Should Corzine and Flowers be charged with a crime
The collapse of MF Global was painful to investors, and something that could not be foreseen in any way based on their financial statements and comments. Was the collapse just a liquidity panic that can happen to any financial firm with issues or was it a result of intentionally manipulated reporting, window dressing, and misleading statements.
Much has been said by some about the lack of charges against anyone associated with the mortgage banking fueled economic crisis of '08/'09 that is really in many ways still with us. From this viewpoint that was a systemic event that overwhelmed almost everyone in financial services. To charge anyone with a crime would require opening a new Federal prison for rating agency personnel, multiple regulators, some elected officials, bankers, processors, securities analysts, pension fund managers, mortgage brokers, etc. The key major players that benefitted from this systemic overlay were Fuld of Lehman(macho competitive arrogance), Killinger of Wamu(naive and purposeful ignorance), the Sandlers(the Ma and Pa Kettle of the mortgage market who sold Golden West to stupid Wachovia just before the collapse) and Mazzili of Countrywide(openly willful and almost gleeful exploitation of a market). Some would add Blankfein of Goldman to this list but the firm survives and no laws were broken. The aura of their actions is poor, but the legality is under no reasonable scrutiny, except by the odious Carl Levin who plays by no rules and benefits from his own stable of lobbyists.
MF Global's bankruptcy comes at a time when there is no systemic event that would wrap itself around the entire investing world. It stands alone in the U.S. at the moment. Here one can think back to Enron, Worldcom, and Tyco and the punishments received by managers. Worldcom obviously broke laws, in Enron's case it is certain that with Merrill Lynch's help the CFO(turned prosecutor's witness) broke laws but not really anyone else, and with Tyco the only real law broken was buying major artwork from a Vermont address to avoid New York tax and then displaying in a company paid for Manhattan apartment.
In these cases, not part of any systemic event, Ken Lay of Enron, a major philanthropist and good person, essentially got the death penalty, Schilling, the brilliant but alcoholic protagonist of the event got 24 years in prison, the turncoat CFO who orchestrated it all got 12 years, the Worldcom guy got 25, and Tyco's Koslowski(sp?) received 25 years in Attica for a state crime of tax fraud and partying too hard on company money that was approved by the Board of Directors of a firm that is ongoing and never caused shareholders any loss.
Why now are Jon Corzine and J. Christopher Flowers not subject to prosecution. Corzine ran the company and Flowers was the major investor who hired him and orchestrated the whole event. They manipulated financial statements and publicly misled investors. Other financial firms are now not producing the returns they once had and are working to reassure investors at all times, but in fact most are solid. It's the lack of a good growth outlook that concerns investors rather than any chance of failure. The President, regulation, and the economy have taken the sheen off of even the best financial companies.
Full disclosure here, as a retail investor I bought some MF Global, no big amount but not completely trivial either, when Corzine took over. My assumption was that the addition of Corzine, former co-CEO of Goldman, and the role of Flowers, former head of the financial services practice at Goldman and a hedge fund manager focused on that sector, would stabilize a global firm that had already been through a fall and would benefit from the Volcker initiative that would, I thought, lead to a spreading out of derivatives trading to the benefit of mid-sized firms like MF Global. Obviously I am either too far away from the business now to make such judgements or, given some of the major shareholders of MF Global until the last weeks, I had no way of knowing what was going on.
Continuing personal disclosure, I bought in the high 7's on the annoucement, sold in the mid-4's several weeks ago, about 2/3rd's of what I had, on concerns that all was not right, and the last third is a total write off. I definitely have a bias in this post.
Why would Corzine and Flowers not be criminally prosecuted. There is no systemic event in the U.S. going on. Corzine obviously misled investors, a Reg FD crime in itself. Flowers facilitated this although he lost a lot of his investors' money as well. If Koslowski is up at Attica for what he did at a firm that is ongoing in all parts and prospering, why would Corzine for sure, and Flowers perhaps, not be charged with a crime of defrauding investors.
This at least deserves some attention. I wish prison on no one, but do think that this is a unique case of inadequate and misleading disclosure by egomaniacs who let their success at Goldman become their guiding light. They deserve no special treatment. If there is anything that signifies the Goldman culture it was the attention to detail, and these guys knew what they were doing.
