Where's the Money, Jon Corzine?

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This should be a really easy question for former MF Global (OTC: MFGLQ) CEO Jon Corzine. We should be able to ask, "So, Corzine, where is the money?" and he'd point us in the right direction.

But in the wake of MF Global's whirlwind bankruptcy, that question has been anything but easy.

As I write this, there is still some $600 million in customer money that's missing. That money was supposed to be housed in segregated accounts so that in the case of a bankruptcy it could easily be returned to the traders that rely on those funds to work on a daily basis.

But how in the world could something like this happen? At this point, it's all speculation, but there are a few likely theories for the missing funds.

A very questionable history
My current favored explanation for the missing funds at MF Global is the possibility that there have been shady dealings going on inside the company for a long time.

The disgraced, failed broker Refco was swallowed up by former MF Global parent Man Financial and rolled into MF Global. Even if we put aside the fraud that brought down Refco, the culture at both MF Global and Refco was so toxic that their regulator fines absolutely dwarf larger players such as Goldman Sachs (NYSE: GS  ) , JPMorgan Chase (NYSE: JPM  ) , Bank of America Merrill Lynch (NYSE: BAC  ) , Morgan Stanley (NYSE: MS  ) , and yes, even Lehman Brothers.

In this scenario, the bankruptcy wasn't the cause of the missing funds. As Warren Buffett likes to say, you only know who's swimming naked when the tide goes out. The bankruptcy was just the low-tide event needed to show that MF Global was always swimming naked when it came to its customer accounts.

Maybe Corzine knew about this, maybe he didn't. Ever since the Sarbanes-Oxley Act, though, the bottom line is that the buck stops with the CEO. Corzine and the rest of the management team attested to the company's internal controls in the most recent annual report, and it's Corzine's responsibility to set the tone for the company's culture and what will and won't be acceptable.

If this turns out to be the explanation for the missing funds, it would be an epic fail for Corzine as an effective leader.

Save the sinking ship!
Another explanation is that in a last-ditch effort to keep the company afloat while he tried to find a buyer, Corzine authorized customer funds to be used as funding for the company. This story suggests that Corzine was convinced he'd find a buyer and that as soon as he did, its deep pockets and better access to credit would allow MF Global to quickly and quietly replace the customer funds it had ... um, reappropriated.

For Corzine, this would be the worst possible scenario. Using customer funds to fund the company is a big, big no-no, and the former CEO could be looking at jail time if he gave the go-ahead for that action.

One argument against this theory is that Corzine is (very) independently wealthy and wouldn't risk the shame and jail time if he got caught doing something illegal. But that concern never stopped Bernie Madoff or Raj Rajaratnam -- both of whom were extremely rich without having to do anything illegal, yet they did anyway. As fellow Fool Morgan Housel explained, sometimes rich people simply do stupid things.

Following an ouster as CEO of Goldman Sachs and a lost gubernatorial election in New Jersey, perhaps Corzine was ready to do anything he could to avoid one more loss.

Really ... bad ... bookkeeping
When Corzine took over as CEO, he went on a hiring spree and shook up the MF Global C-Suite. At the same time he was launching the ambitious strategy to turn the futures broker into a major investment banking player.

Among the executive shuffles that really jumped out at me was the shifting of Chief Financial Officer Randy MacDonald to head up the company's retail division and the promotion of former principal accounting officer Henri Steenkamp to CFO.

MacDonald was a very experienced hand. He'd been MF Global's CFO from 2008 to 2011 and prior to that he had been CFO of TD AMERITRADE (Nasdaq: AMTD  ) and Investment Technology Group (NYSE: ITG  ) , a vice president at Salomon Brothers, and an audit senior manager with Deloitte & Touche. Steenkamp, meanwhile, was a much younger guy whose career was eight years with PricewaterhouseCoopers and five with MF Global. April 2011 was the first time that the 34-year-old Steenkamp wore the CFO badge.

Was Steenkamp prepared for the CFO's responsibilities? Did the executive musical chairs provide too much confusion?

All of this could have made the books really ugly at MF Global. Ugly enough to make $600 million look like it vanished into thin air? Possibly. But as the search for the missing money stretches on, a relatively benign explanation like this looks far less probable.

