The collapse of MF Global is significant because it's the first big company failure that was created by the European meltdown. As I pointed out in my blog entry here, MF Global made big big bets on bonds issued by European countries, taking in more than $6 billion in sovereign debt issued by troubled countries like Italy and Spain. When those markets imploded, MF Global was in trouble.
MF Global filed for bankruptcy on Oct. 31. As much $1.2 billion of customer money is missing, maybe more. Those deposits should have been kept segregated from the company's funds. By all indications, they weren't. Where were the auditors?
Now it looks like MF Global chief Jon Corzine might be indicted under the Sarbanes-Oxley Act. Market Ticker sums it up nicely: "Sarbanes-Oxley requires him as the CEO of a company to (1) guarantee that effective risk controls and rules are in place and (2) monitor their compliance. It renders failure to do so — that is, the old-fashioned "I didn't know" defense that was routinely used after 2000-era failures in the Internet space — a felony. Now of course Mr. Corzine is entitled to the presumption of innocence and he is entitled to a trial before being pronounced guilty, but the law on this point is clear: Executives, the CEO and CFO in particular, are required under Sarbanes-Oxley to factually know about matters such as this and they are required to attest to that knowledge — and the presence of appropriate and sufficient risk controls under penalty of felony indictment."
The bottom line is that if funds are missing because of internal errors at MF Global, Corzine may have breached responsibilities under Sarbanes-Oxley rules and that would send him to jail. It's a point made by Martin Koppenheffer at Motley Fool. "It's a major part of the CEO's job to put the proper systems in place. In fact, regulations implemented through Sarbanes-Oxley — a bill that Corzine co-wrote while he was a senator — require that the CEO and CFO sign off on the effectiveness of the controls over financial reporting. For instance, for fiscal 2011, both Corzine and MF Global CFO Henri Steenkamp signed off on the fact that they had designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities. If those proper "controls and procedures" were in place, a breach of segregated client funds should have set off loud, blaring, obnoxious alarms that would have alerted management to that breach. If it turns out that those proper controls weren't in place, Corzine and Steenkamp could face both civil and criminal charges."
no comment untill now