Dude, you lost my 1.2 billion!

Dude, you lost my 1.2 billion!

It appears the previous title of our blog entry, which was “Dude, where’s my $1.2 billion?,” is no longer apt. The Journal recently reported in Money From MF Global Feared Gone that the $1.2 billion has been lost and will not be found. So we have aptly changed our tune in this blog entry’s title. In addition, we have a new main character in the debacle in addition to Mr. Corzine, and that is former FBI director Mr. Louis Freeh. He recently claimed attorney-client privilege to shield the gaze by the Commodities Futures Trading Commission (“CFTC”) into MF Global’s affairs. Can he do that? Probably so.

Of course, separate and apart from the suspicions that the claim of privilege raises under these circumstances, there is also the question as to its legitimacy. Whether it is not legitimate really depends on the circumstances, the contours of which we don’t know at this point.

In the garden variety case, the privilege applies to protect private communications between an attorney and a client in the rendering of legal advise. So if Jack the Ripper tells Clarence Darrow, his lawyer, in private about murders Mr. Ripper previously committed and wants to know how to best defend himself in the court of law, that conversation is protected. It is still protected if Mr. Darrow’s paralegal or other advisor he hired is present. If, however, Mr. Ripper tells Mr. Darrow about a murder he is in the process of committing or is about to commit, then Mr. Darrow could tell authorities to prevent the harm.

In this case, Mr. Freeh is not a lawyer but he may have been assisting MF’s lawyers in the investigation, and so the privilege could still apply. We don’t know if the $1.2 billion has in fact been lost or is in the process of getting lost. If the money is currently being absconded, then Mr. Freeh — or one of his assistants — could divulge the protected conversation under some state’s ethical rules, but not others. For example, in California, there would need to be the threat of serious bodily harm in order for Mr. Freeh to have the option, whereas in New York it is enough for the client to have the intent to commit a crime, even if there is no bodily harm. Of course, if the money is already gone, then Mr. Freeh may not divulge the information.

Regardless if the CFTC is able to have any luck overcoming the attorney-client privilege here, there have been several class actions filed by sophisticated class action firms against MF Global. These firms employ forensic accountants who can find things out about the money even without Mr. Freeh’s assistance. In the end, we may eventually see if there is an answer to our original question: “Dude, where’s my $1.2 billion?” We hope so.