There are a few ways that one can look at the headline today in the NY Times.

First, you could say this is great for the futures industry. There was simply a misunderstanding of where money went and there was no harm no foul. Billions in equity value at ICE ($ICE) and CME ($CME) should immediately return to their stock prices since the industry is in great shape. Volume and confidence ought to come back to the marketplace. All is well.

There is no need for an insurance policy on segregated funds, because MF didn’t steal them. No new rules. Where they were stolen at PFG, justice was served. We can be pollyanna’s and forget about the whole thing. Just like when you were a little kid and had do overs in sandlot baseball.

Second, you could be totally cynical and say Corzine had enough money and political power to avoid prosecution where Russell Wasendorf didn’t. One poor sap tried to kill himself and will spend a lot of time in the pokey while the other will go off and start a hedge fund. It’s a political year, and Obama couldn’t afford yet another black eye by having one of his cronies go off to jail in an orange jumpsuit. Besides, if Corzine stays out of jail, just think of all the money he could raise. You think he is the only one in the grey area of finance? If you can buy your way out of jail with money and influence, there is a huge untapped market for political donations.

Third is the idea that prosecutors looked at all the evidence and decided that the case was too tough to prosecute. Convicting someone means, “beyond a reasonable doubt” and they may have felt that Corzine could have created enough reasonable doubt in the jury room to walk. I am betting on the third version.

After speaking with CCC lawyer James Koutoulas, and other pro traders I have no doubt that money was stolen from customer segregated funds. There is just too much smoking gun evidence. Anyone with experience in the industry would be able to sift through the legal machinations and malarky to understand the deception involved. If this were adjudicated in an Arbitration or Probable Cause Committee at an exchange, I am relatively confident that Corzine would be found guilty based on the circumstantial facts that I know.

The New York Times has the tell about the whole charade,

Known as an obsessive trader who had the highest returns at the firm, Mr. Corzine frequently inhabited a desk on the trading floor. One visitor to MF Global recalled that during a tour of the firm’s Manhattan headquarters, his guide suggested that if he “stuck around” he might catch the chief executive trading a few million dollars in bonds. But a $6.3 billion wager on the European sovereign debt proved fatal. The size of the bet was enough to wipe out the firm many times over, and as questions about Europe’s health grew, a run on MF Global ensued. In the panic, the firm tapped customer money to stay afloat, which scuttled a last-minute deal to save the firm. Mr. Corzine resigned just days after the firm filed for bankruptcy.

As a long time trader myself, I understand the mental state Corzine was in. I have had big winners, and some very big losers trading myself. Trading is psychologically and emotionally addicting. Once Corzine made the mental decision to enter his ill fated trade, he became stubborn. He added to his position. Hey, when in trouble double! Because of the type of trading he did, using cash, swaps, futures and other OTC instruments, it was probably very convoluted and difficult to follow the money. It’s not as if there is daily clearing and settlement in a lot of the products he engaged in.

I have seen traders take monstrous risks they couldn’t afford. The allure of making money is just to sweet. The hubris that comes with being right and predicting the future before anyone else is too intoxicating. Once you fall down that rat hole, there is no way out.

His trade, once entered wasn’t easy to unwind. It’s not like you can wake up in the morning and look at the market and just enter an order and get out. OTC doesn’t work that way. You have to call around and negotiate. A lot of times, the person on the opposite side of your trade has to unwind their trade for you to get out. That layering adds to the conundrum of unloading your position. Taking some time to unwind the trade can save you a lot of capital.

The complexity of the trade added to the complexity of the case and why the investigation has turned its sights on MF Treasurer Edith O’ Brien. I imagine she will become the fall person for the whole affair. Throughout this whole debacle, all the Feds had to do was give her immunity. But they didn’t. The reason, when you move money to fill a hole it’s a lot easier to explain than a convoluted trading strategy. Besides, Wall Street and government don’t have anything riding on Edith. They have a lot riding on Corzine.

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James Koutoulous says he will continue to do the government’s job for them.



Thanks for the link Doug Ross.