This article originally appeared in the November 14, 2012 edition of the Delta Farm Press.

by David Bennett

It has been just over a year since the collapse of commodities brokerage MF Global and the disappearance of some $1.2 billion — much of it invested by the U.S. agriculture sector — in illegally-accessed, and supposedly segregated, customer funds. Despite numerous investigations and hearings on Capitol Hill, disgraced MF Global head Jon Corzine and other executives of the brokerage have thus far escaped prosecution.

For full coverage, see here.

During several hearings, Corzine — a former New Jersey senator and governor — claimed he was unaware of the “misuse” of customer funds at the brokerage, a word he used repeatedly. “I didn’t authorize it, didn’t intend to have it happen,” he told the Senate Agriculture Committee last December.

On Thursday (Nov. 15) morning, the House Financial Services Committee’sSubcommittee on Oversight and Investigations is expected to release a report on its MF Global findings. The House report follows a recently published 400-plus page Commodity Futures Trading Commission (CFTC) proposal pushing for better customer fund protections.

On Nov. 13, Farm Press spoke with John Roe, principal at BTR Trading Group, and co-founder of the Commodity Customer Coalition, a group that has been working to ensure MF Global customers are made whole and needed trading reforms put in place.

For more on Roe, see here.

Among Roe’s comments:

On making MF Global customers whole…

“The trustee may look at doing another distribution — between 5 and 10 percent — before the end of the year. We’re not sure if he’ll have the funds to do that but, if he does, we’ll be very happy.

“If that doesn’t happen before the end of the year, hopefully it’ll be during the first quarter of 2013.”

On the House report due out on Thursday…

“We’ve met with (Texas Rep. Randy Neugebauer, chairman of the subcommittee) and his staff about that report. I think it’ll be a very nice summary of everything that’s transpired. They’ve worked very hard to put together the information. I’m told there are boxes and boxes of evidence that they’ve been going through.

“I’m not sure what new information will be revealed but I think there will be some. They’ve certainly interviewed a great number of witnesses. Other than the SIPA (Security Investors Protection Act) trustee’s investigation report, it probably will be the most comprehensive, publicly-available report on the collapse of MF Global.”

On the continuing fall-out in the trading industry and agriculture’s concerns…

“I think, for the most part, people have the exact same feelings (as shortly after MF Global’s collapse). Obviously, a lot of the passion has died down because it’s a year later and people must move on with their lives. But the negative sentiment is still there and remains very palpable.

“The victims are still upset. Those who weren’t victimized still worry they could become victims and are still nervous about the safeguards.

“In the agriculture sector, especially, we’re seeing renewed concerns from farm credit system banks. They’re worried about how segregation works in the commodity industry.

“People still have the same desires they had the day MF Global went down: better, more efficient regulation, enforcement of laws on the books and, perhaps, insurance or an alternative method of segregation when all else fails.

“Some have taken note of the lack of clamor and determined that’s a sign people have renewed confidence in the industry. I think that misreads the situation. Again, people still have the same concerns they had a year ago.

“There have been some positive developments. The NFA (National Futures Association) has made some positive rule changes. The CFTC has adopted some rule changes, as well. However, the situation is still fundamentally the same.”

Note: Created by the CFTC, the NFA is a self-regulatory organization tasked with policing the futures industry.

Reports and prosecutions

On the recent CFTC 400-page report…

“Much in that report was simply adopting the changes already put into place by the NFA: electronic confirmations and read-only access to bank accounts.

“Some of that is good. At the same time, though, it still doesn’t get at the heart of the problem. If we have all these rules and regulations and don’t enforce them, it does no good.

“For example, look at the read-only access to bank accounts. The CFTC is in charge of around 40 of the firms doing this business. Will the CFTC have enough regulators to regulate that? And when they log in and look at an account how will they know what they’re looking at? Are they going to be able to tie it up to some reconciliation report? I don’t think so.

“So, yes, more disclosure between the FCMs (Futures Commission Merchant) and regulators is a good thing – but only if the regulator is competent enough to decipher the result and actually take some action as a result. The CFTC doesn’t have the authority to make some of the changes needed in the commodity industry. That will require congressional authority.”

On the lack of bite in the new rules…

“The adoption of the new rules doesn’t clear the hurdle we need to jump. Some of the (CFTC) commissioners have echoed that sentiment and we’re not at the end of the battle.

“I worry that if we continue to pile on rule after rule and don’t enforce the rules already on the books, we’ll get nowhere.”

CFTC Commissioner Jill “Sommers testified before the Senate Agriculture Committee that, absolutely, if you violate the segregation rules of the Commodity Exchange Act that is a federal crime. Well, we’re a year out and the CFTC has yet to even file civil charges against MF Global. We’re not enforcing the laws that made (MF Global’s actions) illegal in the first place.

“Before we foist a new regulatory structure, let’s just enforce the laws already on the books.”

On Jon Corzine and MF Global executives not facing charges considering the evidence Roe is aware of…

“I’m not surprised the feds haven’t charged anyone.

“There are two arguments. One is that there’s a close relationship between Corzine and some people high up in the federal government. Two, federal investigation take a long time.

“Feds want five years of evidence, wire taps, video — things they’ll never get in this case — to get at intent.

“I don’t know which of those two is true. I don’t know if Mr. Corzine’s investigation is being suppressed by friends or whether the feds are simply looking to gather more and more evidence to make a completely air-tight, infallible case.

“The criminal investigation hinges on intent, which is tough to prove unless you have a ‘gotcha’ e-mail saying, ‘Yes, steal customers’ money.’ That will not be found. So, they’ll have to prove a circumstantial case on intent.

“However, the true regulators don’t have to worry about intent. They have to look at the result. And that result is that the segregation rules were broken, the firm went down and customers are still missing money.”

On pushing for prosecutions…

“I’m very surprised that the NFA — and Jon Corzine was the only NFA registrant at MF Global — hasn’t brought a case against numerous rules violations in the public domain.

“This week, I’m sending a letter to the NFA’s board of directors, its Business Conduct Committee and their compliance directors asking why they haven’t brought charges in the last year.

“Corzine broke segregation rules, he broke ethical principles of trade, he violated several rules regarding communications with the public in trying to persuade customers to keep their money (at the firm) — that it was actually being segregated when it wasn’t. Corzine failed to supervise his employees in their transfers and dealing with customer (funds) segregation. They failed to keep adequate record-keeping of those transfers.

“There were numerous violations of NFA rules and, yet, no charges.”

On Corzine’s future plans…

“Corzine has talked about opening up shop again, managing money again. If we allow this guy to handle customer money and segregation again, we all should have our heads examined. We ban people in this industry for a lot less than being the head of the first firm in 160 years to lose customer money in segregation.

“We’re still working on getting the Justice Department to file charges. If they don’t want to move, we’ll continue pushing for an independent counsel. If we can’t get an independent counsel, we’ll look at the state attorneys general and see if they’ll file charges for some of the state laws that were violated.”