett has waded into the current regulation reform pool to move things in a direction that will benefit his firm, Berkshire Hathaway. WSJ reports:

A key Senate committee had changed its proposed overhaul of derivatives regulation after lobbying by Mr. Buffett's Berkshire Hathaway Inc., potentially helping the famed investor avoid a financial hit, congressional aides say...

The fate of Berkshire's effort to influence the legislation remains uncertain. Senate officials said Sunday night that most of the details of the agreement haven't yet been finalized.

The provision, sought by Berkshire and pushed by Nebraska Sen. Ben Nelson in the Senate Agriculture Committee, would largely exempt existing derivatives contracts from the proposed rules. Previously, the legislation could have allowed regulators to require that companies such as Nebraska-based Berkshire put aside large sums to cover potential losses. The change thus would aid Berkshire, which has a $63 billion derivatives portfolio, according to Barclays Capital.

Mr. Buffett's push is especially notable because he has warned of the potential dangers of derivatives, famously branding them "financial weapons of mass destruction."

Buffett actually has a legitimate point here, but the further point is that it takes a problem for a whale like Buffett to get legislation like this changed. If this kind of legislation simply impacted you instead of Buffett, there is no chance you would be able to get it changed.

Whales rule when power centers are created.