Tips aren't just for waiters
A pit bull has nothing on us here at The Motley Fool when it comes to this story. We're looking under every rock we can to get to the bottom of this. But since we're all about community here, we know that the bigger the effort, the better. So if you know something about what's going on behind the curtain at MF Global, drop us a line at

The Motley Fool owns shares of Bank of America and JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of The Goldman Sachs Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer owns shares of Bank of America, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

Read/Post Comments (17) | Recommend This Article (22)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 14, 2011, at 4:53 PM, cattywampus wrote:

    In Jason Zweig's book 'Your Money and Your Brain' on page six "the neural activity of someone whose investments are making money is indistinguishable from that of someone who is high on cocaine or morphine", I just wish re-hab had a chance of stopping this corruption.

  • Report this Comment On November 14, 2011, at 6:04 PM, xferjenx wrote:

    Corzine's a crook. New Jersey is asking the same question...

  • Report this Comment On November 14, 2011, at 6:16 PM, TMFTomGardner wrote:

    Matt, thanks for laying out the likely scenarios. Great work. I want to put in a plug for the email address. Initially, we are going to focus this contact point entirely on matters related to MF Global. We are dedicating resources toward this, and are going to be relentless until the full sordid tale has been told. Any and all help we can get from our investment community is welcome. Any of the MF Global shareholders that were rapidly dismissed, anyone working at an MF Global affiliate. We are looking for any additional information you can offer.

    Over time, we are going to broaden, and build resources around it, in hopes that we might even prevent a problem or two. Foolishly, Tom

  • Report this Comment On November 14, 2011, at 7:06 PM, cattywampus wrote:

    On 60 minutes last night they did a segment on our congressmen and women being able to trade stocks on information that they are privy to in their congressional undertakings. It seems to me that this is just another form of corruption by the people who are supposed to reprensent us. It was pointed out that our congressional represenatives spends millions of dollars to get elected to a job that pays 174,000 dollars a year. I believe that power is much like a drug that people get addicted to and like addicts they soon lose their moral compass. The temptation is just to great for some people who are often classified as addictive personalities. Given that we are only human, I think we should arm ourselves with the information that neuro-economics has revealed and instigate strict regulations where these human frailties are likely to cause our society harm.

  • Report this Comment On November 14, 2011, at 7:14 PM, EquityBull wrote:

    Corzine will not go to jail. Too much money and connections. He's above the law. Watch our weak country do nothing to bring him to justice. What good is SarBox if they don't prosecute? It's worthless and Corzine will prove this.

  • Report this Comment On November 14, 2011, at 8:39 PM, RockenD wrote:

    The story around MF Global seems to get fuzzier as time goes by.

    This link is to an article from Huff Po which was linked to Google news regarding MF Global.

    Although Huff Po seems to have an axe to grind with the Koch Brothers, the article adds fuel to an already messy situation.

  • Report this Comment On November 14, 2011, at 8:43 PM, rfaramir wrote:

    If he's not jailed, SarBox will be revealed to be worse than worthless. It's already a huge cost, and it is stifling innovation due to fear. If it proves ineffective at its sole reason for being it must be ended.

  • Report this Comment On November 15, 2011, at 12:27 AM, Merton123 wrote:

    Who audited MF Global financial statements? Wouldn't one of the audit procedures be to confirm that the clients money is not commingled with MF Global?

    The Sorbane Oxley Act takes away the excuse of ignorance from MF Global CEO. There was a chain of people who signed off on the various financials at the various levels of the company. Prior to Sorbane Oxley act there was no way to hold the CEO legally responsible. He/She could always claim ignorance.

    However for all the clients who entrusted their money to MF Global being able to hold somebody legally accountable may be of scant comfort. The legal process takes a very long time.

    A person's best protection is to work with institutions that have a good reputation like Merryl Lynch, Fidelity, Vanguard, Charles Schwab. I personally do all my investing through Vanguard.

