MF Global: Many Steps Before Money Can Be Returned To Customers

(Nick Brown) - There is still a lot of work to do before hundreds of millions of dollars can be returned to customers of bankrupt MF Global (MFGLQ.PK), the woman leading the Commodity Futures Trading Commission's investigation said on Friday.

CFTC Commissioner Jill Sommers, who heads up one of several probes of a massive shortfall in money that was supposed to be segregated for MF Global customers, said in a statement that "dozens of auditors, investigators and attorneys" are continuing to work on the case.

But "subsequent transfers of those funds are currently being traced, and there is still a lot of work to do" before the CFTC will be in a position to identify the exact source of the shortfall and work to pay back customers, Sommers said.

Most customers have already been paid back about 72 percent

of the value of their accounts.

Sommers' statement came two days after she said the CFTC's investigation was "far enough along the trail" to be able to determine where customer money went.

"We certainly don't want to lead anyone to believe we don't know what happened," Sommers, a Republican commissioner, told Reuters on Wednesday. "We do know, and we see where all the transactions went."

At the time, Sommers said investigators were trying to determine which of the customer transfers were valid and which were illegitimate.

MF Global filed for bankruptcy on October 31 after it was forced to reveal that it had made a $6.3 billion bet on European sovereign debt, spooking investors and customers.

Regulators and others probing MF Global say a huge chunk of segregated customer funds is missing, but they cannot agree on the amount. James Giddens, the court-appointed trustee liquidating the brokerage, has estimated the shortfall at $1.2 billion. Earlier estimates by other regulators pegged it at $600 million, while CME Group, MF Global's front-line regulator, has put it at between $700 million and $900 million.

MF Global's former CEO, ex-New Jersey Governor Jon Corzine, resigned on November 4. In three days of testimony before three separate Congressional panels, he has said he does not know what happened to the missing money. CME has said the firm misused customer funds as it faced a liquidity crisis.

CME Executive Chairman Terrence Duffy testified to Congress that a CME auditor participated in a phone call during which an MF Global employee indicated that Corzine knew the firm used customer money to lend $175 million to its European affiliate.

CFTC Commissioner Bart Chilton on Friday said his agency should work with Congress to develop an insurance fund for customer losses and should alter rules to keep customer funds from being invested in foreign debt.

"There are other steps that may be considered as well ... such as full segregation - both for futures and for swaps - in the case of insolvencies," Chilton, a Democrat, said in a statement.

Sommers added in her statement that if MF's brokerage transferred customer money to the MF parent in bankruptcy, customers ought to be able to recover funds from the parent.

The brokerage liquidation is In re MF Global Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 11-2790.

The parent company's bankruptcy is In Re MF Global Holdings Ltd, in the same court, No. 11-15059.

(Additional reporting by Christopher Doering; Editing by Gary Hill)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[castlemike]

01:50 PM on 12/18/2011

Good points:

http://jessescrossroadscafe.blogspot.com/

In an oligarchy, private ownership is merely a concept, subject to interpretation and confiscation.

Although the details and the individual perpetrators are yet to be disclosed, what is now painfully clear is that the CFTC and CME regulated futures system is defaulting on its obligations.

This did not even happen in the big failures like Lehman and Bear Sterns in which the customer accounts were kept whole and transferred before the liquidation process.

Obviously holding unallocated gold and silver in a fractional reserve scheme is subject to much more counterparty risk than many might have previously admitted.

If a major bullion bank were to declare bankruptcy or a major exchange a default, how would it affect you?

Do you think your property claims would be protected based on what you have seen this year?

The customer money and bullion assets are not lost, or rehypothecated or anything else. This is a pseudo-legal fig leaf, a convenient rationalization.

The customer assets were stolen, and given to at least one major financial institution by MF Global to satisfy an 11th hour margin call in the week of their bankruptcy, even as MF Global was paying bonuses to its London employees.

And in an absolutely classic Wall Street move, they are still charging the customers storage fees on the bullion which they have misappropriated from them. lol.

[Chubbster]

09:42 AM on 12/18/2011

Why don’t we try Chinese style securities regulation?

"Former stock trader, Yang Yanming, was recently executed by lethal injection for embezzling $9.52 million from Galaxy Securities during 1997 to 2003."

[mrcontinental]

04:22 AM on 12/18/2011

Is it your money if you cannot get to it? Sort of reminds me of how a 401(k) is your money even though you can't get to it until they say you can.

