Unstructured Finance

MF Global and the rubber check

November 5, 2011

By Matthew Goldstein

With the mystery of the missing $600 million in customer funds at MF Global Financial still unresolved, a lot of customers of the failed futures firm are starting to complain about getting bounced checks.

It appears that 10 days ago, with speculation swirling that the Jon Corzine-led firm would soon file for bankruptcy, a good number of customers started to put in requests to pull their money from the New York-based outfit. But instead of simply wiring that money back to their customers, it seems MF Global tried to buy some time for itself by sending that money back via snail mail in the form of an old-fashioned check.

Those checks cut by the folks at MF Global began arriving in customer mailboxes this week, several days after the firm filed for bankruptcy on Oct. 31 in New York federal court. And by the time customers started depositing those checks, they were rejected as having insufficient funds.

It’s not surprising the MF Global checks were rejected after the bankruptcy filing. It’s pretty customary for all expenses to require court approval once a bankruptcy judge gets involved.

But the move by MF Global to send back customer money by check has left a lot of customers in a bad predicament. I’ve been talking to one futures trader who says he and some of his associates have well over $1 million in bad checks issued by MF Global. Those checks were issued on Oct. 28–three days before the bankruptcy filing. The trader is considering producing a copy of the check as evidence of what he sees as MF Global’s bad faith in dealing with it customers and Wall Street’s broken system for dealing with customer money.

Says my source: “I am totally disgusted with the way the industry has not responded.”

It’s not clear how many MF Global customers got checks that have bounced. But online message boards are filling up with complaints about the situation.

In the end, the issue of bad checks may pale in comparison to the missing $600 million in funds. But it is indicative of just how disorganized things were at MF Global in its waning days as Corzine & Co. raced to find a buyer for the firm.

But there was no savior for MF Global. A potential deal with Interactive Brokers fell apart at the last minute when the issue of the hundreds of millions of dollars in missing money became apparent.

In the wake of Lehman Brothers collapse, its worthless stock certificates and debt notes became something of a collector’s item. Maybe the same will happen for MF Global’s bounced checks.

UPDATE: I highly recommend this story by my colleague Lauren LaCapra on some farmers who have been impacted by MF Global’s fail.

 

 

 

 

Comments
12 comments so far | RSS Comments RSS

What would Guido Do !!

Posted by BigSkyWalker | Report as abusive
 

Did they ask for a wire? Probably not. It is customary to send a check. Every clearing firm sends checks. Another wall street report without a clue about Lasalle Street!! My customers have bounced checks from MF also, but they requested a check. The criminal here on the bounced checks is not MF GLOBAL, it is the SEC, CFTC, and SIPC. They stepped in completely uninformed, inexperienced and unknowledgable about the futures industry it’s capital structure and how it operates. They have made the mess you’re hearing about, not MF. This could have been as orderly as Refco was, but now the Feds have made a complete mess. MF screwed up, you don’t touch customer seg, but could have easily corrected the situation or made a proper live audit accounting given time. They did not have to lock up the customer funds and trades. SEC and CFTC and especially SIPC are the criminals here. I promise you in the end that will be the result.

Posted by TxFire1 | Report as abusive
 

Checks are normal but you know what you sent out so the check register should reflect the checks and they should have been funded. That said no reason to pay when others are also involved and losses are unusual….so the right things happened…..As governor of NJ Corizine does the same with property tax rebates…you pay the full tax and then apply for a check 6 months later you get a check….so in effect you just have to pay your next installment with the check you just got no real rebate just a flim flam scam….no different

Posted by MarkRittmayer | Report as abusive
 

Normally people go to jail or pay or both. I wonder what will happen here. As a private citizen I am sure I will go to jail if I am unable to cover a check over 100 dollars.

Posted by Intriped | Report as abusive
 

I’m sure this will be blamed on a “glitch” in the system and a public apology is all it will take to get the problem rectified…. seems to be the trend these days. This country’s financial system and the people within it are SICK.

Posted by zerotosixty9 | Report as abusive
 

Isn’t writing a rubber check a crime. People go to jail all the time for it. And since the supreme court has said corporations are people, send the whole damn corporation to jail. Book’em Danno.

Posted by estherc | Report as abusive
 

The CME screwed up as well. My prediction is that Corzine will try to blame his criminal behavior on some mid-level manager/lackey and he will probably just get a slap on the wrist by the authorities.

Posted by gruven137 | Report as abusive
 

“Corzine’s behavior on Wall Street, where he returned after losing reelection to Gov. Christie, suggests that he is either a political hypocrite or an unlucky (read stupid) businessman.”
http://www.philly.com/philly/news/133308 518.html
Never mind an apology Corzine, how about #accountabiity?

Posted by StraightTruth | Report as abusive
 

Will MF Global deposit the checks they received? I sent a personal check to deposit in my account. They credited my account (with a hold) on Oct. 31. It has not cleared yet and I can still put a stop payment on it.

Posted by Specl_D_Msngr | Report as abusive
 

I asked for a wire. They claimed to have sent and later advised it did not go through and that they would send a check. I now have a check for sale at 50% discount.

Posted by dogbite | Report as abusive
 

600 plus million was embezzled from client segregated accounts, right under the collective noses of finra, cftc, and cme, which had all been on the case for months if not years.

per sources at cftc enforcement, “regulators and cme knew long before 2011 that mfg’s honor system was woefully inadequate for protecting segregated client accounts.”

additionally, the wsj reported that regulators were ‘dissatisfied’ with mfg’s september securities filing with respect to its $6.3 billion in exposure to the debt of five different european countries.

why then did three federal agencies fail to act until after corzine completed the crime, even though they knew customer accounts were woefully under protected and mfg’s filings were improper?

why did many in the financial press report that regulators acted quickly last weekend to shut down mfg and protect customer accounts even though regulators allowed corzine to walk out the front door with 600 plus million in customer funds?

could corzine have fooled the financial press, kept regulators at bay, raided segregated accounts and escaped the building without co conspirators?

judge glenn or trustee giddens might ask, who other than corzine and a few underlings had the means, motive and opportunity to commit these crimes?

mfg’s bankruptcy filing schedule of creditors sets forth the list of usual suspects.

mfg’s client accounts, encumbered only by the claims of relatively powerless individuals, might just have proved too large a pool of money for these creditors, who were owed billions, to resist. now that their security interests have become hopelessly comingled with client accounts what result do you foresee?

Posted by tjkong2 | Report as abusive
 

We need a TARP to bail out MF Global. It is TBTF. We must make sure none of its executives suffer financially, least charged with anything. That, my friend, is still the American Way!

Posted by TomKi | Report as abusive
 

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