Free Republic
Browse · Search
Topics · Post Article

Skip to comments.

MF Global proves Enron-era (off-balance-sheet) accounting lives on
Yahoo ^ | 12/02/11 | Nanette Byrnes

Posted on 12/02/2011 6:45:46 AM PST by Libloather

MF Global proves Enron-era accounting lives on
By Nanette Byrnes | Reuters – 2 hours 14 minutes ago

REUTERS - The off-balance-sheet accounting methods that Enron and Lehman Brothers made famous in their epic failures years ago have a modern-day poster child: MF Global .

Like its predecessors, the bankrupt brokerage formerly run by Jon Corzine took advantage of an accounting maneuver to keep certain financial obligations off its books, making the firm look less indebted and thus less a risk than it really was.

On Thursday, Mary Schapiro, chairman of the Securities and Exchange Commission, told a committee of Congress the SEC was investigating the accounting treatment that helped mask MF Global's exposure to risky foreign sovereign debt.

The fact that MF Global was able to use the technique highlights how off-balance-sheet moves are evolving as quickly as new accounting rules intended to stop them. Earlier this year, the Financial Accounting Standards Board changed its rules to bar an off-balance-sheet loophole that had helped Lehman Brothers get into trouble in 2008.

(Excerpt) Read more at ...

TOPICS: Crime/Corruption; Extended News; Government; News/Current Events
KEYWORDS: corzine; enron; global; mf; mfglobal
Wasn't Enron on the news networks 24/7 for MONTHS back in the day? And didn't someone go to prison?
1 posted on 12/02/2011 6:45:52 AM PST by Libloather
[ Post Reply | Private Reply | View Replies]

To: Libloather

Taking bets on Jon Corzine going to prison and laying long odds. Democrat criminals don’t go to prison - they go to Obama’s cabinet.

2 posted on 12/02/2011 6:56:37 AM PST by Dr. Thorne (Fall on your knees before Christ, your only salvation!)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Libloather
Any danger of investigating the outright theft of customer accounts?

Corzine orchestrated a smash-and-grab raid in broad daylight on the wealth of thousands of private individuals. Yet the SEC are looking at debt-masking techniques as if that was the big crime here.

3 posted on 12/02/2011 8:32:49 AM PST by agere_contra ("Debt is the foundation of destruction" : Sarah Palin.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: agere_contra; CutePuppy; ken5050
Corzine orchestrated a smash-and-grab raid in broad daylight on the wealth of thousands of private individuals. Yet the SEC---the outfit that let Madoff run wild----is looking at "debt-masking techniques" as if that was the big crime here.

You got that right.


......neither Corzine nor any of the other MFGlobal execs (Corzine’s G/S cronies) have been arrested, detained or even questioned under oath.......notwithstanding a billion dollars missing.

One gets the impression of criminality permeating the entire financial and regulatory system.

Wall street/political veteran Corzine is accustomed to using other people’s money to benefit himself. He has no qualms about missing money. Billions went missing when he was tossed out of NJ state govt (details below).


Everybody knows.......not one thin dime passes between accounts-—on Wall Street and elsewhere-—that isn’t thoroughly and incessantly tracked wherever it goes. Not one thin dime. The whole world knows it.....and they are all watching.


<><> Corzine is a well-rounded operator. As Governor, he left the state of NJ $8 billion in debt. $8 billion went missing from one state agency....other agencies like UI and the Transporation Trust Fund went bankrupt with no explanation why. The $82 Billion state pension fund lost about 25%.

<><> Right before Corzio’s reelection, Obama sent $17.5 Billion stimulus to NJ-—which promptly vanished.

<><> Gov Corzine made several highly suspicious trips to Israel when he had no political reason to be there. Israel is the only place in the world where you can take a suitcase full of money to a bank-—and noboody asks where it came from. Isreal also has many businsses in NJ funded with NJ state “grants” as well as an Israeli Chamber of Commerce.

<><> MF Global principal Brad Abelow was Corzine’s appointee as NJ Treasury Secy——controlling ALL NJ assets. Gov and Secy started an investment business——but the two “financial geniuses” said did not know this was illegal.

<><> MF Global principal Chris Flowers handled Sen/Gov Corzine’s “blind assets” ......Flowers led the taskeover of a Japanerse bank for Corzine——Sen Corzine passed a bill giving the bank a US tax break......said he did not know the bill benefitted him.

