UPDATE: MF Global's Gordian Nots Will Require A Prosecutor's Sword

March 29, 2012

Way back on December 9, 2011, I wrote the BrokeAndBroker.com Blog column reprinted below. I got a lot of flack about it.  Many non-lawyers told me that I was wrong - that Jon Corzine did the right thing by not asserting his Fifth Amendment right against incrimination. Apparently, some of those folks had this misplaced romantic notion that "takin' it like a man" was a substitute for following the accepted legal counsel of not answering questions before the media circus of a so-called Congressional investigation.

I'm not talking right or wrong here.  This isn't about morality or ethics. I'm talking about the legal mechanics of defending yourself in the face of a potential criminal investigation involving millions of dollars in missing customer funds. 

To be fair, some of my lawyer pals disagreed with me.  They thought that Corzine had a shot at pre-empting some of the negative press and getting in a few winning early rounds in the battle for public opinion.  My views were quite clear. No man should be in a rush to his own hanging, and I think Corzine broke that cardinal rule.

As I listened to Corzine testify, I didn't like what I saw or heard.  The videography of Corzine's 2011 testimony before Congress is now largely reduced to images of him reading a scripted comment, claiming to not know or remember certain events, and then asserting, dead pan, that if wrongdoing occurred, he never intended for such an outcome.

Yesterday's Congressional testimony now seems largely reduced to the moment when former MF Global Assistant Treasurer Edith O'Brien took the Fifth.

Of course, two other witnesses chose the old Corzine approach of answering questions. Global Chief Financial Officer Henri Steenkamp tried to paint a picture of a sudden surge of negative events that overwhelmed the firm - something like a "run on a bank." Oddly, while the banging on the doors and the shouting were going on, the Global CFO testified that he was concerned about worldwide issues.  Steenkamp explained that he was the "Global" CFO not the local, neighborhood one - and this mess was a problem at the firm's Chicago office and, well, by the time he was in the loop, it was turn-out-the-lights time.  So we add this "not my job" explanation by Steenkamp to Corzine's "not my intent."  Not this. Not that. Not me.

North American Chief Financial Officer Christine Serwinski had a wonderful excuse. She claimed to be on vacation and although she ended her trip early, she got back too late.  General Counsel Laurie Ferber claimed to be asking lots of questions of lots of folks and seeking assurances that everything was copacetic. Not there. Not answered.

In my opinion, yesterday didn't end well for any of the folks on the hot seats. We were left with the image of three monkeys who saw no evil, spoke no evil, and heard no evil - but all seem to be pointing an accusatory finger at little Ms. O'Brien and her colleagues in the firm's Treasurer's office.

Not my intent. Not my job. Not in the office. Not the answers that I was getting. There are so many nots in this case that I am reminded of Alexander the Great's solution when confronted by the Gordian Knot.  We seem headed for a federal prosecutor's sword to cut through this mess.

Reprinted below is my BrokeAndBroker.com column of December 9, 2011.  Like I said, I have no idea what Corzine was thinking when he testified and even less of an idea as to why he didn't take the Fifth.  Only time will tell if it was a brilliant or foolish move.

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Bill Singer's Comment on Round One of Corzine's Congressional Testimony

(BrokeAndBroker.com Blog, December 9, 2011)

If you've done this for a living, and I have, you try not to let a client put his neck in a noose and hang himself.  Frankly, easier said than done.

To many of the high and mighty on Wall Street, lawyers are jokes - mouthpieces, suits, paid whores. Trust me, I've heard it all.  Take that dim view of the legal profession and combine it with a take-charge personality who's used to giving orders,  and you have a volatile mix that often results in the sage advice given by an attorney being disregarded by the client.  Of course, as many of my colleagues would note, the client is going to pay me whether he follows my advice or not.  Yeah, the whole defense process is ripe with cynicism.

I'm not sure if Corzine asked for an opinion as to whether he should give substantive testimony to the House Agriculture Committee.  I don't know if his lawyers told him to assert the Fifth or to testify - just as I don't know whether he over-rode their advice or agreed with it.  What I do know is that if he were my client, he would have taken the Fifth and made short shrift of today's political theater.

I've been watching Corzine's testimony and have communicated with several lawyers and Wall Street participants about the Q&A.  I'm not sure Corzine accomplished what he set out to achieve.  Sure, Corzine "manned up." He gets some credit for appearing, raising his hand, and answering questions where many others - probably most others - would simply have asserted their constitutional right against self incrimination. You want a brownie point? Okay, you can have one.

However, the glow of sticking out his chin and taking the blows was a dim light, at best. In these days of anger at Wall Street, few viewers likely bought into this effort to depict poor old Jon Corzine as a sympathetic, naked figure in the public square.  Much of Corzine's testimony seems parsed, anticipated, and calculated to deflect.  The main takeaway from his first round of testimony was his reference to his "intent."  It came off as a side-step and a dodge.

In light of the day's earlier testimonies, it's also apparent that Wall Street's regulators are still living in their respective silos, defending their respective turf, and not fully invested in the concept of cooperation and sharing.  FINRA, CME, CFTC, SEC, and the others all knew months ago that MF was a firm in trouble; hell, that's one of the reasons why Corzine was brought in - to try and turn things around. Given the concerns about MF, even before Corzine came onboard, you'd sort of think that there would have been more coordination among the multilayers of regulators.  It now seems that there wasn't.

We've been here, in one form or the other, before. We've heard the Goldman Sachs testimonies. We've watched with concern developments at old Merrill Lynch, Lehman Bros., Wachovia, and Bear Stearns. In more recent days, we grew concerned about weakness at Citigroup or UBS, and looked to Morgan Stanley and JP Morgan and wondered if they are the last bulwarks.

If Madoff and the Great Recession didn't put a dent in the pernicious culture of regulatory competition rather than coordination, what will?  Line up all the regulators, swear 'em in. Here's what each will say: Not us. Them. We did our job. They didn't.  A lot of jockeying around for position and dodging of responsibility.

Nothing was ever going to be accomplished by today's Congressional hearing.  It was a staged event for the cameras. Plays well back home with voters. The real work, the heavy lifting, will fall to career regulators and prosecutors. As to the former, they just don't seem to be up to the task in recent years.  As to the latter, I wish that Congress would just get the hell out of their way and let them get to the task.

I'm put in mind of the Captain of the Titanic. He was busy on the bridge. Reading his charts. Watching the dials. Giving orders. Listening to updates. The icebergs?  Oh, there were spotters on deck. It was their job to give the early warning, which never came.  The poor Captain wasn't to blame for steaming ahead. He was in the dark. No clue.  He never intended to ram the ship into the iceberg. Never thought the ship would sink.

That's all well and fine. Still - you know, if you knew you were in icy waters, just when did you intend to slow down?  Were you waiting to first hear the crunch of metal meeting ice?

Come to think of it, that's how Wall Street seems to operate these days. It also seems to be how regulation and regulators work.