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I expect most readers will be able to remember October 2011, although it seems that one person would appear to be hoping that such a span is too much for the memory of speculative investors.
Just to refresh, in October of last year, MF Global, a US-based commodities broker, imploded, among strong rumours about the misuse of client funds and reckless trading in rapidly devaluing eurozone government bonds.
At the helm was Jon Corzine, formerly head of Goldman Sachs and governor of the state of New Jersey. With that collapse, lots of people lost a great deal.
Employees lost the value of the accumulated stock they had been awarded as bonuses over the years, and of course they lost their jobs; clients lost their invested funds – as yet there has been no final settlement; the regulatory system lost credibility – it was demonstrably unable to ensure that the segregation of client money was observed, whatever the rules said; and Corzine, as the man directly responsible for the reckless trades, lost credibility.
The financial world waited for decisive action to be taken by the regulatory authorities…
…but it didn’t quite work out like that, did it?
Sure, many employees are still where they were – some obviously have new jobs, some don’t, but they’ve still lost their money.
Clients are still out of pocket, and who knows when there may be a settlement. Bear in mind, of course, that they were by and large segregated clients, people who were looking to invest responsibly. Clearly, they understood they could lose money, but in this case their protected funds were used to finance the firm’s own trades.
The regulators still don’t look very smart, as they are seemingly unable to trace the money, although there appears to be a suggestion it disappeared into the hands of a major bank.
And Corzine, having told the world, “I simply do not know where the money is” is now considering his options.
One of those options – and as far as one can tell from what is in the public domain a serious prospect – is that he may start a hedge fund.
I’ll just repeat that, because I had to read it more than once before I could believe it: Jon Corzine, the man who doesn’t know where the segregated client money from MF Global has gone, is considering starting a hedge fund.
For the avoidance of doubt, a hedge fund is a form of pooled investment, where the manager is responsible for the security of the investors’ money and the placing of that money into whatever sectoral investments the fund’s rules permit.
I may quibble with the level of charges levied by some funds, but that’s a minor point; hedge funds are by and large a healthy, well-functioning part of the investment universe. So, given that there are lots of other funds out there, why should this potential new offering have any great appeal?
Well, incredibly, various friends, acquaintances and former colleagues of Corzine have lined up to say what a smart trader and manager he is, and that they would be prepared to invest with him. I don’t like kicking a man when he is down, but smart trading and good management involves knowing where the money is and not using protected funds to finance rampant speculation.
Or is that too old-fashioned a view? Do the regulators not follow that thought any more?
Lord Copper editorial@emtalbulletin.com