Halloween
marked
the
12-year
anniversary
of
the
collapse
of
MF
Global,
the
eighth
largest
bankruptcy
in
U.S.
history,
where
a
major
political
donor
caused
a
multi-billion
dollar
shortfall
of
customer
segregated
funds
by
transferring
them
to
cover
losses
on
proprietary
trading.
Sound
familiar?
James
Koutoulas
is
co-founder
of
the
Commodity
Customer
Coalition
and
trustee
of
the
LetsGoBrandon.com
Foundation.
It
should
if
you’ve
been
following
the
trial
of
FTX
founder
Sam
Bankman-Fried,
aka
SBF,
who
was
just
convicted
on
seven
counts
of
criminal
charges
and
faces
up
to
110
years
in
prison.
The
federal
criminal
case
was
almost
unprecedented
in
efficiency,
resulting
in
a
conviction
less
than
a
year
after
FTX
collapsed
and
charges
were
brought.
Although
SBF’s
trial
was
as
speedy
as
they
come,
his
hundreds
of
thousands
of
potential
victims
will
likely
have
to
wait
a
long
time
for
restitution.
An
estimated
$8
billion
worth
of
customer
assets
were
lost
in
the
FTX
fraud.
While
the
exchange’s
current
leadership
—
led
by
bankruptcy
expert
John
J.
Ray
III,
of
Enron
fame
—
has
been
slowly
clawing
back
some
of
those
funds,
it
is
still
an
open
question
how
much
and
when
any
assets
will
be
returned
to
FTX
users.
The
quick
criminal
conviction
of
SBF
stands
in
sharp
contrast
to
a
very
similar
case:
MF
Global.
MF
Global
was
a
200-year-old
commodity
broker
which
installed
former
Goldman
Sachs
co-CEO
Jon
Corzine
as
CEO
in
an
attempt
to
turn
the
sleepy
broker
into
an
investment
bank.
Corzine
then
risked
virtually
all
of
MF
Global’s
firm
capital
into
risky
distressed
European
Sovereign
Debt
—
at
30:1
leverage.
Corzine
used
convoluted
and
offshore
systems
to
hide
this
concentrated
risk
from
credit
rating
agencies
for
17
months
waiting
for
his
trade
to
hopefully
come
to
fruition.
But
before
that
happened
the
risk
was
exposed,
MF
Global’s
credit
downgraded
and
the
firm
received
a
billion
dollar
margin
call
from
its
biggest
lender,
JPMorgan
Chase.
Corzine
then
ordered
the
falsification
of
a
segregated
account
statement
to
give
himself
plausible
deniability
to
transfer
customer
customer
funds
to
meet
his
margin
call.
This
transfer
was
done
on
taped
lines
and
resulted
in
the
first
shortfall
in
customer
segregated
funds
in
U.S.
history.
Approximately
$1.6
billion
was
lost.
I
was
then
a
30-year-old
manager
of
hedge
fund
Typhon
Capital
Management
and
non-practicing
attorney,
but
one
who
had
never
litigated
nor
taken
a
class
in
bankruptcy.
Two
of
my
customers
had
chosen
to
clear
separately
managed
accounts
with
MF
(then
the
world’s
largest
non-bank
commodity
broker),
and
so
I
did
what
I
could
to
help
by
getting
a
temporary
New
York
law
license
and
filing
an
emergency
motion
on
their
behalf.
From
a
void
of
action
to
the
New
York
Times
profiling
my
three
person
firm,
putting
us
on
the
first
page
of
the
business
section,
the
story
went
viral
and
over
1,000
people
a
day
began
calling
our
office
asking
for
help.
At
Typhon,
my
little
sister
Diana
handled
so
many
calls
she
heard
phones
ringing
in
her
sleep
for
weeks.
One
of
those
callers
was
John
L.
Roe,
a
commodity
broker
with
1,000
customer
accounts
at
MF
Global
and
a
father
in
Congress,
Phil
Roe.
