it was downgraded others believe these funds were being used on a regular basis to cover margin calls months in advance of the firm's collapse in any case it's been almost a year and we have seen no arrests nor have customers gotten all of their money back so let's recap let's do a little where are they now let's see john chorus line c.e.o. we heard from a last december and a house committee hearing simply do not know where the money is or why the accounts it's not been reconciled today. since then he's been seen in the hamptons leaving starbucks as you see there he has not however been seen in cuffs nor is he likely to be according to the new york times which reported in august no charges were expected for former m.f. global executives and in that same piece though the times reported corps i have however weighed whether to start a hedge fund now the former new jersey governor and u.s. senator a democrat i should say has been an obama bundler according to the center for

responsive politics and we haven't heard much more than crickets from the obama administration on this whole stealing money escapade so we're left with photos of happier times like you saw there which i think we doctored ok there was no money but obama and gore as i have been together many times and we're also left with awkward old clips like this. because. we trust this judge. really kind of forget this. yes we don't forget this was joe biden talking about why he called john for advice also in true vampire squid form the former goldman sachs c.e.o. has his tentacles stretched through other areas of government gary gensler at m.f. global regulator the commodities futures trading commission remember recused himself from the investigation because he worked at goldman with corus on now fighting on behalf of m.f.

global customers this entire time still fighting is james good to us who has a hedge fund is incidentally an attorney and he's also president and founder of the commodity customer coalition he joins us now to give us an update close to a year after m.f. global imploded and your world changed forever too yeah thanks for being on the show you're welcome thanks for having me yeah so james give us a little bit of an update in terms of how much money have u.s. customers received back from m.f. global how much have u.k. customers received while customers who invested with m.f. global to then trade on u.s. futures exchanges have received eighty percent which is great those who invested through the u.s. and in the book to trade on foreign futures exchanges have only received five percent back five per cent. and does that include people that had their funds read hypothecated. i mean there's no differentiation between those of been real prosecutor or not. is far less favorable to customers than us law and trial on

these funds isn't slated to start until april of next year ok in the u.k. and how much money is still considered missing because originally it was at one point six billion dollar number and since i've seen one billion dollars quoted how much is still unaccounted for well going to parse words that are a little bit i mean or so we know where the money is that ok customers are still one point six billion in phones nine hundred million of that is over in the u.k. it's disputed or sorry seven her. millions over the u.k. nine hundred million u.s. is what was stolen by m.f. global senior executives to meet those very margin calls you mentioned the begin to show ok so how are safe harbor provisions affecting customers ability to get money back well. when the firm was going bankrupt. there's there's kind of a timeline here if we go back to like october twenty seventh. m.f. global had about one hundred ten million dollars of its own money placed in the

customer segregated accounts that's almost known as firm access and it's there to protect customers in the case there was some kind of blow up with a major customers account so that the firm could meet its segregation requirements so during the twenty seventh is that after the run had already started on m.f. global people are pulling their money out left and right panic has already ensued the c.m.e. which is the d.s.r. zero regulator of about global comes in and says no wire transfers out of a customer accounts without our permission very next day m.f. global exacts make a five hundred million dollars manual adjustment to the calculations with no supporting documentation whatsoever and you know comparison like our firm if we make any kind of adjustment to accounts like fifty dollars we need supporting documentation for that so they make a five hundred million dollar adjustment to make some kind of error with no justification for this error and this allows them to show that they had exactly two

hundred million dollars of firm excess in that account which common sense says there's no way this firm excess number is going up during the run on the bank ok ok that two hundred million dollar number magically matches the amount of the margin call that m.f. global had in the u.k. with j.p. morgan ok at the same time m.f. global's trying to liquidate securities to raise cash and j.p. morgan says hold on a second or i can give you the proceeds of all these commercial paper transactions until you meet the margin call ok so again that very. day m.f. global makes a transfer that's improved in under three minutes internally had no approval from the c.e.o. me but two hundred million dollars out of their customer account put on their house account and then they watered one hundred seventy five million of it to j.p. morgan ok so then where do we stand now in terms of what we're likely to see in the way of criminal charges because the new york times reports that there aren't likely to be any charges filed against m.f. global executives first of all is that the same thing you're hearing well that's

