So given that it appears MF Global was running an apparent ponzi scheme at the end of its life, and one would assume the executives behind this would be going to jail. One would be wrong.
Joe Nocera of the NYT reports (via another NYT article) that prosecutors can’t identify a “smoking gun“ linking anyone to the theft. Further, “a number of federal prosecutors have expressed doubts… that anyone at MF Global… intentionally misused customer money.”
Translation, it was chaotic at the end: people at the firm were racing to find money, and maybe accidentally took it from client accounts. I don’t buy this. Neither does Nocera, who also suggested maybe executives thought they could repay the money back.
Those would have to be the two most good natured excuses outside of downright theft; however, it would seem neither would be grounds to escape prosecution as may happen. In fact, some executives might still get their bonuses in hopes maybe they can assist in finding the missing money.
Nocera mentions why a lack of prosecution sets another terrible precedent:
A failure to prosecute anyone at MF Global would be, if anything, even worse. It would mean that executives at a broker-dealer can indeed steal customer money and get away with it — so long as it was “unintentional.” And it would only deepen the cynicism so many people feel about government.
This quote points to my growing concern of crony capitalism, which is non-partisan. CEO Jon Corzine was Democratic Senator, Governor of New Jersey, and big fundraiser for President Obama.
Regardless of my feelings and the fallout, how can investors protect themselves? Barry Ritholtz, listed a few ways:
- Don’t leave your money with a firm that trades with their own funds. They might raid your accounts for cash.
- Use a third party custodian that only holds your cash and investments.
I will add, have online access, for an extra layer of protection, and lastly just read the news. If it appears your broker is in trouble get your funds out of there.
