Corzine’s Crime of the Century

Most investors have their accounts at either a bank or a traditional brokerage house. Banks have offered deposit insurance for the past 80 years, and brokerages have done so for the past 40. Since such institutions can dip into investors’ funds at any time, they pay fees to a government-operated insurance fund for protection in the case of bankruptcy.

But no such entity exists for commodities brokers such as MF Global, because they are not permitted to use clients’ funds in this way. The Commodities Exchange Act of 1936 says:

Customer funds to be segregated and separately accounted for

(a) All customer funds shall be separately accounted for and segregated as belonging to commodity or options customers. Such customer funds when deposited with any bank, trust company, clearing organization or another futures commission merchant shall be deposited under an account name which clearly identifies them as such and shows they are segregated as required by the Act.

In fact, the predecessor of MF Global had acquired its commodities accounts from the 2005 collapse of REFCO, which at the time was the largest independent firm in the futures industry. Despite huge losses and a large scandal, there was no invasion of REFCO’s accounts. Given that, how has no one been charged with a crime for the actions taken at MF Global in late October 2011? It is clear that funds from private commodity accounts were used illegally. Have Jon Corzine’s connections put him above the law?

Samuel Tenenbaum, clinical associate professor of law at Northwestern and a director of the Investor Protection Center, has followed this case since its inception. He believes that the two relevant agencies in this case, the Securities Exchange Commission (SEC) and the Commodities Future Trading Commission (CFTC), will not bring criminal charges, despite the fact that “clearly the law was broken.”