It pays to be rich, powerful and a Democrat with friends in Washington. While Anna Gristina, a Connecticut mother accused of being a New York “madam” sits in a cell on Riker’s Island, Jon Corzine, the former CEO of MF Global sits at home in his New Jersey mansion. MF Global had been a publically traded securities firm with $40 billion in assets, but with liabilities even larger, filed for bankruptcy late last year, after being accused of co-mingling customer funds with its own, a flagrant violation of securities law.
As we all know, prostitution is illegal. Ms. Gristina has been charged with providing attractive young women to testosteronic men for money — a crime, but largely victim-less. Nevertheless, she has already spent two months on Riker’s Island, awaiting a June 21st hearing. Bail for her was set at $2 million in a bond, or $1 million in cash. Despite the misappropriation of an estimated $1.6 billion, Mr. Corzine has yet to be charged. Yet 36,000 clients had their money appropriated under his watch. It is hard not to believe that his status as a former Senator from and Governor of New Jersey, and major bundler for President Obama’s campaign has not provided him special privileges. Is not justice supposed to be blind?
It is hard to imagine that Ms. Gristina, whose business was to introduce consenting adults, could be an enormous risk to society. On the other hand, a wealthy and powerful man who appears to have cheated his clients is a fraud and a menace. MF Global was a public company, until it became the nation’s 8th largest bankruptcy when it filed last October. Thus, not only are customers, for whose funds Mr. Corzine had a fiduciary responsibility, out their money, but shareholders of MF Global lost their investment as well. Of course, it is perfectly possible that the morally challenged Mr. Corzine was unaware that embezzling is a crime. However, as CEO he is responsible for financial transgressions within his firm. It is unfortunate that he is not man enough to admit it.
Mr. Corzine testified before Congress, and claimed not to have been aware that anything amiss was going on. “I simply do not know where the money is.” What a whopper! Keep in mind this is a man who had been senior partner of Goldman Sachs, so not a naïf when it came to financial matters. Until the bankruptcy, Mr. Corzine was on President Obama’s short-list to replace Timothy Geithner as Secretary of Treasury. He was not only the CEO of MF Global, Mr. Corzine, according to some reports, was chiefly responsible for the bets on European bonds that got them into trouble in the first place. An e-mail from MF Global’s assistant treasurer appeared to implicate Mr. Corzine in the wrongful transfer of $200 million to JP Morgan, a transfer which included customer funds. But when Ms. O’Brien was asked questions at a Congressional hearing she pleaded the fifth. Why? Was she afraid of Mr. Corzine? Did she feel threatened by the prosecutors? Surely she did not transfer funds of that amount without some higher-ups’ approval. A lot of us would like the answer to a question recently asked by a reporter for The Financial Times: why wasn’t she granted immunity from prosecution, in exchange for her testimony? Are the prosecutors concerned as to where the answers might lead?
This is not the first time that rich, powerful and politically connected Wall Street types have walked away from prosecution. Prosecutors also took passes on Angelo Mozilo, former chairman and CEO of Countrywide and Richard Fuld, former CEO of Lehman Brothers. Both men disgraced their companies and their industries, while losing millions of dollars for investors who had entrusted their savings with them. Crony capitalism does not only lead to criminal behavior, it reflects a moral decay that threatens our capitalist system and the democracy that underlies it. When the defense uses what Matt Taibbi of Rolling Stone calls a “Wizard of Oz” defense — that the stealing was not deliberate; the misplacement of client funds was due to the chaos that attended the firm’s last few days — it’s obvious the perpetrators, with help from their attorneys, are obfuscating the truth.
Regulatory bodies spend millions of our tax dollars every year supposedly supervising those they are charged with overseeing. The events that led to the financial crisis did not happen because of a lack of regulation; it was a lack of enforcement of existing rules. The response in Washington was, of course, to create new rules, not to punish regulators who did not regulate. The Obama Administration is not afraid of lawsuits and charges. Look at the legal problems his Environmental Protection Agency (EPA) is causing the energy industry. But it is telling that this administration, theoretically so friendly to the poor and defenseless, has not sent one person to jail for the near collapse of the financial system four years ago. They could start by looking at Congress. When it comes to investigating the true causes of the near-financial collapse, this administration is the antithesis of Teddy Roosevelt — talk loudly and carry a wiffle bat.
As insulting, has been the response of the Trustee, James W. Giddings. The role of a Trustee is political in the sense that they are awarded by the courts. And they are meaningful in terms of compensation. For example, Irving Picard, Trustee of what is left of the Madoff Ponzi scheme, through last October had billed $225 million. Mr. Giddings’ firm, Hughes Hubbard, has billed $168.7 million thus far for the Lehman bankruptcy. With that sort of money on the table there is plenty of room and opportunity for shenanigans. Mr. Giddings acknowledged that $1.2 billion has gone missing and that a commingling of customer accounts and corporate funds did take place. But it was, in his opinion, at least in part, due to “sloppy” bookkeeping, and computers and employees who could not keep up. That sounds to me like a “Wizard of Oz” defense. Sloppy bookkeeping! Give me a break! This was stealing.
Incredibly, no one has been arrested. Republican Congressman Michael Grimm from New York City has asked for an independent counsel to take over the federal criminal probe being conducted by the Department of Justice (DOJ.) James Koultas, the leader of the Commodity Customer Coalition, an advocacy group for former MF Global clients recently noted the obvious: “I don’t think the DOJ is going to go up against one of the President’s biggest bundlers without an independent counsel being appointed.”
The near-collapse of the financial system four years ago spooked investors. Taxpayers are already rightfully concerned about the cost to them caused by a few rogue traders, who saw millions in personal profits, and lawmakers whose concern about re-election overcame any worries about the consequences of their legislation. When the guilty go unpunished, crime only increases. Joe Nocera, writing a couple of weeks ago in The New York Times, put it this way: “Giving the big guys a pass isn’t good for the financial markets. And it isn’t good for democracy either.” It is the inverse of James Q. Wilson’s “broken windows” theory that says if broken windows are repaired immediately the incidence of crime will decline. When criminal activities such as these go unpunished, the crime rate goes up.
Everyday small time criminals get busted — drug pushers, hookers, purse snatchers and small-time robbers — but wear a white shirt, steal a few million dollars and have friends in high places, and you can stay at home. It is crony capitalism at its worst. Court appointed lawyers get rich; politicians, who have become wealthy, pay back their friends and remain in office. Very few bad guys go to prison. It is a terrible message, if we want to restore faith and confidence in our markets. Democracy is based on property rights and the rule of law. When property is not protected, the law is meaningless. What really is going on with Mr. Corzine?
for The Daily Reckoning
Ed. Note: Sydney Williams graduated from the University of New Hampshire in 1965, and for the last forty-five years he’s worked on Wall Street as an institutional salesman. He has been writing about the financial industry for over a decade, and in the last four years began compiling his thoughts in his daily blog “Thought of the Day: Financial markets, political events and life’s experiences.”