what the has put out there but johnny boy let me tell you the only game in town. who was in town james could do a list about the state we've got we have fifty states attorney general and we also have another option that i'm not quite ready to discuss yet but can you give us a hint can't give you a special prosecutor well that's one thing we try to get in the past i don't think that's likely at least under the obama administration. got something up our sleeve but rest assured we are going to get someone in charge corps on and the c.c.c. is going to help prosecute him to the full extent of the law so bomb won't be able to buy him a little bit of time. but he's going to be an orange jumpsuit at some point ok ok fighting words james kelly said last obama gives him a pardon ok fighting words let's talk about why you believe that fraud has been committed that john is responsible what is your smoking gun because i take it that you don't believe that this was just chaos and negligence as sources close to the

case have told publications like the new york times so if we go back to that time i wonder why in all this money in j.p. morgan ok keep in mind j.p. morgan is the custodian for a lot of the customer money clearing and certainly major for a lot of m.f. global's trades most of their trades and they are its biggest lender and they know one point two billion dollars revolving credit facility so j.p. morgan knows a lot about what's going on in a global so on this day of the twenty eighth they ask them of global for a comfort letter which is asking them of global to put it in writing that no customer funds were. part of that wire transfer should meet that margin call and they never got the letter writing that letter so j.p. morgan said another letter with water now language and if golan signed that letter either they sent a third letter m.f. global and signed that love letter either so that j.p. morgan has reason to believe that this customer money being wired wired over m.f. global wouldn't put it in writing that it wasn't customer bonnie and yet at the same time that their wiring the customer money that they knew was customer money

out the door as per john core zines instructions as you know brian has has testified but i thought he had pled the fifth. as part of the trustees report and produce an email this that she sent same as per jaycee's instructions so most wire transfer the same time they're they're sending that water out the door to match the magically falsified. report that matched the margin call. perfectly they were redirecting customer requests for wire transfers checks and they were essentially checked so they were taking according to reports they were taking the liabilities for these checks off off their search for port they were keeping the cash balances as assets to inflate you know there's a group or to stay solvent in the eyes of the c.m.e. . so and the part about just thirty seconds before we go to break is that that e-mail that said per jaycee's instructions that then is the smoking gun for john

for science knowledge of this all going on i mean that that stuff one part of it but you know there's more than you can fraud cases it's you generally don't have one one e-mail letter says hey steal the money i mean by it it is said that obama's course i'm the smartest guy he's that he's ever met he's not going to say steal the money in the e-mail ok but taken together all of these badges of fraud show conclusively that they knew it was cost money and that they made the decision we're going to take us around and meet the margin calls on our trades rather than do the legal thing and the honorable thing liquidate those trades take the loss of business all right james carville's when we get back we'll talk more about anything that regulators have been vacated that supports what you're saying and also the bigger picture because since m.f. global collapse we've seen p.s.g. collapse if you've been involved in kind of cleaning up the mess after so more james came to us president and founder of the body customer coalition in a minute still ahead speaking of m.f. global we'll tell you more about a provision that permits to rivet is to sit front and center in bankruptcy court

james good to have talked about it will break it down and word of the day but first your closing market numbers. while. only. offers. as a matter you are all. the resident never profited from the performances you'll see him coming our signature trip there when you look up and there's one tapping on your his alpha beta gamma he was always the final turn to train he's let me know what's going on so you can pinpoint. the dirt right now. shells become income mortal danger and a piece of art. is exempt.

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all right welcome back it's almost the year anniversary of m.f. global's collapse so we're having a date with james cook to list president and founder of the commodity customer coalition about why we haven't seen any body in handcuffs and why customers are still out cash so james i want to get back to what we're talking about as far as the evidence of fraud have we heard any regulators or authorities indicate that they believe there was fraud so back in december terry duffy who's the chairman the c.m.e. and sorrow testified before congress that corps on knowingly submitted false fights

and that. c.m.e. had spoken to an employee who had direct knowledge of the course i knew about the improper transfers so i was sitting congress that day i met with duffy. ahead of that testimony and he's said to me quote james i like what you do for the customers i'm going to stand up and do the right thing and he deviated from his plan remarks to go and do the right thing and call our course and i personally felt course i should have been arrested on the spot for misstating facts in front of congress but instead i believe it was the d.o.j. but it was one federal agency came up a couple weeks later and said hey see i mean why don't you stop your investigation we have the f.b.i. have it from here and a year later what is the d.o.j. investigation brought forth i mean there's a clear crimes here. and they're going to they say they're going to walk do you think it's political one hundred percent i think it's political so what would be different in a romney administration because romney has more wall street cash than obama this

