Should Jon Corzine be in jail with Bernie Madoff?

On June 29, 2009, high-profile Wall Street broker Bernie Madoff was sentenced to 150 years in prison for illegal use of customer funds. This year, the financial implosion of once-mighty MF Global (MFG) managed by another high-profile Wall Street broker, Jon Corzine, has revealed that over $600,000,000 in “good faith” customer deposits from his MFG brokerage firm are missing and were presumably used to purchase risky, junk-rated national debt from some of the European Union’s so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain).

“Section 4d(2)3 of the Commodity Exchange Act ("Act") provides among other things that: (1) customers' funds shall not be commingled with the funds of the FCM; (2) an individual customer's funds may, for convenience, be commingled with the funds of other customers for deposit with a bank, trust company, or clearinghouse; (3) customers' funds may be invested in obligations of the United States, in general obligations of any State or any political subdivision thereof, and in obligations fully guaranteed as to principal and interest by the United States; and (4) the Commission may prescribe by rule, regulation, or order the terms and conditions under which these things may be done.” This quote from the Commodity Exchange Act specifically forbids two major criminal actions taken by Corzine’s MFG: customer funds were co-mingled with MFG’s capital and then invested in obligations that were not guaranteed by the United States.

Corzine's action, undetected by numerous responsible regulatory authorities from the CME Group to the Futures Industry Association (FIA) to the federal government’s Commodity Futures Trading Commission (CFTC), was clearly illegal. Even after the CME, whose stock fell sharply after the MFG bankruptcy filing and is trading near its 52 week low, provided an infusion of $300 million, MFG customers have still not recovered their funds. Is this condition systemic? Is customer money safe in any commodity futures brokerage account? The government and the exchanges are still trying to find the customer money that was stolen from the previously considered sacrosanct “segergated funds” accounts. Only that will restore confidence in the futures industry.