MF Global Has Foxes in the Henhouse

Imagine one day you've come home to find you've been robbed. Your neighbors didn't see anything. The police have no leads.

Then one night, while you're sleeping on an air mattress you've borrowed from a friend, a stranger knocks on your door and says he'll show you where your belongings are. For a fee.

Of course, he's the man who stole them. Do you pay him?

The call is coming from inside the house
It's a question that seems to pose no moral dilemma for Louis Freeh, the former FBI director who is serving as the trustee in the MF Global case. According to reports, Freeh is planning to ask the bankruptcy judge to approve performance-based bonuses for three MF Global employees kept on post-collapse. The theory is that it will cost less in the long run to have insiders attempt to find the $1.6 billion in customer funds than outsiders who may not be familiar with the company's sloppy and incomplete recordkeeping.

According to The Wall Street Journal, the bonuses would be dependent upon performance in "helping Mr. Freeh maximize value for creditors of the company." Which means, of course, that should the "incentive-based" bonuses be enough of an incentive for these three executives to locate the missing funds, the funds would be given to creditors like JPMorgan Chase (NYSE: JPM  ) and Deutsche Banke (NYSE: DB  ) . But the bonuses, which could be worth several hundred thousand dollars each for MF Global's Chief Operating Officer Bradley Abelow, General Counsel Laurie Ferber, and Chief Finance Officer Henri Steenkamp, could negatively impact how much is returned to customers.

Which seems a bit of a gamble, as both Steenkamp and Abelow testified before the Senate Agriculture Committee that they had no knowledge of the missing funds.

Pay no attention to the man behind the curtain
Mahesh Desai, a former MF Global customer, is stunned by and livid at the news. It's one more injustice in a proceeding that has been marked by delays, lack of communication, and excuses that seem more fiction than fact. "This is beyond belief," Desai said. "Not only can't they find our missing $1.2B, but they will now get paid a bonus? What is happening to this country and our system?"

In this, Desai has some powerful allies. All members of the Senate Agriculture, Nutrition and Forestry Committee signed a statement urging Freeh "not to award bonuses to top executives 'who should be held accountable for the failure of their company.'" Sen. Chuck Grassley, R-Iowa, expressed concerns about the legality of employee bonuses during bankruptcy hearings.

To date, no charges have been filed against MF Global executives, and customers repeatedly call for former Goldman Sachs (NYSE: GS  ) -turned MF Global CEO Jon Corzine's head. In response to my asking my Twitter followers if they think MF Global executives should get a bonus, most said the executives should receive a reduced sentence for helping locate the missing funds, but shouldn't receive bonuses. It's a telling response; those who have watched the collapse are still waiting for charges to be filed.

But look! More money!
Amid the outrage, or, some cynics might say, because of it, trustee James Giddens announced that $685 million more will be distributed to customers, pending approval from the bankruptcy judge. However, the funds would only be dispersed once customers accept Giddens' determinations on their claims. Should they object, the funds will be held while the claims are resolved.

Since the astonishing collapse of MF Global, more than money has been taken from these customers. Something has shifted in the way they view the industry and the world around them. That the people who were in charge as customers were essentially robbed of $1.6 billion could be rewarded for their role, and for knowledge they already stated under oath not to have, is beyond imagination.

From the collapse of MF Global to insider trading in Congress to brokers seemingly ripping off customers, we're seeing the same issues over and over again in the financial industry. Whether this move by Freeh is simply misguided or something more sinister, it reeks of the same sort of ineptitude and cronyism that led to MF Global's demise, and the sense that individual investors simply can't win in a system stacked against them.

What do you think? Should MF Global executives receive bonuses? Reduced sentences for cooperation? Prison? Tell me below.

Molly McCluskey doesn't own shares of any of the companies mentioned. Follow her on Twitter @MollyEMcCluskey. The Motley Fool owns shares of 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. The Motley Fool has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (6)

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 March 16, 2012, at 6:40 PM, dennyinusa wrote:

    If a people thinks they are worthy of receiving millions of dollars a year as compensation, shouldn’t these people be held accountable for anything that happens under their watch?

    They are being paid as if the organization would fall apart without them. That means the buck stops at the top. If you take the pay you need to take the punishment when things go wrong.

    I believe this would end the days of these guys going in front of congress saying I don’t know what happened. This should not be even debatable. This is how I was raised.

    Why are we so soft on white collar criminals? I believe they do more damage to society than criminals with guns. They destroy trust in institutions that we rely on throughout society whether it is government, bankers, corporations, unions or Wall Street. Once trust is lost the whole system starts to breakdown

  • Report this Comment On March 16, 2012, at 9:42 PM, Millsteen wrote:

    Lock them up for contempt and they won't last a week without fessing up.

  • Report this Comment On March 16, 2012, at 11:22 PM, Clint35 wrote:

    Hell no they shouldn't receive bonuses!!! They shouldn't get anything! If our justice system worked the way it was suppose to they would all be locked up already. If the people in charge of trying to get the money back had any brains or brawn they would give them a different deal; For everyday they go without telling where the money is five more years will be added to their sentences. But I guess that's hard to do when they haven't been arrested yet. I know how Mr. Desai feels. It's sad and infuriating and I'm not even a former customer of MF Global. I'm just an average citizen who likes to think our so-called purveyors of justice know how to get things done and know how to play hard ball with criminals. But apparently that only happens on TV. And please don't anybody say we shouldn't call them criminals because they haven't been convicted yet. The only way that much money comes up "missing" is because they stole it. That makes them criminals! And one more thing. They already stated under oath that they don't know where the money is. So now if they get paid this money and then tell where the money is, wouldn't that be perjury?

  • Report this Comment On March 17, 2012, at 11:36 AM, Tucker777 wrote:

    Four letter word for stealing!

    Jail

    They and Congress are a criminal class.

  • Report this Comment On March 17, 2012, at 10:06 PM, lunchinkorea wrote:

    Reduced sentences sounds reasonable

  • Report this Comment On March 18, 2012, at 10:11 AM, JGDTexas wrote:

    None of the officers lived up their fiduciary responsibilities if the $s can't be found and since the record keeping is not proper. Why they're not all being held in jail already is ridiculous.

    Then, a couple of them testify that they don't know where the money is, now they want to get paid to find it????? I suspect they're afraid of what else might be discovered if people unfamiliar with their recordkeeping have to poke around to figure it out. I would hope there are wire taps on the phones of all these crooks from the start to find out what they're talking about and hiding.

  • Report this Comment On March 22, 2012, at 6:10 PM, Doris411 wrote:

    If they claim now that they can find enough of the money to be worth these bonuses, then they obviously must have committed perjury when they said they didn't know. Or else they're lying and attempting to commit further fraud now.

    Tell them to find the money in exchange for no perjury charges.

    Other charges may still apply -- and should -- but perjury can get you even if no other crimes are ever proven. Maybe that'd give them an incentive!

  • Report this Comment On March 23, 2012, at 11:42 AM, divebonaire wrote:

    This is crazy. They shouldn't get bonuses. They should forfeit previous bonuses and go to jail. They completely mismanaged this business resulting in its bankruptcy and now they expect another bonus. This is the height of corruption.

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