December 15, 2011; Source: Wall Street Journal | The news that the CME Group is suing former New Jersey senator, former New Jersey governor Jon Corzine isn’t surprising. As CEO of the bankrupt MF Global Holdings, Corzine can’t seem to explain what happened to $1.2 billion (and possibly more) in investors’ money. It is kind of hard to imagine no one knows where the money went, but the CME Group is one of several investors aiming to see if Corzine somehow remembers what happened to the CME’s money—and that of some 38,000 investors.
In the wake of Bernie Madoff, Tom Petters, R. Allen Stanford, and other investment scandals, an investment scandal of the size of Corzine’s was destined to impact nonprofits, either because charities invested with MF Global or because wealthy donors who typically gave to charity found themselves short on assets in the wake of MF’s bankruptcy and missing moneys. It is a mix of both that has caught charitable giving in the net of the MF Global Holdings scandal.
The charity impact is a little complicated regarding CME. Apparently, CME Group maintained a fund to help compensate its investors who might be impacted by crooked investment schemes. The entire CME Trust—$50 million—was distributed to CME investors to compensate for the mistake of firm’s having invested in MF Global. Until that time, CME also used the Trust for its charitable giving, because broker defaults were so rare that CME was able to convert the Trust into a charitable foundation. Although the Trust gives to charitable organizations annually, in 2008 it created a formal foundation that has been a generous giver in the Chicago area, distributing $6 million last year. Most of the CME giving seems to have been to universities, charter schools, and early childhood education organizations, including the charter school–supporting Renaissance Schools Fund ($3.1 million since 2006), the University of Chicago ($2.5 million), the Erikson Institute ($1.625 million), the Big Shoulders Fund, and the Ounce of Prevention fund. When MF Global filed for bankruptcy with news emerging that Corzine couldn’t account for $1.2 billion, the CME converted the foundation back to its original purpose of compensating investors. Although CME will pay out all pending and current charitable grant commitments, it has announced that it has stopped all future grantmaking for the time being.
It is virtually impossible that a massive bankruptcy like MF Global’s would somehow leave charities unaffected, even without a missing $1.2 billion. MF Global is the nation’s eighth largest bankruptcy ever, citing debts of $39.7 billion and assets of $41 billion. The bankruptcy was prompted in part by huge losses due to the investment of $6 billion in the sovereign debt of the European countries involved in the recent economic free-fall.
Collapses like MF Global’s capture the nation’s smartest investors as well as regular people. CME, the entity that manages the Chicago Board of Trade, the Chicago Mercantile Exchange, and the New York Mercantile Exchange, consists of investment experts who just lost their shirts to Corzine. Unfortunately, when investment experts lose their shirts, charities lose critical grant support. Watch for more than CME to come to the surface as the MF Global Holdings scandal evolves.—Rick Cohen