MF Global Has Foxes in the Henhouse

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Imagine one day you've come home to find you've been robbed. Your neighbors didn't see anything. The police have no leads.

Then one night, while you're sleeping on an air mattress you've borrowed from a friend, a stranger knocks on your door and says he'll show you where your belongings are. For a fee.

Of course, he's the man who stole them. Do you pay him?

It's a question that seems to pose no moral dilemma for Louis Freeh, the former FBI director who is serving as the trustee in the MF Global case. According to reports, Freeh is planning to ask the bankruptcy judge to approve performance-based bonuses for three MF Global employees kept on post-collapse. The theory is that it will cost less in the long run to have insiders attempt to find the $1.6 billion in customer funds than outsiders who may not be familiar with the company's sloppy and incomplete recordkeeping.

According to The Wall Street Journal, the bonuses would be dependent upon performance in "helping Mr. Freeh maximize value for creditors of the company." Which means, of course, that should the "incentive-based" bonuses be enough of an incentive for these three executives to locate the missing funds, the funds would be given to creditors like JPMorgan Chase (NYS: JPM) and Deutsche Banke (NYS: DB) . But the bonuses, which could be worth several hundred thousand dollars each for MF Global's Chief Operating Officer Bradley Abelow, General Counsel Laurie Ferber, and Chief Finance Officer Henri Steenkamp, could negatively impact how much is returned to customers.

Which seems a bit of a gamble, as both Steenkamp and Abelow testified before the Senate Agriculture Committee that they had no knowledge of the missing funds.

Mahesh Desai, a former MF Global customer, is stunned by and livid at the news. It's one more injustice in a proceeding that has been marked by delays, lack of communication, and excuses that seem more fiction than fact. "This is beyond belief," Desai said. "Not only can't they find our missing $1.2B, but they will now get paid a bonus? What is happening to this country and our system?"

In this, Desai has some powerful allies. All members of the Senate Agriculture, Nutrition and Forestry Committee signed a statement urging Freeh "not to award bonuses to top executives 'who should be held accountable for the failure of their company.'" Sen. Chuck Grassley, R-Iowa, expressed concerns about the legality of employee bonuses during bankruptcy hearings.

To date, no charges have been filed against MF Global executives, and customers repeatedly call for former Goldman Sachs (NYS: GS) -turned MF Global CEO Jon Corzine's head. In response to my asking my Twitter followers if they think MF Global executives should get a bonus, most said the executives should receive a reduced sentence for helping locate the missing funds, but shouldn't receive bonuses. It's a telling response; those who have watched the collapse are still waiting for charges to be filed.

Amid the outrage, or, some cynics might say, because of it, trustee James Giddens announced that $685 million more will be distributed to customers, pending approval from the bankruptcy judge. However, the funds would only be dispersed once customers accept Giddens' determinations on their claims. Should they object, the funds will be held while the claims are resolved.

Since the astonishing collapse of MF Global, more than money has been taken from these customers. Something has shifted in the way they view the industry and the world around them. That the people who were in charge as customers were essentially robbed of $1.6 billion could be rewarded for their role, and for knowledge they already stated under oath not to have, is beyond imagination.

From the collapse of MF Global to insider trading in Congress to brokers seemingly ripping off customers, we're seeing the same issues over and over again in the financial industry. Whether this move by Freeh is simply misguided or something more sinister, it reeks of the same sort of ineptitude and cronyism that led to MF Global's demise, and the sense that individual investors simply can't win in a system stacked against them.

What do you think? Should MF Global executives receive bonuses? Reduced sentences for cooperation? Prison? Tell me below.

At the time this article was published

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