MF Global: The Hero, the Villain, and the Anticlimax

MF Global's collapse late last October had all the makings of a classic Hollywood film. First was the magnitude: It was the eighth-largest bankruptcy by assets in U.S history. Then, the characters: farmers and small-business owners struggling to make ends meet. The McGuffin: $1.6 billion in missing customer funds. The protagonist: James Koutoulas, president of the Commodity Customer Coalition, who, in another life, would have been played by Jimmy Stewart, heading a coalition of customers determined to be made whole.

And, of course, there was an apparently cut-and-dried cast of villains, from lower-level executives to multinational banks. Leading the pack were Jon Corzine, former governor of New Jersey turned Goldman Sachs (NYSE: GS  ) executive turned MF Global CEO; JPMorgan Chase (NYSE: JPM  ) , which was entangled in ways not immediately clear; and U.S. Attorney General Eric Holder, whose firm used to represent MF Global.

And we all watched, waiting for what we thought would be the inevitable ending: criminal prosecution, restitution, a triumphant celebration. But the plot hasn't quite unfolded along expected lines. This week, after a 10-month investigation, officials announced criminal charges against MF Global executives were "unlikely."

"If you can't be a good example...
During an online chat The Motley Fool held shortly after publishing our series on The Astonishing Collapse of MF Global, we polled participants on whether they thought criminal charges would be pressed, and if so, against whom: 71% thought someone would be held accountable and sent to prison. Most thought it would be Corzine. Others eyed JPMorgan CEO Jamie Dimon. Some thought a fall guy (or gal) would be found. But the idea that everyone would walk away seemed impossible.

Ten months later, customers are still fighting for their money to be returned, and getting it in pennies rather than pounds. (A recent ruling will return $130 million more from the CME Group (NYSE: CME  ) .) JPMorgan Chase is onto its next scandal involving customer accounts and the collapse of a brokerage firm. And Corzine, whose hands-on role at MF Global included roaming the trading floors, is considering starting a hedge fund.

...you'll just have to be a horrible warning."
If the collapse of MF Global were a movie, it would be one of those franchises that never ends, because bank scandals aren't unusual, and investigations are far from rare. Barclays (NYSE: BCS  ) has recently been fined for rigging LIBOR. HSBC (NYSE: HBC  ) was recently cited and fined for allowing terrorist groups to launder money. The list goes on and on. But more often than not, investigations, when they occur, are essentially an exercise in futility. In cases of guilt, fines, not prosecutions, are levied, even in cases where international laws are broken.

According to a chart by The New York Times, prosecution for bank fraud has fallen dramatically over the past four administrations, even while it seems that wrongdoing by large banks is on the rise, from mortgage robo-signing to hidden fees on credit cards, to fraudulent insurance products.

Stay tuned
I'll have continuing coverage of the MF Global investigation, including what charges could still be pressed, and at what level. Because, despite recent developments, this case will not go away quietly. Trustee James Giddens has agreed to help the lawyers of customers suing MF Global executives for damages. Koutoulas has vowed to pursue Corzine using all resources available.

As we look forward, perhaps there's no better advice than that given by a certain ex-New Jersey Governor turned financial punch line. "You can't just look at what is good in the moment, what feels good, what works for today may not be the answer that actually helps ... two years down the road or five years down the road. You have to make decisions with a longer-term perspective." So said Jon Corzine.

But I much prefer the quote by author Catherine Aird: "If you can't be a good example, you'll just have to be a horrible warning." Because the days of good examples are long gone, and horrible warnings have just begun.

What do you think? Should criminal charges be pressed against MF Global executives? Are fines enough for large banks found breaking the law? Tell me in the comments box below.

Molly McCluskey is co-author of The Astonishing Collapse of MF Global, which is available for the Kindle on Amazon.com. Follow her on Twitter at @MollyEMcCluskey.  She doesn't own shares in any of the companies mentioned. The Motley Fool owns shares of JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of Goldman Sachs Group.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 (9) | Recommend This Article (5)

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 August 17, 2012, at 4:58 PM, hwssolivita wrote:

    You forgpt to mention esteemed Senator from New Jersey.

  • Report this Comment On August 17, 2012, at 6:14 PM, shumkh wrote:

    In a world where anything can be bought, there is no personal accountability, no personal integrity, NO VALUES. Remember the saying "money is the root of all evils"? I suppose those 7 little words pretty much sum it up.

  • Report this Comment On August 17, 2012, at 6:33 PM, dennyinusa wrote:

    If people think 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 August 18, 2012, at 12:45 AM, nickjob wrote:

    it is obvious that nothing is being done because of political connectedness. shame on those involved. The bad apples ruin a good system for all. Are there no people of integrity ( besides James Katoulas ) left who will seek truth and justice?

  • Report this Comment On August 18, 2012, at 1:55 PM, gkirkmf wrote:

    If it was not readily apparent before, It should be crystal clear now. As long as banksers and CEO's run our government we are in a continuing downward spiral towards complete corruption of our institutions, starting with wall street. Hanging on to your assets and growing them now requires CONSTANT monitoring of these *(#%&(* 's . Thank you MF for helping!!!

  • Report this Comment On August 18, 2012, at 4:32 PM, overley wrote:

    The game works by giving large donations to pols in both parties then stealing as much as possible. When caught, plead ignorance, get pilloried by the press a few weeks, lay low, then start over somewhere else in a few months. If Eric Holder actually prosecutes Corzine, Holder would be done for in both politics and private sector. Power corrupts.

  • Report this Comment On August 19, 2012, at 8:29 AM, Rocky2065 wrote:

    Jon Corzine must be prosecuted. Lets start a signature campaign to Eric Holder and Obama to do the right thing.

  • Report this Comment On August 19, 2012, at 2:18 PM, MisterIncredible wrote:

    If you don't prosecute Corzine then we are truely living in a post-Constitutional society. We know this guy raided trusted accounts to pay for his bad bets on the Euro. It's clearly illegal. He must do jail time if there is any justice left in our society.

  • Report this Comment On August 30, 2012, at 3:16 AM, thidmark wrote:

    Holder is too busy suing Red states to worry about little things like banking scandals.

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