FEDS BRING CHARGES AGAINST CORZINE

Federal regulators are accusing former New Jersey Governor Jon Corzine of failing to properly manage MF Global, which misused customer funds before its 2011 collapse.

A civil lawsuit by the Commodity Futures Trading Commission seeks to ban Corzine from trading in the futures market and demands he pay unspecified penalties.

The lawsuit said Corzine bore responsibility for MF Global’s unlawful acts because he directly or indirectly controlled the company and its holdings and “either did not act in good faith or knowingly induced these violations.”

“He also failed to supervise diligently the activities of MF Global’s officers, employees and agents.

Corzine has disputed the allegations by the CFTC, which regulated MF Global.

The regulator also filed civil charges against Edith O’Brien, the firm’s former assistant treasurer.

About $1.2 billion in customer funds disappeared. Most of the money has been returned. MF Global has also agreed to pay a $100 million penalty as part of a settlement.

New York-based MF Global sought bankruptcy protection after a disastrous bet on European countries’ debt. Its $41 billion bankruptcy was eighth-largest in U.S. history.

The lawsuit said that when Corzine joined the firm as CEO in March 2010 he planned to convert the company into a major Wall Street investment bank that generated revenue from proprietary trading and other business lines.

It said Corzine tried to boost revenue by making significant investments in financial instruments such as the sovereign debt of certain European countries.The plan worked for a while. The investments became an important part of the firm’s revenue, though the investments grew increasingly risky, the lawsuit said.

By the second half of 2011, the investments and other factors put significant strains on the company’s capital and liquidity and by October 2011, sources of cash were drying up, the lawsuit said.

Corzine and other company employees communicated with one another, sometimes by email and sometimes on recorded telephone lines, concerning the firm’s “dire situation,” the lawsuit said.

By the last week of October 2011, MF Global violated U.S. commodity laws by using nearly $1 billion of customer segregated funds to supports its own proprietary operations, directly harming thousands of customers, the lawsuit said. 

MADOFF KILLED SON

CRAIG WARGA/NEW YORK DAILY NEWS

Bernard Madoff, left, pictured leaving Manhattan Federal Court in 2009; he said he's responsible for the 2010 suicide of his son Mark, saying that his confessed crimes tore apart his family.

Now he's sorry.

Bernie Madoff, the investor found guilty of running a bogus pyramid scheme and accused of ruining countless lives says he's racked with guilt over the 2010 suicide of his son Mark.

KIMBERLY UNGER/SECURITY TRADERS ASSOCIATION OF NEW YORK VIA AP

Mark Madoff, son of Ponzi schemer Bernie Madoff, was found dead of an apparent suicide on Dec. 11, 2010, on the second anniversary of his father's arrest.

Speaking exclusively with CNN Money, the convicted Ponzi schemer said: "I was responsible for my son Mark's death and that's very, very difficult."

Mark hanged himself in his trendy Manhattan apartment on the two-year anniversary of his father's arrest, leaving behind his young family.

GI/BM/GETTY IMAGES

Financier Bernard Madoff with his wife, Ruth, and son, Mark, in 2001.

But after spending several years behind bars, Madoff is coming to terms with his actions. "I have to live with that," he told the site. "I live with the remorse, the pain I caused everybody."

Once also one of the wealthiest men in New York, Bernie Madoff now has to place collect calls from prison.

CHRIS HONDROS/GETTY IMAGES

Madoff, pictured in 2010, is serving a 150-year sentence at a federal prison in North Carolina and had to call collect to speak with a CNN Money reporter.

The convicted Ponzi schemer, who is currently serving out a 150-year sentence from a North Carolina prison had to call collect, because his prison phone account at Butner Federal Correctional Complex was low on funds.

In the interview, Madoff also recounted his new life in prison, saying that he works "a few hours a day" on the prison's telephone and computer systems, earning him a prison salary of $40 a week. He pleaded guilty in 2009 for taking an estimated $65 billion from investor s in one of the most complex pyramid schemes in history.

FRIENDLY FRAUD

For Retirees, Investment Fraud Can Have a Friendly Face

By FINRA Staff | Financial Industry Regulatory Authority (FINRA) – 

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  Financial Industry Regulatory Authority (FINRA) -
  Ruth Mitchell and her husband were victims of their friend’s Ponzi scheme. Photo Credit: John Trotto

It's possible that someone you trust and socialize with could defraud you. That's what happened to Ruth and Len Mitchell. They were victims of an $11 million Ponzi scheme run by their neighbor and friend, Barry Korcan.

