Breakout

MF Global Funds “Vaporized”? Another Blow to Investor Confidence

Jeff Macke
Breakout

The MF Global story may have fallen off the front page but the hits keep coming for those waiting for justice to be done. This week's insults include a Wall Street Journal story suggesting the $1.2 billion in missing client funds may have been "vaporized" and an admission by ratings agency Moody's (MCO) that MF's investments in European assets came as a surprise.

More damning than Moody's ignorance is an assertion from fellow credit ratings group Standard & Poors that the firm received an email from former MF CFO Henri Steenkamp claiming the company's financial condition had "never been stronger." That email was sent on October 24th of last year, just one week prior to MF's bankruptcy.

The House Financial Services Committee will continue grilling the ratings agencies this Thursday, but is unlikely to produce anything to assuage investors already skeptical of Wall Street being a den of thieves living off the money of the unsuspecting masses. Breakout welcomed Hank Smith, CIO of equity of Haverford Trust to explore the issue of investor confidence and the MF debacle.

"This is really quite a disgrace," says Smith in the attached clip. Speaking specifically of former MF Global head Jon Corzine Smith says, "You're talking about an ex-Goldman (GS) CEO, ex-U.S. Senator, New Jersey Governor taking a company and playing roulette with it."

Noting that the "lawyered up" Corzine is likely to lay low for as long as possible, Smith speculates that Corzine was "trying to take a fledgling company and essentially rolled the dice" in an effort to make MF a player in financial circles.

"Did Corzine do anything illegal? I'm not sure. Was he bad manager? I'm 100% sure of that," says Smith.

The concern here about MF isn't making sure a bad guy gets caught. Criminals go free all the time; even on Wall Street. The issue is one of trust in financial markets. Without trust you can't have markets and it's getting ever more difficult to defend this system against accusations of rampant corruption.

Smith, who helps manage over $6 billion says distrust in the system is resulting in investors voting for other asset classes with their feet, regardless of traditionally compelling valuations.

"Almost three years off the trough of the recession we're some 100 percentage points off the March 2009 lows yet we have sentiment and confidence that is reflective of where we were three years ago," he states.

Would the Department of Justice getting involved in the case of MF Global restore trust? Not in and of itself, but it would be a baby step. $1.2 billion in client funds has gone to money heaven and MF Global had it last. You don't need to be a $1,500 an hour lawyer to know a crime has been committed.

If we can find politicians and prosecutors with the guts to enforce existing laws then maybe, just maybe, we'll be able to start building trust between Main Street and the financial industry.

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