Obama’s Financial Guru Faces Congress

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Yesterday, in testimony before Congress, former MF Global CEO Jon Corzine attempted to insulate himself from the firm’s massive bankruptcy and the potential fraud associated with $1.2 billion of customer funds that remain missing. “As the chief executive officer of MF Global, I ultimately had overall responsibility for the firm. I did not, however, generally involve myself in the mechanics of the clearing and settlement of trades, or in the movement of cash and collateral,” Corzine testified. Thus begins the long process of determining Mr. Corzine’s guilt or innocence. Yet if a recent court case is any indication, a paradigm shift away from an odious status quo may have occurred–and Mr. Corzine may be the first major financial figure prosecuted in this new legal environment.

On November 28th, a funny thing happened on the way to a deal between the Securities and Exchange Commission (SEC) and Citigroup. U.S District Court Judge Jed S. Rakoff rejected a settlement allowing the bank to pay a $285 million fine without admitting they did anything wrong. He further took the SEC to task for allowing repeat offenders like Citi to avoid fraud charges and other statutory consequences that should accrue to serial violators of the law. “Applying these standards to the case in hand, the Court concludes, regretfully, that the proposed Consent Judgment is neither fair, nor reasonable, nor adequate, nor in the public interest,” Rakoff wrote in his summation.

The case itself is an appalling example of fraud. According to the SEC, Citigroup put together a $1 billion collateralized debt obligation (CDO) tied to the American housing market and sold it to investors. Citi then turned around and bet against those investors when the housing market began to “show signs of distress.” The CDO defaulted within months of its inception, and investors were stuck with the loss. At the same time, Citigroup made $160 million in fees and trading profits.

“The SEC alleges that Citigroup Global Markets structured and marketed a CDO called Class V Funding III and exercised significant influence over the selection of $500 million of the assets included in the CDO portfolio,” noted the Commission on its website. “Citigroup then took a proprietary short position against those mortgage-related assets from which it would profit if the assets declined in value. Citigroup did not disclose to investors its role in the asset selection process or that it took a short position against the assets it helped select.”

If a brokerage firm secretly betting against its own creation, shafting its own investors, and making a profit in the process has a familiar ring to it, that’s because Goldman Sachs wiped out investors in a similar kind of deal. In 2007, hedge fund manager John Paulson, convinced the housing market was about to tank, put together a portfolio of mortgage-backed securities designed to do exactly that–tank. ACA Management handled the portfolio and Goldman Sachs banker Fabrice Tourre, aka “Fabulous Fab,” marketed the deal, even as emails reveal he knew the fund was failing. When it did indeed fail, Paulson made a cool $1 billion.

The SEC investigated and the resulting $550 million fine was the largest penalty ever paid by a brokerage firm. Goldman admitted it “failed to provide vital information” to investors. Yet the SEC allowed the firm to avoid fraud allegations, and while the fine seems large, it amounts to about two weeks’ worth of profit for a firm that made $3.3 billion in the first quarter of 2010.

In other words, the SEC did nothing that would discourage the kind of dubious deals that have generated a level of contempt for Wall Street–and by unfortunate extension, capitalism–that has resonated among a substantial portion of the electorate. Yet the SEC was quite proud of its accomplishment. “This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing,” wrote Robert Khuzami, director of the SEC’s Division of Enforcement.

Judge Rakoff wasn’t about to let history repeat itself. “As a matter of law, an allegation that is neither admitted nor denied is simply that, an allegation,” Rakoff said of the settlement between the SEC and Citigroup. He then told both parties that unless they can come to an agreement regarding Citibank’s culpability, the case will go to trial in front of a jury. Rakoff scheduled the trial for July 16, 2012. The trial will also include a related case against Brian Stoker, who both structured and marketed the jerry-rigged CDO.

This ruling stands in stark contrast to what the SEC was willing to settle for. A guilty verdict against Citi at a trial permits the filing of additional lawsuits by aggrieved investors. On the other hand, the settlement would have shielded the bank from litigation arising from the SEC’s findings. In his ruling, Rakoff took both Citigroup and the SEC to task. With respect to Citigroup, the judge noted that “a consent judgment that does not involve any admissions and that results in only very modest penalties is just as frequently viewed, particularly in the business community, as a cost of doing business imposed by having to maintain a working relationship with a regulatory agency, rather than as any indication of where the real truth lies. This, indeed, is Citigroup’s positon in this very case.”

