...and they may not have to pay them
“This means they can take
segregated funds and leverage them to kingdom come. It means nothing is
If you have a commodity account with Wall Street, they may gamble with your
money, the rule on segregated accounts be damned. If
they lose the money you might be reimbursed, or not. The losses may have to
In a way it is just making the general relationship between Wall Street and
its customers official.
This sort of arbitrary distribution of gains and losses occurs more
frequently than you might imagine on Wall Street from what I have seen and
heard, and not just with commodity brokers. I have even heard of specially
privileged customers who can make $100,000 in a few trading days without even
having any knowledge of the markets in which they have 'traded.'
I stopped trading on the commodity exchanges a few years ago when I
personally experienced enough 'rule changes' to convince me that it was
becoming an insiders' con game with slim odds of
success for the 'outsider.' Or perhaps I was just becoming aware of it had
already become, or had always been.
Unfortunately it is hard to escape this, because despite all that has
happened, these fellows still set the prices for much of the world's food,
energy, and basic materials, at least on the official exchanges.
The CFTC has been disgracefully negligent, and given to cronyism, but in the
spirit of modern American management practice it may just claim incompetence.
Am I being 'too harsh?' Do I not understand 'the complexities of finance?' Am
I a 'closet socialist?' Am I 'just jealous of other people's success?'
Obama should bring in meaningful reforms to the regulatory agencies after the
shocking abuses of the past twenty years. But I doubt he will bite the hand
that feeds him.
MF Global May Have Used Customer Funds In The Losing $6.3 Billion Trade
Without Informing Clients
By Robert Lenzner
After an intense day of investigation, I have just discovered that a CFTC
rule (1.29) allowed Jon Corzine’s MF Global
to use the margin and cash in customers heretofore segregated accounts to
amass a risky $6.3 billion investment in European sovereign debt that
backfired. Nor did Corzine have the obligation to
inform any of these customers he was gambling with their money. Or that he
was intending to keep all the profits for himself and his troubled firm.
Nothing for the customers.
The language of Rule 1.29 allows “The investment of customer funds
in instruments described in 1.29 shall not prevent the futures commission
merchant (MF Global) or clearing organization so investing such funds and
retaining as its own any increment or interest resulting therefrom.”
Increment refers to any trading profits or gains.
The criminal division of the Justice Department in New York — as well
as the SEC and the CFTC and members of Congress– are investigating
whether any laws were violated and if so, whether any criminal charges can be
brought. As of 3 pm today, there has been no sign of the missing $633 million.
My sources believe it was probably grabbed by the institutions that made the
margin calls on MF Global as the European bonds sank in value.
This shocking loophole, which is available to all commodity traders, whether
giant ones like Goldman Sachs or members of commodity exchanges, means
that huge risks are being taken with money that does not belong to the
trading firms– without the customers having any idea of the danger they
are in. As Andy Abraham, a futures trader in Israel put it to me today; “this means they can take segregated
funds and leverage them to kingdom come. It means nothing is safe.”
This rule, which has been in effect since 1974, is shocking and highly
irregular since it allows any futures dealer to use customers
money for its own selfish purposes– and never inform its customers it
is doing so. What’s even more unfair is that the dealer (MF Global)
gets to keep all the income and the trading profits, if any from a
transaction that uses other people’s money– not its own house
capital. That is unless some prior arrangement about sharing profits was made
privately beforehand with the client. None of the MF Global clients
I’ve spoken to today had the foggiest notion about this
arrangement– which at minimum is outrageously unfair to the rule that
the customer comes first. (The
customer comes first all right, but not in the way that they thought. - J) All
losses must be made up by the dealer, which in this case may be totally