Corzine’s best defense is an offensive rule

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Jon Corzine | AP

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David Roeder reports on real estate at 6:22 PM. Every Thursday on News- radio 780 and 105.9 FM WBBM. The reports are repeated at 10:22 p.m. Thursday and 7:22 a.m. Sunday

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Updated: January 19, 2012 11:03AM

Oh, the tangled webs they wove at MF Global. Their handiwork at the collapsed futures brokerage has tied up assets for thousands of account holders and hurt the integrity of the Chicago futures markets, damaging a signature industry here.

The craftiness was on display at three congressional hearings held this month, two of which were last week. Let’s be fair: No one has been charged with a crime, not the firm’s ousted chairman and chief executive, Jon Corzine, nor Chief Operating Officer Bradley Abelow, nor Chief Financial Officer Henri Steenkamp.

All have now sworn to Congress that they weren’t involved in improper transfers from customer accounts and don’t know who was. An estimated $1.2 billion has disappeared that a bankruptcy trustee is trying to claw back, and the company’s three top executives profess ignorance. The statements were greeted with open skepticism from congressmen, politicians who are used to whoppers, but they still rendered the whole inquiry impotent. Despite the advantages of subpoena power and investigative staffs, no one on three congressional panels was able to tease much that’s useful from Corzine and his lieutenants.

Their language was precise. Corzine said he never told anyone to “misuse” customer money. Abelow said he couldn’t recall “any conversation about customer funds being used for anything other than their intended purpose.” Steenkamp said he did not “authorize, approve or know of” any such transfers.

But deep in Corzine’s remarks is a clue of what his real argument will be if the matter ever goes to a trial. His secret weapon will be the laxity of the federal regulator that’s supposed to oversee futures trading, the Commodity Futures Trading Commission.

It’s known as Rule 1.25 and until the agency modified it after the MF Global scandal broke, it allowed brokerages to invest customer money in debt of foreign nations, the kind of bet that Corzine made.

A year ago, the CFTC thought about eliminating that loophole. It’s a great irony of the Washington insider game that Corzine and MF Global went on record as asking that the loophole be maintained in the name of padding profits.

Another irony: CME Group (CME), the exchange operator whose own behavior in this episode is under scrutiny, expressed the same view. It’s a profit-making company that has auditing responsibility for its customers, and MF Global was among its biggest.

CME has said the brokerage deceived its auditors, breaking federal law. But what incentive did it have to be tough? The triumvirate here — brokerage, regulator, exchanges — is too cozy. Market virtue is expensive, and Congress must decide if the futures industry needs to be taxed for protection from itself.

In the meantime, traders will wonder if Corzine et al. will ever spend a night in prison. On that score, his investments may already be paying dividends.

CLASH OF THE TITANS: It’s not exactly Coke vs. Pepsi or Ford vs. Chevy, but insurance analysts at William Blair & Co. published updates on their outlooks for Aon (AON) and Willis Group Holdings (WSH), the two insurance brokerages with large Chicago operations, and each with their name affixed to one of our skyscrapers. Which one is the better investment?

The Blair analysts apply a bullish “outperform” rating to both stocks. Willis results tend to bounce around more, but Aon shares are cheaper on a price-earnings basis. Aon trades at a trailing price earnings ratio of 16.52, vs. 23.83 for Willis.

Willis shares have advanced more the last couple of years. The Blair team likes its global presence, but that also means trouble could loom from Europe.

Between the two, I’d call Aon the better stock. Blair’s Adam Klauber, John Thomas and Chris Leikhim wrote that its cheap valuation and future gains from its acquisition of the Hewitt consulting firm provide “plenty of upside if the company can meet reduced expectations.”

TRADING ON SMARTS: CBOE Holdings (CBOE), owner of the Chicago Board Options Exchange, said it invested in the Intellectual Property Exchange International, or IPXI, which hopes to be the first financial exchange based in intellectual property.

IPXI is an offshoot of Chicago-based Ocean Tomo, which is a merchant bank advising companies on the value of their patents.

IPXI plans to offer standardized contracts on patents in 2012. The company said CBOE and Koninklijke Philips Electronics (PHG) were among investors providing $10 million in seed money.

CLOSING QUOTE: “I equate the U.S. equities market going forward as being in the best house on a bad block.” — Susan Schmidt, managing director, Mesirow Financial, making the case that U.S. stocks look attractive for 2012 because everything else looks awful.