Yesterday at the University Club, I spoke about the MF Global theft of over a billion dollars from customers. In addition, I asked James Koutkoulas to come and give his perspective. James is representing over 300 customers in a class action against MF with regard to the bankruptcy and theft.
After our presentation, we took Q+A. People were interested. One of the questions that was really interesting was, “Why haven’t the Feds used the Sarbanes-Oxley statute against MF?”
Good question. Clearly, they violated it.
What the heck does Sarbanes-Oxley do except create extra regulatory and accounting costs for public companies? If the government agency in charge of enforcing the statute doesn’t have the gumption to enforce it, why have it on the books at all?
The sentiment among many people in response to something as dastardly as the MF Global/Jon Corzine debacle is to write more laws. Last I checked, MF happened after Dodd-Frank was passed. What did Dodd-Frank do to stop the fraud? Sarbox? Any fraud laws on the books?
The lesson is that when someone is hell bent to do something, even if it’s illegal, the law won’t stop them. This isn’t just in the world of finance. We can write all the gun control legislation we want and it’s not going to stop senseless killing. Illinois and Chicago have some of the strictest gun control laws in the US and seventeen kids were gunned down last weekend.
The answer lies in setting up the economic incentives correctly so that most of the people behave. When outliers occur, the punishment should be severe.
With regard to the MF Global case, I am not seeing any severe punishment. Sarbox neutered. Dodd-Frank, irrelevant. RICO statutes, unused.
If former Republican Bill Frist were running MF and engaged in the same type of behavior as Corzine, would he be a free man today? Would the mainstream media be ignoring the news? Would they be succumbing to pressure from JP Morgan not to talk about it lest they get advertising dollars pulled away? Just asking.
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