John
had
the
idea
to
start
the
Commodity
Customer
Coalition,
a
voluntary
effort
to
coordinate
resources,
and
wrote
our
white
paper
explaining
the
importance
of
the
bankruptcy
on
the
entire
American
economy.
Corzine
took
his
customers’
money,
and
sent
it
to
JPMorgan
to
meet
margin
calls
…
which
is
exceedingly
similar
to
SBF
using
FTX
depositors’
funds
to
cover
trading
losses…
Before
you
know
it,
we
were
representing
virtually
all
of
the
38,000
customers
pro
bono
with
help
from
my
Northwestern
law
professor,
J.
Samuel
Tenenbaum,
and
Barnes
and
Thornburg
lawyers
Trace
Schmelz
and
David
Powlen,
with
Hillary
Escadeja,
Susan
Osmanski
and
David
Rosen
rounding
out
our
small
but
very
capable
team
of
volunteers.
As
mentioned,
MF
Global
collapsed
after
running
a
$1.6
billion
shortfall
resulting
in
the
freezing
of
$6.7
billion
in
customer
assets
and
trader
customers
being
kicked
off
the
trading
floor
by
security
since
their
accounts
were
completely
inaccessible.
However,
Corzine,
a
former
U.S.
senator
and
governor
of
New
Jersey,
was
only
questioned
by
the
FBI
a
year
after
the
bankruptcy.
He
was
never
even
charged.
In
Obama’s
last
week
in
office,
Corzine
received
a
civil
settlement
with
the
U.S.
Commodity
Futures
Trading
Commission
of
only
$5
million
dollars
despite
the
huge
shortfall
and
his
$300
million
net
worth.
Like
SBF
who
donated
millions
to
political
candidates,
Corzine
was
one
of
President
Obama’s
largest
donation
bundlers
and
was
also
one
of
Hillary
Clinton’s
chief
fundraisers.
Notably,
both
Corzine
and
SBF
were
friends
with
Gary
Gensler
and
had
unprecedented
access
to
him
when
Gensler
chaired
the
CFTC
and
SEC,
respectively.
MF
Global’s
clients
eventually
received
101
cents
on
the
dollar
thanks
in
large
part
to
the
volunteer
efforts
of
the
Commodity
Customer
Coalition,
which
designed
an
efficient
interim
claims
process,
hammered
the
pair
of
bankruptcy
trustees
both
in
and
out
of
court
and
before
Congress
and
successfully
pressured
JPMorgan
Chase
into
returning
$1
billion
in
customer
funds
to
the
bankruptcy
estate
that
Corzine
improperly
sent
to
the
bank.
It
is
my
legal
opinion
that
Corzine
unquestionably
committed
fraud
and
violated
federal
laws
in
a
regulated
commodity
broker
that
was
publicly
traded
and
also
subject
to
regulations
including
Sarbanes-Oxley,
which
mandates
a
high
level
of
internal
controls
(of
which
MF
Global
had
virtually
none).
Time
and
again,
we
have
been
told
that
the
crypto
industry
needs
regulation
in
order
to
prosecute
wrongdoers.
Further,
Corzine
took
his
customers’
money,
and
sent
it
to
JPMorgan
to
meet
margin
calls
in
MF
Global’s
name
which
is
exceedingly
similar
to
SBF
using
FTX
depositors’
funds
to
cover
trading
losses
at
his
proprietary
trading
firm,
Alameda
Research.
Corzine
also
likely
committed perjury
in
congressional
testimony.
He
said
“I
simply
do
not
know
where
the
money
is”
despite
being
on
taped
lines
ordering
the
illicit
transfers
and
abuse
of
customer
liquidity
to
fund
operations.