[spinotter11]

11:04 AM on 12/19/2011

In the 401(k) case, you agreed to the rule while setting up your account, which is not true here.

[McKibbinUSA]

08:39 PM on 12/17/2011

Everyone knows that client accounts at investment firms are reconciled using "fuzzy" accounting techniques based on behavioral finance -- many factors go into decisions about how much money are held in customer accounts other than numbers -- for example, if the markets "look" inspiring, then older part of the customers money need be held in custodial accounts -- investment firms abandoned generally accepted accounting practices in recent years for many reasons -- these decision were made by experts who use imaginative accounting methods based on metaphysics, rather than standard accounting -- in the end, it's all good...

[Chubbster]

09:42 AM on 12/18/2011

You must be a professional at disinformation.

[Janzee12000]

05:47 PM on 12/17/2011

*Thinking outloud* Noooow, what's the best way to rob a bank?

[aynrandfan2012]

05:42 PM on 12/17/2011

The rich businessman who couldnt profit by hard work and merit,in a Capitalist System........turned to government for regulations

[aynrandfan2012]

05:40 PM on 12/17/2011

This is how Socialism tranfers money from the middle class....to the rich......normally.....they dont get caught

[taurus58]

05:24 PM on 12/17/2011

step 1 : Throw Corzine in prison

[Bunny007]

05:15 PM on 12/17/2011

JP Morgan Crashed MF Global to Avert COMEX Failure, European Derivatives Implosion

We had a COMEX system failure in November. COMEX was ready to default on gold and silver in November. Rather than honor delivery demands in gold and silver- JP Morgan simply stole the money in the accounts that were going to stand for delivery. They had their pockets picked while they were standing in line at the delivery window. Notices of delivery were replaced at stolen accounts!

JP Morgan averted both a COMEX default and a European sovereign debt implosion, and notice that JP Morgan increased the amount of silver in their registered vaults by precisely the amount that was supposed to be delivered!

This is just another financial 9/11, and THERE WILL BE MORE

If JP Morgan can steal 140,000 futures accounts, what's to stop 250,000 MUTUAL FUND ACCOUNTS FROM BEING STOLEN!?!

The Fed was staring at 20 Lehmans in Europe!! 20 Lehmans almost happened, and the fed rushed in, lowered interest rates for banks. If there is another big implosion and there is another string of contagion and big banks are dead in the morning, don't expect there to be any money in the accounts in the morning.

I think we're going to see SEVERAL MILLION PRIVATE ACCOUNTS VANISH!

[Bunny007]

05:05 PM on 12/17/2011

Meee thinks Mr. Jamie Dimon knows very well where this $$$$ is---

[Bunny007]

05:02 PM on 12/17/2011

GET TO THE TRUTH--

As we began discussing the MF Global collapse, Jim articulated his belief in a financial slight-of hand originating from “notice to deliver” requests for gold and silver submitted through MF before the collapse, which had the potential to cause a Comex delivery default. “Comex was ready to default on gold and silver in November, and rather than honor the notices for delivery, JP Morgan stole the funds in the accounts that were calling for delivery…notices for delivery were replaced by stolen accounts.” The evidence of this according to Jim is that, “JPM increased the amount of silver in their registered vaults by precisely the amount that was suppose to be delivered…JPM effectively averted both a Comex default and a European Sovereign Debt implosion.”
Before closing Jim provided a stark warning, saying, “Several million private accounts may vanish–Brokerage accounts, Pension funds, Mutual funds, they’re all at risk. We are getting into the middle stages of implosion, where I believe the public will not wake up until at least one million private accounts are stolen, and completely vanish.“
This was a truly sobering interview, and given the real losses borne by MF Global account holders in the past month, Jim’s comments cannot be taken lightly.

[jcaunter]

03:14 PM on 12/17/2011

What an amazingly optimistic headline and clueless regulator. If in fact the customers money was funneled to Europe and pledged as collateral to buy leveraged Greek bonds, then said customers will be lucky to see any of their money back.

Lesson to take away: flee. Flee now while you can, or become the next example.

[when will it end]

12:53 PM on 12/17/2011

How come Obama's friend and fundraiser, Corzine, has not been indicted yet? A crime has been committed.

[jcaunter]

03:11 PM on 12/17/2011

Well--it's not because he's Obama's friend! As a rule, Obama has avoided prosecuting *any* Wall Street white collar criminals. Corzine is just one of the club.

[moutonnoir]

04:48 PM on 12/17/2011

Corzine dosent know where the money is.. OK?

(JK.. I hope he rots)