Hedge funds fail. Banks make mistakes. But the collapse of MF Global last fall was extraordinary in that customer funds were compromised. And when investigations into those missing funds led to vague non-answers, bankrupt farmers, and an industry on the verge of ruin, the collapse truly became a spectacle.

Much has been made in the past few days about the lack of federal prosecution against MF Global executives, whether because of a lack of criminal activity or a lack of evidence. If the rumors are true, it's a significant blow to MF Global customers looking for vindication. Federal prosecution would have gone a long way in sending the message that banks and bankers can't be allowed to run amok.

The criminal inmates are running the Wall Street asylum.
 James Koutoulas, head of the Commodity Customer Coalition, and the leading advocate for MF Global customers, doesn't pull punches. When it comes to MF Global leaders getting a pass on accountability, his frustrations lie with the Department of Justice. "They've essentially given everybody who committed fraud in 2008 a pass," Koutoulas says, "and it appears the DOJ doesn't have the will to prosecute this either."

His frustration is founded; despite the collapse of the economy, and the undeniably large role banks played in it, bank fraud prosecutions are at the lowest they've been in the past four administrations, less than half of what they were 20 years ago. That's even as federal prosecutions for other crimes have nearly doubled.

"If you look at how they've treated financial crimes over the last four years, it seems their philosophy is, if we don't have four years of wire taps on insider trading, then we're not going to bring a case," Koutoulas says. "Barring a deathbed confession or a suicide note, they're unwilling to prosecute."

It's not (just) about the money
 Koutoulas says that currently, 80% of the missing funds have been distributed to clients with U.S.-designated accounts, and Koutoulas has negotiated claims sales in the distressed markets at levels above 97%. But the damage done by the collapse of MF Global was more than financial. Changed worldviews, a shaken faith in the financial industry, and an inability to conduct business as usual have led some customers to keep their money under their mattresses. For them, the only way to be made whole is for someone to accept responsibility.

Koutoulas will continue to apply pressure to the DOJ to bring federal charges against ex-MF Global CEO Jon Corzine and other MF Global executives. But should federal prosecution elude Corzine, Koutoulas will pursue him at the state level. "As a customer advocate, I'm not stopping," he says. "If the DOJ doesn't bring charges, I will go to states attorneys who told me in the past they had to lay off the case because DOJ had dibs on it."

When asked which states Koutoulas expects to find the most receptive, he replied, "I only need one. Corzine broke states laws. I don't care which jail he's in. I prefer general population, but I don't care whether it's federal or state. As long as it's not a white-collar Club Fed."

A long, slow road to regulation
 To ensure customers are protected in the future, the industry is slowly responding to calls for more oversight. In testimony before the Senate Agriculture Committee on Aug. 1, Jill Sommers, senior commissioner of matters relating to MF Global for the Commodity Futures Trade Commission, said that the commission "had developed recommendations for enhancing [CFTC] and designated self-regulatory organization programs related to the protection of customer funds." These changes, according to Sommers' testimony, include changes to the governance of futures commission merchants.

The CFTC isn't the only body making changes in regulation and governance. The National Futures Association, working with CME Group (Nasdaq: CME) and other futures markets, approved new regulations for customer funds this week. Those changes include an automated system that will monitor customer funds for discrepancies and send daily reports outlining any issues. This system will apply to all futures brokerages. The proposed regulations require approval from the Commodities Futures Trading Commission. The NFA also proposed a rule, dubbed the "Corzine Rule," which would require futures executives to sign off on large withdrawals from customer accounts.

But the CFTC can't regulate traders who don't register, and since many of the senior MF Global executives weren't registered with commodities regulators, such changes wouldn't have applied to them. The one exception, of course, is Corzine himself, who was registered with regulators. That'll be handy, as he's mentioned starting a new hedge fund.

Neither the NFA nor the CFTC responded to my request for comment.

Affirmation through prosecution
 As Koutoulas sees it, the only way to re-establish the industry is to prosecute those people who corrupt it. "I run a hedge fund and I do it honestly. It's important that people trust the financial system and don't have to worry that banks and brokers will take their money to cover their own risky bets. I want people who commit crimes to go to jail so that my customers are safe and confident investing with us. By the DOJ not doing their job, it makes my job a lot harder."

"(Corzine) put 2,800 people out of work," Koutoulas says. "A lot of those people are my friends. He stole from 38,000 customers who trusted him. He damaged the entire industry.

"And I'm not going to let him get away with it."