Corzine Dodging Bullets?

Last Friday, thousands of burned MF Global clients and industry defenders (ourselves included) seemed to let loose a victory cry when an email surfaced that seemed to implicate Jon Corzine in the plundering of MF Global segregated funds just hours before the futures titan went under. With a headline that read, “MF’s Corzine Ordered Funds Moved to JP Morgan, Memo Says,” the Bloomberg article explained:

Edith O’Brien, a treasurer for the firm, said in an e-mail quoted in the memo that the transfer was “Per JC’s direct instructions,” according to a copy of the memo obtained by Bloomberg News. The e-mail, dated Oct. 28, was sent three days before the company collapsed, the memo says. The memo does not indicate whether that phrase was the full text of the e-mail or an excerpt.

O’Brien’s internal e-mail was sent as the New York-based broker found intraday credit lines limited by JPMorgan, the firm’s clearing bank as well as one of its custodian banks for segregated customer funds, according to the memo, which was prepared for a March 28 House Financial Services subcommittee hearing on the firm’s collapse. O’Brien is scheduled to testify at the hearing after being subpoenaed this week.

The article went on to weave an interesting (if not loosely bound) story about the chaotic last hours, even if the resounding “smoking gun” component to the memo seemed to be missing. Nonetheless, the initial reaction to the relevation was elation at some clarity to the situation, and the long overdue subpoenaing of O’Brien.

But what a difference a few days can make. As the sun peeks out across Lake Michigan this morning, reports are circulating that additional emails indicate Corzine had no idea the transfer was out of segregated accounts.

The e-mail, sent by an executive in MF Global’s Chicago office, showed that the company had transferred $175 million to replenish an overdrawn account at JPMorgan Chase in London. The transfer, the e-mail said, was a “House Wire,” meaning that it came from the firm’s own money. The e-mail, sent at 2:20 p.m. on Oct. 28 to Mr. Corzine and two of his assistants in New York, says the transfer came from a “nonseg” account, industry speak for a noncustomer account.

It appears as though Corzine’s game of plausible deniability is about to continue. After all, there are no records of him explicitly telling someone to raid the client accounts (that we know of). There is only him telling O’Brien, “You gotta fix it.” In fact, during his testimony, he alluded to the fact that someone could have misinterpreted such a statement. Given O’Brien’s refusal to participate in the investigation to date, and her anticipated invocation of the fifth in front of the House Financial Services subcommittee, the set up is nearly Shakespearean in nature. As political blog Donklephant put it:

Consider the off-the-cuff remark by King Henry II: “Will no one rid me of this meddlesome priest?”. He makes an innocent statement, it is overheard by nearby corporate treasurers knights in his employ, and the next thing he knows, the Archbishop of Canterbury is lying in a pool of his own blood.

These things happens. Nobody was really at fault. He was simply misunderstood. All he said was “Just fix it.”

If Corzine is able to skate on such a technicality, it will be a travesty, but it will also be one of many outrageous components to this case. How long does it take to sift through 72 hours worth of wires? Is $1.6 billion really so paltry a sum that it cannot be found? Where is JPMorgan? Their silence on the matter only exacerbates an already poor public opinion of their operations. Since the regulators supposedly found all the money months back, where is it? Why is it, after all these months, that the only thing we’ve been able to find is a pile of more questions?

We wish we had some answers for you, but unfortunately, we don’t. We continue to be inspired by the futures industry’s collaboration toward system-wide reform, and we will continue to encourage you to seek out relationships with smaller firms. Here’s hoping that, at some point here, the facts get set straight.