MF Global trustee: Hopes dim for full retrieval of lost funds

By Sara Wyant

© Copyright Agri-Pulse Communications, Inc.

WASHINGTON, February 8, 2012 -The trustee for the liquidation of MF Global Inc. reported dim hopes for retrieving the remaining customer funds lost in the broker-dealer's collapse last fall. Trustee James Giddens distributed almost $4 billion to former MF Global Inc. customers in three bulk transfers, but it is estimated that a total of $1.2 billion in customer funds went missing in the bankruptcy.

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“It is not known at this time when the Trustee will be legally able to make additional distributions,” Giddens reported in his preliminary report on the progress of the investigation yesterday.

The investigation determined that MF Global had a shortfall in commodities customer segregated funds beginning on Wednesday, Oct. 26, 2011, and that the shortfall continued to grow until the bankruptcy filing on Monday, Oct. 31, 2011.

“The Trustee's investigation has revealed that, while personnel may not have been immediately aware of it, MF Global Inc. experienced a shortfall in 4(d) customer funds beginning during the day on Wednesday, October 26,” the preliminary report said.

Investigators are still tracing more than $105 billion in cash transactions made through MF Global Inc. in the last week before the bankruptcy. More than $100 billion in securities transactions were also made during its final week. The ultimate recipients of these transfers included banks, exchanges and clearing houses, MF Global Inc. affiliates, counterparties, and customers of the futures commission merchant and the broker-dealer.

According to yesterday's report, the investigators found that funds exceeding the segregation requirements in the commodities segregated accounts were used to fund other daily activities of MF Global. The failing broker-dealer continued to use much larger amounts, “apparently with the assumption that funds would be restored by the end of the day.” This continued until the shortfall in customer accounts and bankruptcy. 

Giddens reported that the investigation is continuing to determine how to pursue any possible recoveries and if legal ramifications are available to support claims against MF Global affiliates.

“For three months our investigative team has worked to understand what happened during the final days of MF Global when cash and related securities movements were not always accurately and promptly recorded due to the chaotic situation and the complexity of the transactions,” Giddens said.

He added that investigators “will analyze where the property wired out of bank accounts established to hold segregated and secured property ultimately ended up.”

“We will then determine whether there is a sound and legal basis for recoveries against third parties that will help make customers whole,” he said. 

Three days before the Trustee's update, CME Group Inc. announced the launch of a $100 million Family Farmer and Rancher Protection Fund. The fund, “designed to rebuild market confidence after the collapse of MF Global,” will provide an insurance mechanism for CME futures customers if a similar incident should happen again.

CME Group, one of the agencies responsible for overseeing MF Global's activity, runs the Chicago Mercantile Exchange and the Chicago Board of Trade, the world's largest center for trading agricultural futures contracts. The fund is expected to be in effect by March 1, 2012. Under the fund, farmers and ranchers using CME Group products will be eligible for up to $25,000 per account in the case of losses from the future insolvency of a clearing member and farming and ranching cooperatives will be eligible for up to $100,000 per cooperative.


Original story printed in February 8, 2012 Agri-Pulse Newsletter.

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