To break things down into terms even I can understand, here are the rules:
A:The company can buy a boat with a client's excess cash, sell it and keep some of the profit.
B:The company can buy a boat with its own cash, sell it and keep the profit.
C:What the company can't do is use a customer's money to make payments on the boat while the brokerage is sailing around on it. If the boat sinks you've not only broken the law, you have a hard time explaining to the client why his or her money is somewhere deep in the Mariana's Trench.
Violation of rule C is apparently what happened at MF Global. The boat was European debt, which as anyone who has picked up a newspaper knows, has become an economic black hole.
On November 1 of this year MF Global attorney, Kenneth Ziman told a US Bankruptcy Judge that, "to the best knowledge of management there is no shortfall."
There you have it, "The Enron Defense" last used unsuccessfully by Kenny Lay and Jeff Skilling. "I don't know what happened. I just run the place."
Things began to crumble quickly. Soon a figure of $600 million was bandied about. Now as the investigation deepens the auditors are saying it is more like $1.2 billion. Who knows what the final figure will be? This pyramid scheme appears to have few limits and more felons than Watergate.
The FBI is now involved and we can assume indictments will follow at some point. There is no telling who will be in the dock, although former New Jersey governor and MF Global CEO, Jon Corzine seems a sure bet.
Yes, Bernie Madoff is soon to have some fellow movers and shakers roaming the cell block with him. One can only imagine the tales of high finance that will be spun in the yard. There will be fond, misty eyed, memories of high times, fast jets, and champagne on ice. And then there will be navy beans, boiled spinach and soggy toast for dinner.
The hammer always falls because once you're in on a deal like this you're in all the way. There is no jumping off the speeding gravy train. At least not until it runs full bore off the washed out bridge. Of course by then it is too late.
You can dress them up in Armani suits, but they still carry around the cards for the Monte game in their hip pockets. There is no curing them.