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  • Amused

    UH ….why do you refer to the former N.J. Governor as " Obama's finacial guru " ?
    As for the "offenders " you listed ? Yes indeed they are guilty of precisely what you stated …..and those CRIMES were committed DURING the BUSH Administrations , as wedll as the bubble bursting , and Tarp .
    As for the SEC , it did absolutely NOTHING under Bush , so whatever it's doing under Obama …which is SOMETHING , is being done under the present Administration .
    And the DOJ ? What in the hell did it do under Bush ???
    Are you peddling the notion that DOJ under Bush didn't know of the abuses and fraud ? Ahert , your hypocrisy knows no bounds .

    • Steeloak

      "UH ….why do you refer to the former N.J. Governor as " Obama's finacial guru " ? "
      UH – Because he was. http://www.politickernj.com/governors-press-offic

      And from the Huffington Post

    • myohmy

      you moron…. Obama and Biden have both said the first guy they called to ask for financial advice during the crisis was your boy Corzine. Duh. And stop trying to blame everything on Bush, this sorry economy now belongs to Obama. It's been 3 fricking years now and all this is on Obama/Biden's watch. You liberal pukes have no honor at all… just a bunch of idiots with an agenda…. a stupid agenda.

      • Amused

        Yea the sorry economy is what got dropped in Obama's lap , remember schmucks ? the sheet hit the fan in '06 and was in the making all throughout Bush 's TWO Administrations …lol…with his appointed "watch-dogs " in the SEC [ WHO DID ABSOLUTELY NOTHING ] so , get your heads out from up your assses and you might see clearly . Corzine is not Obama's or anyone elses financial Guru , the article is nothing but another childish juvenile strawman , made especially for sheetheads like you ….suck it up chumps .

  • Amused

    When will you nimrods finally ADMIT , that this mess was brought about by BOTH Democrats AND Republicans .8 years of Republican Administration did absolutely NOTHING to correct that which all of you NOW see as "Obama's debacle " .Man talk about spin and hypocrisy ! Clinton oversaw the repeal of Glass-Steagle , WITH the cooperation of Republicans .
    Well , Wall Street's been at it again , and WHERE is the Conservative outcry ? Oh a judge FINALLY exercises some sense of justice and indignation , and now ,and ONLY now do we hear peeps of a sort of agreement ,that yes Wall Street has in fact committed crimes ….oh this must be a Republican revelation ? OWS , while morphing into a circus of sorts , was in fact a reaction to this behavior between Wall Street and Politicians who did and continue to do nothing .In this respect , they are in fact representative of the 99% .

    • davarino

      Cant argue with that. We are being played a fool and the house needs to be cleaned, but the OWS has a whole list of other issues that I cannot agree with. The Glass-Steagle act needs to be reinstated and the SEC needs to be the SEC again. Actually the SEC needs to be investigated because it seems to me that there is a lot of quid pro quo going on there. I'm with ya on this one.

      • Amused

        the problem with the SEC is , that it cannot prosecute anyone , and most of the times the positions there are political plums. as for OWS going off the tracks , I agree , they should have focused on what the original agenda was -HOLD THE CROOKS ON WALL STREET ACCOUNTABLE , and break up the the relationship with the lobbyists and politicians , who are equally to blame in this present economic mess .

    • akbass

      Agreed. This hasn't been a Democrat vs. Republican issue in DECADES, but both parties and their respective media enablers have done a fabulous job at keeping us all at each others' throats and blaming the other side. This is about greed, professional politicians, and a ruling class system that keeps the game rigged in their favor. This is about professional politicians picking winners and losers, with themselves on the winning side every time, no matter the outcome. It's disgusting and the whole system needs reforming. I won't hold my breath, no matter which party is in power.

  • myohmy

    Corzine should share a cell with Madoff for the rest of his life. He stole over a billion dollars. What's the difference between Madoff and Corzine? None… They're both master criminals who stole over a billion dollars from people who trusted them.

  • mrbean

    Standard answer for stone walling. "I don't recall, I don't remember, I wan't there, and Mikey did it!