<><> Corzine registered three corporations in super-secret financial haven——Delaware——BEFORE taking office.

<><> All three of the above-named MF Global principals were G/S cronies.

<><> Ponzi king Bernie Madoff made a generous contribution to Corzine’s campaign.

4 posted on 12/02/2011 3:05:15 PM PST by Liz
[ Post Reply | Private Reply | To 3 | View Replies]

To: prairiebreeze


5 posted on 12/02/2011 7:28:47 PM PST by prairiebreeze (Oh yes we NEED a little Christmas....right this very minute!)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Liz; ken5050; agere_contra
Yet the SEC are looking at debt-masking techniques as if that was the big crime here.

If it were a crime, it would be a very serious development for Corzine, because this is something that would be impossible to do without CEO and CFO knowledge - they would be directly responsible for hiding debt.

However, the "repo-to-maturity" is for now within the acceptable methods of off-balance accounting, just like "Repo 105" which were used by Lehman and Bear Stearns, and few other banks at the end of the quarter, to show less debt / liabilities on the balance sheet during reporting period. "Repo 105" wasn't illegal and wasn't the reason for Lehman's and Bear's downfall, but it is nonetheless being disallowed and phased out by FASB at the end of this year.

Because of netting of liabilities and assets, the net asset value of holdings is not changed, so it's not generally a problem. However, the real issue is that it makes liquidity ratio at reporting time look much better than it really is, which enabled MFGH to borrow more from the firms who look at liquidity ratio as a primary measure of collateral risk. That's what helped Corzine lever up at 33:1 by the time of bankruptcy, while MFGH liquidity was going downhill.

When regulators made a request for higher capital requirement, it was a margin call which MFGH couldn't meet, without dipping into customer accounts.

There are good reasons for some types of [collateralized] repos or unused / potential debt (such as Lines Of Credit / LOCs or credit cards limits) to be off-balance sheet, so it shouldn't be treated as one-size-fits-all problem. There is no question that Corzine and his CFO used it to raise the leverage as high as they could, which is why they finally got a call to increase capital.

Unless there is more that SEC can find (like overstating the capital on the asset side or reporting collateral as a clear and free asset instead of restricted asset, or misleading the lenders about MFGH financial situation / leverage levels), it's doubtful that having the debt in the "repo-to-maturity" contracts off the balance sheet is actionable.

Corzine orchestrated a smash-and-grab raid in broad daylight on the wealth of thousands of private individuals.

I don't know if the issue of smash-and-grab / commingling of customers' accounts is under SEC purview in this case but, at a minimum, it definitely violates CFTC and FInRA regulations, so there is a definite trouble there for Corzine, it's just on a different track.

The first order of business now is to make as many MF Global customers whole as possible. The multiple investigations are ongoing, there need not be a rush to see a "perp walk" or "throw someone in jail" yet, nobody is going anywhere. Corzine will be on the hot seat before the Congressional committee(s) and the story can be milked for all it's worth during the election season, while he is out of circulation trying his impression of an "invisible man".

This mess will go on for some time, and this was a pretty small brokerage / investment firm with approximately 41,000 "segregated" customer accounts, including about 15,000 of "cash-only" accounts.

How would you like to be in this nightmare?
MF Global Customer Highridge Says $50 Million Commodity Account ‘Missing' - BL, by Linda Sandler and Thom Weidlich, 2011 December 02

Meanwhile, the anger keeps growing, and the former MF Global employees are very unhappy with Corzine, so they are not likely to cover for him.

From MF Global Staff Bitten by Pay Plan - WSJ, by Christian Berthelsen, 2011 December 03

OT: CME might actually deliver on its threat and move from Chicago unless they get a favorable treatment and breaks from Illinois tax code.

Indianapolis courting Chicago's CME Group - CT, 2011 December 02

Will we see #OccupyChicago in action protesting the state tax breaks to the "fat cats" on Wacker Drive, or hailing / protesting the "fat cats" moving out of state? That would be fun to watch.

6 posted on 12/03/2011 8:49:08 PM PST by CutePuppy (If you don't ask the right questions you may not get the right answers)
[ Post Reply | Private Reply | To 4 | View Replies]

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794 is powered by software copyright 2000-2008 John Robinson