Unstructured Finance

MF Global a month later and still a mystery

November 27, 2011

By Matthew Goldstein

It’s been about a month since MF Global began spiraling towards bankruptcy and still there’s no clarity about what happened to the missing customer money that was supposed to be kept in untouchable, segregated accounts. It’s not even clear how much money is missing.

When the Jon Corzine-led firm filed for bankruptcy on Halloween, it was believed some $900 million in customer money couldn’t be accounted for in MF Global’s segregated accounts maintained at Harris Banks and other institutions. That sum was quickly revised downward to about $600 million. And the number remained at $600 million until the court-appointed liquidation trustee surprised everyone last week by saying more than $1.2 billion in customer money might be missing.

But now even that $1.2 billion figure is in doubt. Officials with the CME quickly questioned the much higher figure and so did other regulators. A law enforcement source tells me federal investigators also doubt the $1.2 billion figure and believe the missing money is still about $600 million.

Still, $600 million is a lot of money and it’s a bit mystifying that regulators and federal investigators have yet to come up with a good working explanation for where the loot went.

At this point it seems pretty clear MF Global–whether intentionally or negligently–was commingling customer money with the firm’s own money. The speculation is that as the firm was careening towards bankruptcy, MF Global dipped into the segregated customer account to cover margin calls on the firm’s own trades and ones it made with customer money. But that’s just educated speculation–not an official working narrative of events.

Maybe some answers will emerge on Dec. 15 when regulators, Corzine and others from MF Global are scheduled to appear on Capitol Hill to testify before a Congressional panel.

Already, the hunt for answers is beginning to look like the post “flash crash” investigation that took regulators months to produce anything close to a satisfactory explanation.

And much is at stake in the MF Global mess because of the way it has shook investor confidence in the futures markets by raising questions about the safety of customer money kept in segregated accounts. Already, many small investors are vowing to stay away from futures trading if they can’t believe the system will protect them in the event of an epic fail.

Let me share some thoughts from from Christine Mella, who says she tried to pull $53,000 out of MF Global, only to get two checks in the mail that bounced when she went to deposit them. Mella said several of her relatives are in a similar situation. And while Mella is glad the court-appointed trustee is going to be able to get back at least 75 percent of the money customers had trapped at MF Global, it’s still not enough.

Here are some thoughts Mella wrote for a letter she has been thinking of sending to the trustee.

For me personally, that money was going to be used for a down payment on a house and to save for my children’s future college education. We were looking forward to moving our family of four out of our small apartment, but I guess that has to be put on hold while we helplessly wait for this so-called “timely” process to happen. Who would ever be willing to trust their money with a firm again if they know that their money is not segregated and not safe like it is supposed to be.

Her sentiments are likely shared by other MF Global investors who are stuck with bounced checks.

 

 

 

 


Comments
7 comments so far | RSS Comments RSS

Are those customer accounts still being looted as we speak? http://english.economicpolicyjournal.com  /2011/11/are-mf-global-customer-funds-b eing.html
The investigation by the CFTC and SEC are likely no more than smokescreens or coverups to make sure what really happened doesn’t see the light of day.

Posted by Mbuna | Report as abusive
 

The United States, in all of its rage and glory, is a pathetic third world country abhorrently missing a Rule of Law and pathetically consumed by corruption from the mafia banks that supersede the interests of the American people.

Posted by ronofoz | Report as abusive
 

Here is more discussion on how those customer accounts are likely continue to be looted with help from the court. http://www.zerohedge.com/contributed/mf- global-looting-can-continue-missing-fund s-and-fees-likely-go-higher-guest-post-m fgfac

Posted by Mbuna | Report as abusive
 

The regulators (Triple ‘A’ rated by S&P) will solve this very difficult issue just as soon as someone steps forward and confesses (i.e., explains it to them).

Posted by KNA180 | Report as abusive
 

Haha! It’s not a mystery at all – this is simple outright THEFT per computer ENTER key with those in charge looking the other way. In the same manner that the “FED” secretly doled out billions of taxpayer money to foreign and domestic banks, MF Global simply confiscated the deposit accounts of its clients – and it will get away with it! The same pathological system in charge of our financial destiny is also in charge of legislation and subsequent investigations of “possible” wrong doing. White collar crime always pays off! Look for the culprits on their own private islands in the Bahamas.

Posted by JMaxwell | Report as abusive
 

A month into this mess and supposedly noone knows where the missing money is. Here’s what that tells me:

1. The Regulators didnt regulate.
2. The Regulators either don’t know how to regulate or their trying to solve the dilemma of “who was watching the chicken coop while the foxes came in”.?
3. The money is long gone.

I wonder how all of this started?

Posted by thefundsareinct | Report as abusive
 

The motto of the futures market: “Your money is safe until it’s not.”

In my opinion the CME has shown that it has no plans to ensure the integrity of its markets…even though they advertised as much; YOUR MONEY IS NOT SAFE IN ANY FUTURES ACCOUNT. PERIOD.

Posted by CMEsucks | Report as abusive
 

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