time around so is this kind of a case of it's going to go on a matter who is in charge well i don't want to do you know the republican democrats are not very diplomatic but you know i will say that obama seems to have this kind of like a lead us attitude works all it's your my body you like the rules don't apply to you and if we were to previous republican administrations like george w. bush who i was not a fan of in the least he'll use one went after the enron guys who he was friends with and i think the texas thing. maybe it's a texas thing but to me if you break the law you got a good jail as many of your friends were you know i couldn't agree more and we of course counterfactual we can never understand like what would have happened if it with a different president or what happened in the future but i do want to ask because since m.f. global we've seen p.f.g. best go under and in that situation we had a suicide note when the c.e.o. attempted suicide saying i think committing fraud all these years and gotten away with it has anything fundamentally changed in terms of regulation or the way they're being enforced or conducted that is protecting customers better

a year after we've seen m.f. global collapse somewhat there's been the. statement verification vienna face put in. front of i think last january which is kind of what brought this piece of fraud to light knew the jig was up. you know just for being safe and so the more i'm in the sea of means put forth a proposal that says instead of firms keeping excess funds within the customer account they could do it in a sub account that's linked to the which. doesn't have that commingling in the second which i think that's a big step and there's been some other technical steps as well but organization put forth a plan before the bankruptcy saying that we should mirror canada's. liquidity facility. which is sort of like an insurance system but a lot faster and better and that we need that here for features so basically insurance like life insurance what's a little different insurance like sipek what we have are securities takes like

three to five years to pay and it's a very slow moving behemoth and there's really no moral hazard element there because sipek then doesn't go after. itself but our plan calls for a fon that would go into the next day after after a short fall your customers one hundred gram back or two hundred fifty gram back some level of comfort there then take over of the the rights for those amounts in a bankruptcy proceeding and go after the election and we. i talked about that plan of yours before and it's funny i didn't know it was modeled off of canada's fund but i was just talking with the global customer in australia who if they haven't gotten any of their money back according to him they're expecting a seventy percent by the end of the month hopefully but he said that a number of traders are actually opening canadian l.o.l. c.d.'s so that they can get this canadian regulatory protection it's kind of like a benign regulatory arbitrage have you heard more about that you know heard that much about it but it makes a lot of sense i mean it is built based off of the u.k.

law which again has very weak customer protections they've done a little bit better since this is lehman supreme court verdict last year but still not great. and why not go to canada to do that yeah and if the u.s. modeled something after this canadian investor protection fund do you think that that would solve a problem here. we definitely think so in fact our organization is working on both a private way to implement as well as potentially go in the legislative road all right but to see how it goes james could tell us thank you so much for this update thanks for being on the show thanks for delaying your flight to be with us from what i'm told james cook to us president and founder of commodity customer coalition.

all right time now for word of the day when we break down a financial term for a very smart viewer but just maybe not the financial expert and given our discussion about m.f. global you heard james and i talk about this word of the day is safe harbor it's not where you park your boat to be safe what exactly is safe harbor that we're talking about safe harbor protections are in the bankruptcy code and they include provisions that protect non debtor counter parties from the normal course in bankruptcy many transfers of cash or securities. made in the final weeks before bankruptcy in order to meet margin calls on over the counter derivatives for example are not subject to clawbacks as long as the parties involved claimed they had no knowledge of fraud which you have to claim that and show that let's take a look at one of the ways it has been used though in the case of m.f. global where more than one point six billion dollars of customer money that went missing from accounts one would assume that the money would go back to the customers once properly discovered right but you heard from james that that hasn't

happened and it wouldn't necessarily under the safe harbor provisions companies that received hundreds of millions in transfers from m.f. global customer funds in its final days basically get to keep the money as a result of this and they would be within their legal right to do so also any collateral and the global post with counter parties before the bankruptcy those counter parties may get to keep that to these assets are beyond the reach of creditors so it would be as if you bought a car that you didn't know was stolen and when the owner of the car came to take back the car safe harbor would protect you from having to return the car but is that really the way it works be unknowingly bought a stolen car this is real unfortunately we have to tell them what he's going to be rulers of this is a joke no joke seconds later a flatbed pulled up and took the l'abri all these two thousand and six hondas accord. this definitely works in the financial world so unlike what would happen to