Much has been said by some about the lack of charges against anyone associated with the mortgage banking fueled economic crisis of '08/'09 that is really in many ways still with us. From this viewpoint that was a systemic event that overwhelmed almost everyone in financial services. To charge anyone with a crime would require opening a new Federal prison for rating agency personnel, multiple regulators, some elected officials, bankers, processors, securities analysts, pension fund managers, mortgage brokers, etc. The key major players that benefitted from this systemic overlay were Fuld of Lehman(macho competitive arrogance), Killinger of Wamu(naive and purposeful ignorance), the Sandlers(the Ma and Pa Kettle of the mortgage market who sold Golden West to stupid Wachovia just before the collapse) and Mazzili of Countrywide(openly willful and almost gleeful exploitation of a market). Some would add Blankfein of Goldman to this list but the firm survives and no laws were broken. The aura of their actions is poor, but the legality is under no reasonable scrutiny, except by the odious Carl Levin who plays by no rules and benefits from his own stable of lobbyists.
MF Global's bankruptcy comes at a time when there is no systemic event that would wrap itself around the entire investing world. It stands alone in the U.S. at the moment. Here one can think back to Enron, Worldcom, and Tyco and the punishments received by managers. Worldcom obviously broke laws, in Enron's case it is certain that with Merrill Lynch's help the CFO(turned prosecutor's witness) broke laws but not really anyone else, and with Tyco the only real law broken was buying major artwork from a Vermont address to avoid New York tax and then displaying in a company paid for Manhattan apartment.
In these cases, not part of any systemic event, Ken Lay of Enron, a major philanthropist and good person, essentially got the death penalty, Schilling, the brilliant but alcoholic protagonist of the event got 24 years in prison, the turncoat CFO who orchestrated it all got 12 years, the Worldcom guy got 25, and Tyco's Koslowski(sp?) received 25 years in Attica for a state crime of tax fraud and partying too hard on company money that was approved by the Board of Directors of a firm that is ongoing and never caused shareholders any loss.
Why now are Jon Corzine and J. Christopher Flowers not subject to prosecution. Corzine ran the company and Flowers was the major investor who hired him and orchestrated the whole event. They manipulated financial statements and publicly misled investors. Other financial firms are now not producing the returns they once had and are working to reassure investors at all times, but in fact most are solid. It's the lack of a good growth outlook that concerns investors rather than any chance of failure. The President, regulation, and the economy have taken the sheen off of even the best financial companies.
Full disclosure here, as a retail investor I bought some MF Global, no big amount but not completely trivial either, when Corzine took over. My assumption was that the addition of Corzine, former co-CEO of Goldman, and the role of Flowers, former head of the financial services practice at Goldman and a hedge fund manager focused on that sector, would stabilize a global firm that had already been through a fall and would benefit from the Volcker initiative that would, I thought, lead to a spreading out of derivatives trading to the benefit of mid-sized firms like MF Global. Obviously I am either too far away from the business now to make such judgements or, given some of the major shareholders of MF Global until the last weeks, I had no way of knowing what was going on.
Continuing personal disclosure, I bought in the high 7's on the annoucement, sold in the mid-4's several weeks ago, about 2/3rd's of what I had, on concerns that all was not right, and the last third is a total write off. I definitely have a bias in this post.
Why would Corzine and Flowers not be criminally prosecuted. There is no systemic event in the U.S. going on. Corzine obviously misled investors, a Reg FD crime in itself. Flowers facilitated this although he lost a lot of his investors' money as well. If Koslowski is up at Attica for what he did at a firm that is ongoing in all parts and prospering, why would Corzine for sure, and Flowers perhaps, not be charged with a crime of defrauding investors.
This at least deserves some attention. I wish prison on no one, but do think that this is a unique case of inadequate and misleading disclosure by egomaniacs who let their success at Goldman become their guiding light. They deserve no special treatment. If there is anything that signifies the Goldman culture it was the attention to detail, and these guys knew what they were doing.
posted by John Borden at 3:52 PM
1 Comments:
Yes, Corzine for sure, jail time, and Flowers perhaps a misdemeanor with a fine and public service. They were reckless at a time when there was not a whit of a reason to do so.
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