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Category Archives: MF Global

MF Global Customers to Get More Money Back?

Customers of MF Global could have reason to believe they’ll get more of their money back from the collapsed broker/dealer. James Giddens, the trustee in charge of the firm’s liquidation, is asking a bankruptcy court to distribute another $685 million to MF Global customers.

As reported March 15 by Bloomberg, Giddens wants commodity customers who traded futures on foreign exchanges to receive payments about $50 million, while some $600 million is slated for customers who traded on U.S. exchanges. Holders of physical assets like precious metals are in line to get about $35 million.

Each of the distributions requires a judge’s approval.

MF Global Holdings Ltd., the broker’s parent company, filed for bankruptcy protection on Oct. 31. At the time, it had debt totaling nearly $41 billion after making $6.3 billion in risky trades on European sovereign debt and other assets and getting margin calls. Reports later came to light that as much as $1.2 billion was in missing in client money and that the company’s leverage ratio was an astonishing 38-to-1.

So far MF Global clients have received about 72% of their money following the company’s derailment on Oct. 31. The new distributions, however, would increase that percentage, giving customers who traded on U.S.exchanges about 80% of their claims paid. For customers who traded on foreign exchanges, the amount is less than 10%.

MF Global’s former CEO Jon Corzine has come under fire following his firm’s implosion. Corzine came to MF Global in March 2010 shortly after the firm faced a scandal involving a trader making unauthorized bets. Earlier this month, Corzine testified at a congressional hearing on his firm’s collapse but offered little insight into the millions of dollars in missing customer funds.

 

 

 

Regulation 1.25: The Undoing of MF Global?

The headline says it all: “Purgatory For MF Global Customers.” The story, appearing Nov. 16 in the Wall Street Journal, highlights the aftermath of MF Global’s bankruptcy filing and the consequences now facing MF Global clients.

MF Global filed for Chapter 11 bankruptcy on Oct. 31. More than two weeks later, some 33,000 customers are unable to access their money – “stuck in a sort of purgatory.” And it’s possible that customers may never get all of their money back.

“My entire business has come to a halt,” said Andrew Gochberg in the Wall Street Journal article. “I’m angry and I no longer have any confidence in our system.”

Gochberg had more than more than $1 million with MF Global – in what he and thousands of other investors thought were safe, protected accounts and accounts kept separate from MF Global’s own money.

But that apparently didn’t happen. After MF Global filed for bankruptcy protection, regulators discovered more than $600 million missing in customer money.

How did it happen? That’s the $64,000 – or, in MF Global’s case, the $600 million-dollar – question. It may have something to do with a little known finance rule called Regulation 1.25. Before 2000, the rule allowed futures brokers to take money from their customers’ accounts and invest that money in approved, relatively safe securities with high liquidity.

But, as reported in a Nov. 16 story by Bloomberg, things changed in December 2000 when the Commodities Futures Trading Commission amended Regulation 1.25. Now investments were permitted in “general obligations issued by any enterprise sponsored by the United States, bank certificates of deposit, commercial paper, corporate notes, general obligations of a sovereign nation, and interests in money market mutual funds.” In short, riskier investments were now allowed under Regulation 1.25.

More changes came in February 2004 and May 2005, with Regulation 1.25 amended even further so that firms like MF Global could do “internal repos” of customers’ deposits – i.e. take money from customer accounts and invest that money in the short term in a variety of high-risk securities.

And that, of course, ultimately led to the undoing of MF Global and the beginning of a financial nightmare for its clients.

MF Global Clients Unable to Get Their Cash

The meltdown of MF Global has left countless investors out in the cold, unable to access their now-frozen accounts.

As of Oct. 31, when MF Global’s parent company – MF Global Holdings – filed for bankruptcy protection, more than 150,000 customer accounts were frozen. The sudden turn of events occurred after MF Global announced it had lost money on a number of bad bets related to derivatives contracts.

The Commodity Futures Trading Commission is continuing its investigation into the collapsed brokerage, after discovering that some $600 million was missing in accounts held by MF Global clients.

On Friday, Nov. 11, MF Global laid off 1,066 employees, keeping only a skeleton staff to help with the dissolution of its business. Employees were notified of the layoffs in town hall meetings at MF Global’s offices in Manhattan and in Chicago, according to the New York Times. Jon Corzine, MF Global’s former CEO, announced his resignation earlier this week.

The MF Global bankruptcy is the eighth-largest bankruptcy ever.

Meanwhile, a federal statute designed to protect customers of failed brokerages may not be able to help MF Global’s commodities customers if the trustee in the case – James W. Giddens – is unable to locate the $600 million in missing customer money.

That leaves more questions for MF Global clients – and fears they may never see their money again.

Battle Royale: MF Global, J.P. Morgan

J.P. Morgan Chase & Co. and MF Global Holdings once were tight knit business associates; now the two entities are butting heads as regulators search for answers in the case of the $600 million missing from MF Global client accounts.

The discovery of the missing client funds effectively put an end to a potential deal to sell MF Global to Interactive Brokers Group. Instead, MF Global filed for bankruptcy protection last week.

As a result, MF customers are now finding themselves in an unforeseen situation. As reported Nov. 8 by the Wall Street Journal, Ken Morrison is one of many MF Global customers unable to withdraw any cash from his account. Morrison doesn’t know how much he will eventually get back, or when, according to the WSJ article.

But it isn’t just Morrison’s cash at stake, it’s also his trading. Morrison’s account was one of 17,000 accounts that were moved to rivals of MF Global, but the trustee liquidating the MF Global has retained $1 billion in those accounts for the time being to pay any potential claims. On Nov. 7, Morrison had to sell corn and wheat trades in order to come up with the cash necessary to back up his remaining trades, the Wall Street Journal says.

Meanwhile, MF Global says J.P. Morgan dragged its feet when it came to settling trades made by MF Global during the time it tried sell various assets. Execs at MF Global believe the supposed slow-down complicated the company’s efforts to find a buyer and may have even caused the $600 million gap in customer accounts.

Customers to MF Global: Where’s The Money?

MF Global, which bills itself as a “leading cash and derivatives broker/dealer,” is now the subject of a federal investigation after regulators discovered hundreds of millions of dollars in customer money allegedly missing from the company. The story was first reported on Oct. 31 by the New York Times.

According to the article, the missing money came to light just as MF Global was preparing to sell a major stake of its firm to a rival brokerage. Instead, the deal went south, and MF Global filed for bankruptcy.

Among other things, regulators want to know whether MF Global diverted some customer funds to support its own high-risk trades.

MF Global is run by Jon S. Corzine, a former governor and senator from New Jersey. On Friday, Nov. 4, Corzine resigned from his CEO post.

The investigation into the unaccounted-for cash is in its earliest stages. Several reports put the missing cash between $700 to $950 million. In any case, the situation is troubling to say the least.

On Nov. 4, the New York Times’ Deal Book blog writes that “months before MF Global teetered on the brink, federal regulators were seeking to rein in the types of risky trades that contributed to the firm’s collapse. But they faced opposition from an influential opponent: Jon S. Corzine, the head of the then little-known brokerage firm. … While other financial firms employed teams of lobbyists to fight the new regulation, MF Global’s chief executive in meetings over the last year personally pressed regulators to halt their plans.

And now, remaining members of the MF Global’s board are apparently under close scrutiny by regulators and angry former customers. Also, as the Wall Street Journal’s Bankruptcy Beat blog reports, “the trustee overseeing the liquidation of MF Global’s brokerage business is subpoenaing the company’s top brass, including Corzine, in connection with a wide-ranging probe [of the] broker/dealer’s collapse.”


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