When
the
Department
of
Justice,
which
had
primary
jurisdiction
over
his
many
alleged
crimes,
did
not
charge
Corzine,
the
CCC
drafted
an
indictment
and
charging
memo
for
felony
theft
under
Tennessee
state
law
and
presented
it
to
the
state
attorney
general,
who
did
not
bring
charges,
either.
Time
and
again,
we
have
been
told
that
the
crypto
industry
needs
regulation
in
order
to
prosecute
wrongdoers.
When
looking
at
the
crypto
industry
and
markets
domiciled
in
the
U.S.,
it
is
my
sense
that
intellectually-honest
advocates
of
good
faith
can
disagree
on
whether
a
certain
crypto
token
is
a
“security”
or
whether
it
must
be
traded
on
a
registered
exchange
or
broker,
though
since
there
are
none,
statutes
and
regulations
need
to
be
passed
to
provided
for
registered
crypto
exchanges.
In
fact,
these
issues,
and
many
others,
are
vigorously
winding
their
way
through
our
federal
courts
system
today
(including
in
my
suit-
Koutoulas
vs.
SEC
in
SDFL,
which
moves
to
quash
an
administrative
subpoena
issued
on
the
non-security
letsgobrandon.com
meme
coin).
The
courts
have
already
issued
some
important
decisions;
the
federal
appellate
courts
are
being
petitioned
to
weigh
in,
and
like
the
graybeard
case
in
SEC
v.
Howey
(which
essentially
established
securities
regulations
in
the
U.S.
as
known
today),
the
U.S.
Supreme
Court
will
almost
certainly
be
asked
to
make
its
mark.
And
that
is
only
the
judicial
branch,
Congress
has
also
passed
piecemeal
legislation
and
is
contemplating
more
comprehensive
legislation.
Crypto-haters
howl
that
the
industry
is
the
Wild,
Wild
West
claiming
it
has
evaded
U.S.
financial
regulation.
MF
Global
is
evidence
“beyond
a
reasonable
doubt”
that
the
haters
are
delusional.
Regulation
is
neither
a
cure-all
nor
preventative
for
crime.
MF
Global
was
a
NYSE
publicly-traded
company
registered
with
the
SEC,
CFTC,
NFA,
CME,
FINRA
and
the
Federal
Reserve
and
none
of
those
regulations
prevented
crime
nor
prosecuted
it.
In
the
end,
MF’s
shareholders
and
its
customers,
whose
segregated
accounts
were
supposedly
sacrosanct
pursuant
to
federal
law
and
regulation,
were
all
left
holding
an
empty
bag.
The
regulators
and
prosecutors?
Crickets.
While
the
lack
of
cryptocurrency
statutes
and
regulation
in
the
U.S.
did
push
much
of
FTX’s
fraud
offshore,
the
U.S.
still
has
sound
anti-fraud
laws
that
transcend
regulatory
regimes
and
are
instead
limited
only
by
the
will
of
prosecutors
to
bring
cases
against
high-profile
targets.
But,
between
these
two
multi-billion
dollar
fraud
cases,
it
was
the
major
political
donor
operating
in
an
unregulated
industry
who
has
been
convicted
while
the
other
donor
subject
to
six
regulators
was
never
even
charged.
Many
cynics
thought
SBF’s
millions
in
political
donations
would
help
him
escape
justice,
but
pending
sentencing,
that
doesn’t
seem
to
be
true.
So,
does
his
conviction
give
us
hope
that
the
two-tier
justice
system
in
the
U.S.
isn’t
as
bad
as
we
thought?
Or
was
SBF’s
criminality
just
too
overwhelming
to
ignore?
One
thing’s
for
certain,
the
rise
and
fall
of
FTX
proves
that
regulation
is
not
a
precursor
for
criminal
prosecution,
and
rubs
salt
in
the
wounds
of
the
38,000
MF
Global
victims
for
whom
justice
was
never
served
—
despite
that
firm
being
regulated
by
virtually
every
financial
regulator
in
the
U.S.