ordinary citizens outside of their dealings with banks creditors and customers can sail into safe harbor as when they're dealing with stolen assets by saying they didn't know they were stolen now the safe harbor provisions are supposedly intended to avoid a financial ripple effect where a large firms bankruptcy infects the market as a whole by providing immunity to other market entities however if counter parties are not incentivized to perform due diligence on each other and instead rely on the ability to liquidate the other's collateral upon bankruptcy a large counterparty failure easily leads to a fire sale of all posts and collateral so much for the systemic risk argument now the provisions where they even come from well they were first introduced into the bankruptcy code in one thousand nine hundred two in a very limited manner safe harbors have since been expanded though over the years most recently in two thousand and five as part of the bankruptcy abuse prevention and consumer protection act which sounds really nice but maybe it's not the two thousand and five act extended safe harbor provisions to include clued repos and

swap agreements in addition to futures contracts and securities agreements which already apply to and who were some of the biggest lobbyists for this act you could have guessed it but we have it all right here for you bank of america citigroup j.p. morgan merrill lynch and the american bankers association these five entities spent a combined six million dollars to get this bill passed and the poorly named bankruptcy abuse prevention and consumer protection act arguably neither prevents abuse nor protects consumers and the big losers today may be that customers are trying to recover all their funds such as those at m.f. global that sunk with the ship and are in a so-called safe harbor but now you know who it really is and how maybe wrong that name is.

let's wrap up with loose change i have dimitri kovtun us here to talk about a story coming from a land that he lived in so maybe he has. some first hand knowledge when you think of venice italy you might automatically take your think of shakespeare. but you. know we don't believe if you tell us do we not laugh if you poison us do not die and if you're wrong goes surely not. well the merchants of venice i don't actually know if they're merchants or how many merchants are in this movement but because of italy's economic crisis a new movement has begun to make. has begun they want to make venice an independent state activists actually held a rally over the weekend thousands reportedly attended they want to create a republic veneta what do you think dimitri i think this is to be expected this is

the irony of integration because as the european union attempts to consolidate by force more and more you see a lot of these rich areas with in countries themselves it's not just countries want to break off regions within the country saying we want to be in spain i think in scotland too so that is extremely wealthy they've seen tourism drop off i think i don't know what the numbers are but they have been affected by this economic crisis in a way that perhaps they wouldn't be if they were independent were able to recycle funds within their own region so that's the same thing right currencies too yeah so it sounds like along with your ad you advocate for competing currencies should be allowed to be competing regions within a country that are able to just go along if they want that's natural for italy too because it was city states right it wasn't it wasn't. a traditional nation state the way we have france or germany after bismarck or whatever these guys are used to having the strong city states like florence. natural for them they want to glide

away and they're going to. mario monti and the lamar mario dragan they want out and they want to right and i should i let you go on. the margins of venice and the kind of theme there is of course the merchant of venice he was jewish and at that time the jews in venice were separate so he's going to separate so that's kind of the reason we say so much about is it worth it to me to be not the merchants to work a lot of the you know i'm. not merchant i don't clarify that ok there's always something a couple of the ridges deeper the history is yes and it's also worth mentioning that today euro zone leaders european finance ministers. we're meeting in luxembourg to talk about what else the same broken record keeping everything together focused on spain and greece meanwhile i feel like another separatist movement as reported by the day that's gaining steam you know it was in spain now italy next germany it's you know what you know serious is no it's to be expected because if people do what's in their best interest and these venice is just saying

ok look this maybe it's in our best interest to get out of this this situation and get out of the euro get out of whatever get out of italy because it's in our economic assistance because we're seeing you cannot make devastate want to sing devastation of others they don't know where they just don't want to but they're all there in whatever they're seeing there are happy with it it's not like as bad as greece obviously they're not going to glide around and they're very good at all that in greece where you're just running up against molotov cocktails they're going to start tearing from the from the from the young so when i was only about there they did so much for watching be sure to come back tomorrow in the meantime you know you can follow me on twitter at lauren lyster like us on our facebook page it's right there watch us on you tube or in h.d. on hulu and from everyone here thank you so much for watching and have yourself one fantastic night.

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