An Urban's Rural View

When a commodity-trading firm collapses with $1.6 billion in customer funds missing, it's natural to assume someone committed a crime. Eighteen months and multiple investigations after MF Global pulled that trick, the criminal -- if there was one -- is still on the loose.

The lawsuit filed last week by bankruptcy trustee Louis Freeh against MF Global CEO and former U.S. senator Jon Corzine doesn't change that. Like Sherlock Holmes' "dog that didn't bark," the suit may end up being most noteworthy for what it doesn't allege: any active attempt by Corzine or anyone else to misuse customer funds.

As op-ed columnist Holman Jenkins points out in The Wall Street Journal (http://tiny.cc/…), "Two serious charges always seemed possible against Mr. Corzine in the failure of the commodities firm he headed: Misuse of segregated customers funds and fraudulent accounting for his bets on European debt -- which he styled 'repurchases to maturity.'

"Neither charge features in Mr. Freeh's lawsuit, nor in the lengthy report Mr. Freeh issued earlier this month detailing the snafus, miscalculations and archaic processes behind the firm's collapse. Mismanagement is not a crime, Mr. Freeh seems to concede, even when gussied up for legal purposes as 'breach of fiduciary duty of care.'"

Instead of a criminal indictment or a lawsuit alleging misuse of funds, we have a suit complaining that MF Global under Corzine took too many risks in its bets on European bonds and had too few controls. As Jenkins describes the suit, "What does the charge sheet against Mr. Corzine consist of? MF tripled its spending on accounting upgrades after he came aboard -- but some thought it should spend more."

Investigations continue and criminality could still someday be established. Jenkins, for one, thinks the missing funds "appear mostly to have been hung up in abortive transfers with banks and others seeking to protect themselves from MF's sudden demise."

Jenkins notes that there was no government bailout, and much of the missing money has been paid back. According to the Dow Jones story on the suit that ran on DTN, Freeh says all of the money will eventually be repaid.

It may be premature to say we know what happened, and anything short of a jail sentence won't satisfy some of the customers whose funds disappeared. As things stand now, though, Jenkins has a plausible argument: "It is perhaps time for the rest of us to accept that Mr. Corzine simply made a lousy CEO for a lousy, obsolescing, dial-up commodity brokerage."

Concludes Jenkins: "It is not a crime to be a lousy manager, a failed risk taker or to lose simply huge boatloads of money. Many of our most prominent CEOs have done the same."