The Mitchells socialized with Korcan. He also kept the books for Len's business, did the Mitchell's personal taxes and ran an investment company. So when Korcan came to them with an opportunity to invest $130,000 in real estate bonds, the Mitchells didn't think to question the legitimacy of the investment.

They should have. When it comes to investing, experts warn against blindly trusting people in social circles. You never know who may be a wolf in sheep's clothing. And it happens more often than you think, according to Gerri Walsh, president of the FINRA Investor Education Foundation.

"Fraudsters often invest their time to develop relationships and credibility in a particular community, positioning themselves as a financial expert and a friend," said Walsh. "This is a tactic known as 'source credibility' and like the Mitchells, many investors have fallen for this false sense of security."

The Mitchells weren't the only ones to fall into Korcan's investment fraud scheme. Over time, many of the Mitchells' friends and business associates also invested with Korcan. Because the Mitchells and others trusted Korcan, they believed Korcan was a legitimate seller. This blind faith, and the thought that if everyone else is doing it, it must be ok, is called "social consensus"—and it cost this community millions of dollars.

The IRS finally uncovered Korcan's Ponzi scheme and convicted him for mail fraud and tax evasion. But it was too late for the Mitchells and their friends to get their money back.

When you make any kind of financial investment, even among friends, follow these steps to avoid becoming a victim of investment fraud:

• Ask and check before investing. Even if you know and trust the seller, don't just take his or her word. Make sure you check out the investment and the seller.

• Avoid the "source credibility" pitch. Beware if the seller is trying to build credibility by claiming he's from a reputable firm or well known in the neighborhood. If the seller is emphasizing the relationship you have with him or her, rather than critical specifics like why the investment is right for you, how it works and the risks that come with it, you should start asking questions immediately.

• Don't fall for the "social consensus" tactic. The seller may try to convince you to invest because all of your friends or neighbors are doing just that. Even if that's true, the popularity of an investment shouldn't be your deciding factor.

NEW STRESS FROM BANKS

Top Bankster

by CNNMoney 

Justin Sullivan/Getty Images

Banks have mostly been tight-lipped about what rising interest rates would mean for their bottom lines. They will soon have to open up a little more to regulators and investors.

For the first time this year, the Federal Reserve is requiring nation's 18 largest banks to submit mid-year stress tests showing how they would perform if they were hit with a negative economic shock, like a spike in unemployment or interest rates. The results are due to the Fed on July 5. Unlike the bank stress tests conducted at the beginning of the year, though, the Fed won't run its own test, or publicly critique the results. Still, banks will be required to make the results public at the end of September.

On the eve of the submission, bankers are meeting with Fed officials next week in Boston at a closed-door symposium to discuss the stress tests. There has been some contention over the process in the past. Bank executives have expressed frustration that the Fed won't say how it gets its results. At a similar conference last year, Wells Fargo's (WFC) treasurer Paul Ackerman reportedly drew applause from bankers when he said he still didn't get how the Fed's loss estimates could be so different than his bank's. 

On the list of topics for this year's meeting are residential loans, corporate loans and so-called counterparty credit risk, which is how much money one bank could lose if one of its trading partners goes bust. Putting a figure on that is one of the fuzziest parts of stress testing. In the past few months, regulators have stepped up scrutiny of corporate lending, questioning whether banks have made too many "covenant-light" and leverage loans.

But rising interest rates are sure to come up at the conference and in the mid-year stress tests. The yield on the 10-year Treasury bond has been rising recently, after being stuck near historic lows ever since the recession. The Fed included a sharp rise in interest rates as one of the shocks banks could face when it calculated potential trading losses in the stress test that were released in March. That was the first time the Fed had done that.

What's more, bankers say the Office of the Comptroller of the Currency has recently been questioning banks about interest rate risk. Last year, the OCC included rising interest rates in its report of top risks for banks.

It's hard to know how much banks would lose. Generally, banks have stuck to positives. Higher interest rates would allow the banks to charge more for loans. That could boost lending revenue and profits. But at the same time higher interest rates, and falling debt prices, have in the past caused big losses for the banks in their bond and loan portfolios. Banks have been less outspoken about that part of the rising interest rate story. But that might be changing.

Last week, at an investor conference, Bank of America's CFO Bruce Thompson indicated that the bank could lose as much as $11 billion in its bond and loan portfolio if interest rates were to rise 1 percent. He said that was as much as three times what Bank of America (BAC) would gain from higher rates in its lending business. But the bank might not have to realize those losses immediately, or ever if it holds the debt and borrowers end up paying. Still, the bank's capital could fall, which is something both investors and regulators have watched closely since the financial crisis, and something that would show up on the bank's stress test.

The best of times, worst of times story banks are telling about rising interest rates could end up being the other way around.