The MF Global Holdings scandal exploded today, when a bankruptcy trustee said that twice as much money as everyone thought is missing.

What MF Global Holdings did wrong

Every outside observer agrees that MF Global failed to segregate customer funds from its own funds. Ann Barnhardt, head of Barnhardt Capital Management, put it bluntly:

Jon Corzine STOLE the customer cash at MF Global.

BCM has ceased operations, closed out its own customers’ accounts, and told its customers to get out of commodity futures and options completely. Barnhardt said that MF Global was not the only futures-and-options trading firm to be in trouble. (The key: MF Global got into that trouble by buying European “sovereign junk debt,” and many, many others made the same mistake.) As a result, the Chicago Mercantile Exchange (CME, Inc.) will not be able to make all customers good. (Some say that the law might force CME to make customers whole. CME might have lied to the government about what they knew, and when they knew it, about MF Global’s money troubles.)

Today came worse news. At first, the CME said that MF Global’s New York unit was short $600 million in segregated funds. MF Global declared bankruptcy on October 31. Today, three weeks later, the bankruptcy trustee says that at least $1.2 billion is missing—and that might not be all. (See reports in Bloomberg/BusinessWeek and the Associated Press.)

Jon Corzine’s role

Jon Corzine at the Teaneck Street Fair in 2006, while he was Governor of New Jersey. Photo: Leslie Gottlieb, CC BY 2.0 Generic License.

This news reflects very badly on MF Global’s former CEO, Jon S. Corzine. On November 4, Corzine resigned from the company. The thought that he might “walk away” with a multimillion-dollar “golden parachute” caused public outrage. The company has since said that Corzine would get no such bonus. But the AP said nearly a week ago that the firm might sue Corzine for much of the money they already paid him during his time as head of MF Global. By nearly four to one, readers of the AP article agree that Corzine should pay up.

Corzine’s problems might be worse than that. Jay Bookman, at the Atlanta Journal-Constitution, suggests that Corzine could face criminal charges. Bookman reminds his readers that the FBI is looking into whether what MF Global did was criminal, in addition to being against regulations.

It’s hard to believe that a person of Corzine’s experience and position would engage in such a scheme, but at the moment, there may also be 1,200,000,000 reasons to think otherwise.

What’s really hard to believe is that a man of Corzine’s experience and position would not know what he was doing, and that he was doing wrong.

Related:

Atlas Shrugged: an imitator?

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