    Caveat Emptor

  • Report this Comment On November 15, 2011, at 12:59 AM, Gyre07 wrote:

    There's nothing surprising about any of these scenarios. This country is rotting from the head down. The "head" happens to be the 1% where the wealth is concentrated, as well as the political elites who make it all possible. The best and most obvious evidence of this is in the nearly complete failure of this administration to prosecute anybody for the Mortgage Crisis, and the nearly complete failure to even attempt to pass any meaningful reforms to ensure it doesn't happen again.

  • Report this Comment On November 15, 2011, at 1:56 AM, awallejr wrote:

    There's no excuse for this. Criminal charges should be brought against Corzine. Same with Paterno. Sickens the stomach.

  • Report this Comment On November 15, 2011, at 2:46 AM, JaneBond wrote:

    Your first hypothesis, "a very questionable history", pre and post Corzine, seems to be the most viable.

    Includes everything from aiding and abetting traders that wanted to hide losses from the bosses who worked for very large institutions by providing erroneous (fudged) reports, to those traders operating Ponzi schemes within and outside offshore accounts.

    I am not inclined to believe the traders who took the fall for larger firms were acting outside their bosses' orders, however. I find it more likely the larger firms needed a fall guy to blame when they in fact were hiding the losses from their investors IMHO.

    Corzine defends his firm's participation in all this by saying that they were just a conduit for the money, not advisors.

    One has to wonder though if they weren't also the conduit by which his preferred clients were using them to bait fools.

  • Report this Comment On November 15, 2011, at 8:49 AM, earthmabus wrote:

    I'm glad that I didn't have any money tied up in MF Global, but my thoughts go out to the people who may have invested a good portion of their livelyhoods into this company. It would be a nightmare to imagine a good chunk of my life's work going up into smoke because of someone's negligence.

    I just hope the SEC grows a set an ends up prosecuting everyone who had a criminal hand in this fiasco in order to send a message to all of the other companies on wall street that this type of unethical, criminal behavior will not be tolerated.

  • Report this Comment On November 15, 2011, at 9:52 AM, tbrownjt wrote:

    In all of this, article and discussion, there's no mention of the whereabouts of Corzine-where is the guy?

  • Report this Comment On November 15, 2011, at 9:57 AM, mikecart1 wrote:

    This country's justice system is such a complete joke, I don't know why anyone would fear it. You have mother's murdering daughters and getting away with it, you have football coaches going on for over a decade or more of molesting young children and then being free on bail - a bail any middle class person in this country could have easily gotten too, lying on all levels of society, fraud, etc. No one is scared of anything. This is a disgrace. That $600 mil will never be found. In best case, it will be taken out of taxes by taxpayers - the only true victims left in this corrupt and weakened country called the United State of America.

  • Report this Comment On November 15, 2011, at 10:47 AM, CMFTomBooker wrote:


    I put a follow-up post in the "The Threat...." article to put some square corners on my first post. My issue further explained was that "i thought you were really 'going to go for it' in the article."

    I reiterate that I believe Corzine is a prime candidate for a take-down. If you just conceptualize that which had to be his thought processes for each ensuing step in that which he did, it just smacks of a self-perception of invincibility to law or any standard. And reality for that matter.

    For now, we can just skip his complete disregard for the risk in the nascent investments.

    Again, whole bunches of people want this to go quietly away for misguided reasons like Corzine himself, and "for the good of the system"

    As i noted, the CME is putting up $250MM to do their part.

    I talked with my lifetime since-5-yrs-old friend, who had a seat on the NYMEX and is now President of the Hong Kong Merc.

    He has a rather complicated, but inside take, as he's got some unspecified potential fallout in his House. Which led me to believe, it was a collateral pay-out to somebody Corzine couldn't stiff, whether his entire company went toes up or not.

    I'll write it up, if you want. But none of it can hit an article or comment. FWIW.

  • Report this Comment On November 15, 2011, at 12:17 PM, TMFKopp wrote:


    Drop me a line -- TMFKopp at


  • Report this Comment On November 20, 2011, at 2:57 PM, Btok wrote:

    I am now told that Jon Corzine has gone into hiding, with $900,000,000.00 now still missing!

    I have also been informed, that there is a bounty out on Corzine!

    Is there a bounty on Corzine?

    If so how much is it?

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