MF Global: Extreme Incompetence a Possibility; Criminality More Likely

The MF Global saga is getting more ridiculous by the day. On Tuesday, two more top executives of the bankrupt futures brokerage testified in front of a Senate Agriculture Committee, repeating former CEO Jon Corzine's refrain of cluelessness as to what happened to as much as $1.2 billion in client funds which mysteriously vanished in the days prior to the firm's collapse. Henri Steenkamp, MF Global's chief financial officer, and Bradley Abelow, the firm's president and chief operating officer, told the Congressional Committee that they simply don't know what happened to the money. Corzine is expected to testify once again later in the day. MF Global execs have now gone three for three in stating their ignorance as to how $1.2 billion of funds, which should have been held in segregated accounts, could have simply disappeared into thin air. In light of today's testimony, it is becoming harder and harder to believe that the missing client funds are the result of some sort of egregious error or mix-up; the likely scenario appears to be that this was a criminal act followed by a cover-up. The answers that the three top people at MF Global are giving simply do not appear credible. Under the very best of circumstances, Corzine, Steenkamp, and Abelow have proven themselves to be wildly incompetent. The concept of segregated funds is about as complicated as a chalkboard. Money in a segregated client account is not to be commingled with other client accounts or firm accounts for any reason. It is to be held separately at all times. There would be no futures industry if this fundamental tenet was not in place. Following from this, it is very easy to see that some sort of crime was committed at MF Global. The client accounts were raided as the firm was experiencing significant financial turmoil. Someone authorized for money to be moved out of those accounts. It didn't just happen. Who in the world would have the authority and the motivation to do this? Steenkamp gave a feeble attempt to answer this question in front of the Committee. Unsurprisingly, he sounded like someone trying to save his own ass as opposed to providing any real enlightenment regarding the situation. In his testimony, Steenkamp claimed that he didn't have direct involvement in managing accounts and fund transfers at the firm. He explained that the firm's subsidiaries each had regional chief financial officers who reported to a "head of legal entity reporting," a position Steenkamp himself created. Also, the treasurers of the regional subsidiaries reported to a global treasurer. He told the Committee that the treasury operations department was in charge of handling customer funds. “Upon my becoming CFO, treasury operations continued to report to the head of global operations,” Steenkamp said. “Direct involvement with operational matters such as bank accounts or fund transfers has never been part of my duties.” OK, fine. It is understandable that the CFO didn't spend his days at work overseeing client accounts. However, MF Global was not that big of a company. It employed less than 3,000 people. This isn't exactly GE

. Therefore, oversight from top executives with regard to the financial health of the firm and any financial discrepancies should have been fairly straightforward. No matter what the management structure, one would assume that the CFO would be made aware of $1.2 billion in funds missing from segregated client accounts in fairly short order, no? Furthermore, who would have the motivation and authority to move that money? Steenkamp wants us to believe that someone in the treasury department decided to raid client accounts to the tune of $1.2 billion? To what purpose? Did they wire it to their personal bank account? Upon further examination, his testimony just doesn't hold up. This money was diverted in some form or fashion in an effort to stave off bankruptcy. The people who had the authority, motivation, and comprehensive understanding of MF Global's financial situation are the ones who are likely responsible for the missing $1.2 billion - and this description does not fit some mid-level executive at MF Global's treasury department. The truth, hopefully, will come out. When it does, don't be surprised if this turns out to be a cover up; Corzine, Abelow, and Steenkamp know a lot more than they are willing to say up on Capitol Hill.