Jackson Jambalaya

Fox Business News correspondent and author blasted John Corzine in a recent New York Post column. Mr. Gasparino is a pretty good investigative reporter in the financial community. In case you missed it, MF Global collapsed after betting the wrong way on European debt. Over $1 billion of clients' money can not be found. In simple terms its like the money an attorney places for a client in his trust account: the attorney can't touch it for his own purposes whatsoever. Great way to get disbarred is misusing the trust account funds. Well, it appears MF Global had the same problem and Corzine told Congress this week he really didn't know what happened to the money. Many called him a liar but Mr. Gasparino writes he is so incompetent he really might be clueless:

"Jon Corzine says he has no idea of the whereabouts of up to $1.2 billion in customer money that disappeared amid the implosion of the firm that he ran, MF Global. His “Sgt. Schultz” defense yesterday before a congressional committee would be pretty funny — if it weren’t a major Wall Street CEO and Obama economic adviser who was playing the goof from “Hogan’s Heroes.”

In fact, Corzine was booted from Goldman Sachs in the late 1990s for precisely the same reasons his MF Global is now bankrupt — his inability to manage risk. When he left Wall Street, he became a US senator and governor from New Jersey — whose already dodgey finances only got worse on his watch....

What’s really striking is that Corzine, in changing the firm’s business model, appears to have had absolutely no idea what he was doing. The firm’s “books and records” were a mess, according to people I know involved in the bankruptcy. Others close to the firm tell me it didn’t have the infrastructure to adapt to a new business model that transformed it into something closer to a hedge fund than its traditional business as a broker of commodities.

The fault begins and ends with the Corzine, whose job as CEO is to make sure the firm’s plumbing actually works, particularly in times of crisis.

Yet Corzine was clueless during MF Global’s crisis, at least according to his testimony yesterday.

Keep in mind, losing any customer money, not just the massive amounts that seem to have vanished here, is fairly unprecedented among major Wall Street firms. Bear Stearns and Lehman Bros. were far bigger outfits, yet not a single penny of investor cash went missing when they imploded amid the 2008 financial crisis.

By law, those funds must be kept separate from the firm’s own operations — and keeping them that way is among the most fundamental duties of any Wall Street firm and its management.

But here’s how Corzine described what he knows about MF Global’s now missing customer accounts: “I simply do not know where the money is, or why the accounts have not been reconciled to date. I do not know which accounts are unreconciled or whether the unreconciled accounts were or were not subject to the segregation rules.”

He stuck to that story during the Q&A. Or as Sgt. Schultz would say, he knows nothing.

Some will say this is just a smart ploy to deflect blame to others and save his own skin. Maybe so. Certainly, taking the Fifth would have been a disaster.

But, based on what I know about Corzine, I really think he didn’t have a clue — bad news that MF Global’s shareholders and employees have already received..." Column

Just one problem with this Sergeant Schultz defense. Sarbannes-Oxley doesn't allow a CEO to use such a defense anymore. Karl Denninger writes in the Market Ticker

"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.

It appears that Mr. Corzine has admitted in front of a Congressional Committee that he does not know, and therefore this appears to be a prima-facie admission that he is in direct violation of this law.

If this is not dealt with on an expeditious fashion and the law is not enforced you have just seen proof on national television that there is no longer a rule of law in this nation of any substance."

Is there any talk of prosecuting Mr. Corzine? Of course not. One would think the Republicans would try to tie him to Obama much the same way as the Democrats used Ken Lay. Mr. Corzine needs a perp walk and the same treatment given to Milken and Boesky but it probably won't happen as both Bush and Obama love crony capitalism.