MF Global Trustee's Report

When financial wrongdoing's unveiled,
Of a scope that can scarcely be scaled,
One is sadly resigned
That justice will find
There are none to be judged and/or jailed.

The trustee in the MF Global bankruptcy has issued his report, but it will disappoint those looking for a swift path to justice against those responsible for the misuse of $1.6 billion of customer funds. James Giddens, who is unwinding MF Global US brokerage unit, offered little insight beyond the well-known facts: "My investigation has concluded that management's actions, along with the lack of sufficient monitoring and systems, resulted in customer property being used during the liquidity crisis to fund the extraordinary liquidity drains elsewhere in the business." Although he may pursue legal action against former CEO Jon Corzine and others for taking excessive risks and failing to safeguard customer funds, Mr. Giddens drew "no conclusions" about criminal wrongdoing or regulatory violations, citing his lack of authority in those matters. Well, no worries - that should leave the field open to the unrelenting avengers of the SEC and the Justice Department... right?

Corzine's Congressional Testimony

"A billion-point-two, evidently,
Has failed to be found, accidentally;
Though we foundered, it's true,
When our funding withdrew,
Our finances were fine, fundamentally."

Ex-MF Global CEO Jon Corzine told the House Agriculture Committee that he was "devastated by the enormous impact on many people's lives" when the giant futures broker went bankrupt. In his first public appearance since the firm's collapse, Mr. Corzine expressed regret but not remorse. MF Global's failure was, in his view, precipitated not by his misjudgment in holding a $6.3 billion leveraged position in European bonds, but rather the market's sudden lack of confidence in in the firm's balance sheet. Regarding the notoriously missing $1.2 billion in MF Global customers' funds, Mr. Corzine testified: "I simply do not know where the money is."

Those M*F* Risk Controls

A risk manager, naturally prone
To deny an improvident loan,
Heard the boss say: "We're wishin'
To cut this position;
Not that of the loan, but your own."

The Wall Street Journal reports that the Chief Risk Officer of MF Global found himself out of a job after he questioned that firm's big bet on European bonds, arranged by CEO Jon Corzine (pictured). CRO Michael Roseman had argued that the "repo to maturity" trades - in essence, leveraged long bets on treasury bonds of Italy and other sovereigns - could endanger the firm's capital if markets went strongly against them. Both privately and in front of the MF Global board, Mr. Corzine had responded that Mr. Roseman's dire scenarios were unlikely or even impossible. Eventually, Mr. Corzine is said to have grown annoyed with the CRO's persistence; whatever the reason, Mr. Roseman soon found himself assisting in the transition to his successor. Of course, soon afterward, his impossibly dire scenarios came true and the firm was bankrupt.

Overheard in the MF Global Accounting Dept.

"In the annals of shame and ignominy
Of the modern financial economy,
A transgression may start
With a loss on the part
Of a sure-fire thing, not uncommonly."

The New York Times reports that the notorious $600 million of MF Global customers' funds "may no longer be simply missing. It may be gone." Regulators and FBI agents who have worked around the clock to recover the funds now believe that they were used not to margin customers' trades, but to pay off the firm's trading losses. Futures brokers routinely use customers' cash to earn income for themselves, but always back such operations with collateral such as Treasury notes. MF Global now appears to have used up this buffer and simply taken the cash to plug the gaps in its can't-miss $6.3 billion European bond position. This is a shock to the futures trading community, which up to now has believed that its deposits were safely segregated.

MF = Money is Fungible

Said the Feds, in a stern admonition,
At a broker's insolvent petition:
"We place our reliance
That money of clients
Is far from your trading position."

Commodity broker MF Global filed for Chapter 11 bankruptcy on Monday, after weekend in talks with potential acquirers fell through. Due diligence inquiries revealed a $900 million discrepancy in the amount of customer funds on hand, inviting due diligence of a different sort from the FBI. The case of MF Global, in which leveraged bets on European sovereign bonds did not turn out as hoped, highlights once again the necessity of the industry's avowedly strict segregation of customer funds. Clients may be wiped out, but only because of their own bad bets. Against those of the firm, they are federally insured.