  • WilliamJamesWard

    Judge Jed S. Rakoff, may he live forever will be a judicial hero for all that desire
    justice in our rotting government. "Regulators give a financial wrist slap-tolerate
    multiple violations" this is a slight of hand where the government gets it's cut
    of the ill gotten gains. FBI head Mueller and Justice head Holder should be fired,
    impeached, prosecuted for collusion for starters and following the money no
    matter where it leads in time and space should go forward until every penny is
    accounted for. What does this story tell us, Our Government is and ongoing criminal
    enterprise, crossing party lines and the Democrats and Republicans continue to
    be the two hands of the beast that is choking the life out of America. I hope they
    look in Corzines sock draw or maybe a freezer at his home, popular place for
    cold stolen cash………How much destruction can we take from Washington, DC…
    (District of Criminals)……………………………William

  • Amused

    Corzine needs to get prosecuted , convicted and jailed for fraud and theft .One federal law he most certainly violated was falsely signing off [as CEO ] as to the financial status of hs company. And yes , Holder and Mueller need to be investigated , on their apparent lack of doing ANYTHING .

  • irisdolittle
    • mlcblog

      go away

  • LindaRivera

    An inferior health care plan that no one wants and CANNOT afford to pay. The threat to jail and/or fine those who don't purchase the government enforced plan.

    Massive spending as if there is no tomorrow. Fighting wars we have no money for. Massive borrowing.

    The Massive giving away of Billions of dollars every year to other countries, including the oil-wealthy Middle East, Hamas-controlled Gaza and the Palestinian Authority organization who fill their war chests, build mansions and laugh all the way to the bank with FREE infidel money. Whilst in America, homeless shelters are filled to capacity; tent cities have sprung up all over the U.S. filled with desperate, jobless, homeless, neglected Americans.

    Massive debt. The massive printing of paper money out of thin air to DELIBERATELY create out-of-control inflation. There is no question that the total DESTRUCTION of America's economy is planned. The results will be horrifying. In the once wealthy and great nation of America, millions of Americans will become destitute, hungry and homeless with no money or resources to help them.

  • LindaRivera

    Organic, non-GMO avocado, fruit and nut trees and berries must be planted in all of our nation’s cities’ and towns’ parks to help the many millions of Americans who will soon be in a desperate struggle to survive because of the frightening, highly destructive economic policies of our government.

    Watch it. And weep for our great nation and people:

    FALL Of The Republic – The Presidency Of Barack H Obama – The Full Movie HQ http://www.youtube.com/watch?v=F8LPNRI_6T8&fe

    • Amused


      • Amused

        Kelly go get a room with Linda , because the both of you are totally BRAINWASHED .

    • Beth


      Thank you for the post Linda

  • alexander

    So there is a best friend of Biden and FuBAR Ack, Corzine, then E. Holder, who does "NOT" know who authorized SPENDING OF MILLIONS OF TAXPAYERS' DOLLARS on guns given to Mexican ganglords.
    If that's not criminal, please tell me what is.
    Liberalism is a mental disorder.

  • bearone7777

    No wonder New Jersey got caught up with some of the nations highest taxes, and such while this fool was in power. Now this. He is a slime-ball, and he needs to do some jail time PERIOD!!!!!!!

  • mlcblog

    …and what do I hear on the inimitable Michael Savage show today? who made a fast buck on this deal? None other than George, of course. Mr. Soros himself.

    His goal is to bring the US dollar down. How do we stop him?

    • Beth

      "How do we stop him?"

      By exposing him with the same relentless determination that he has for destroying this nation. (the 'drive-by' media sure isn't going to do it)

  • John_Kelly

    Obama's Financial Guru Jon Corzine is on par with Obama's Spiritual Guru Jeremiah Wright.

    Wake up America!

  • Amused

    …and don't forget Al capone , he's from Chicago too .

  • Amused

    mlcblog , Savage is a babbling screaching idiot , who suffers from intermittent [far and few between ] bouts of rational thinking . Everyone needs a bogeyman and the conservatives got theirs , the evil "Moriarity " of their politiks and memes …..that evil SOROS ! The CAUSE OF ALL EVIL IN THE WORLD !!! Single-handedly the eviol genius will DESTROY THE WHOLE WORLD !!! Omigosh ! Wheres Kelly ?? Where's Linda ????

  • Rosebud

    Corzine was known to curse out people who work for his ALARM SYSTEM'S monitoring company who called him at his home to warn him that his alarm system has a low battery and other problems which could put him and his family in jepoardy.

    It was just a hard working and KINDLY OLD handicapped person who called him, doing the job as required by LAW…. was called SEVERAL horrible nasty names you cannot print in a family newspaper and told to go to______ . The poor worker had to take this abuse to keep the job and health insurance. The abusive words by Corzine made that OLD PERSON CRY!